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Courts and the changing environmental approval process

Alejandra Precht

Senior associate/Ferrada Nehme

Published  Friday, October 16, 2009

Earlier this year, Chile's supreme court sent shockwaves through the country's power industry when it revoked the environmental approval for the US$500mn Campiche coal-fired plant being developed by Chilean generator AES Gener because of a zoning dispute.

The company had obtained environmental approval but was forced to stop construction works that had already begun.

The court's decision prompted Feller and Fitch to place AES Gener's ratings on creditwatch and watch negative list, respectively.

AES Gener responded to a demolition notice for works at its 270MW coal-fired plant in central region V by calling it illegal.

The notice, served by Puchuncaví municipality, accuses Gener of failing to obtain permits for the plant's construction.

Gener, a unit of US power company AES, claims it filed for all the required permits in October 2008 and is currently analyzing how to proceed.

"This is an unjust action, and it makes the situation surrounding the Campiche project worse," AES Gener general manager Felipe Cerón said.

BNamericas spoke with Alejandra Precht, a senior associate with law firm Ferrada Nehme, about the case and its significance for Chile's power industry.

BNamericas: I wanted talk a little about the case with AES Gener and its Campiche plant, which was shut down even after the company obtained environmental approval. Is the regulatory climate changing in Chile? Are companies facing increased challenges?

Precht: No, the regulatory climate has not changed, and neither have environmental standards. Zoning issues have always played a role within the environmental approval process, which is conducted within the administration.

In the case of Campiche, it was a zoning issue. Although environmental authorities decided that the project complied with current zoning regulations, the courts ruled differently. This could have happened in any other country of the world.

Regarding your second question, companies are facing two new scenarios. First, there is an increasing public participation in this kind of process, although it is still small if you compare it with US. Second, this is one of the few cases where the court has modified an administrative decision in the environmental field. This environmental permit process has been traditionally considered by the court within the exclusive authority of the administration and in this sense this case sent a precedent.

BNamericas: But has something like this happened in Chile before. It's a big deal to start construction and then have the project suspended by the court. Shouldn't this have been addressed before the company started construction?

Precht: Regarding Campiche, it is a fact that the court played a more active role in the process. The issue, as you said, is that construction had begun, but until all judicial actions have finished, a project can face a similar situation, but what happened to Campiche is not the general rule.

BNamericas: If the court is beginning to play a more activist role, should other companies be worried? Is obtaining environmental approval going to be enough?

Precht: In Chile, like in any other country, the court will always have the final say, but you have to put the case in context, because here there was a problem related with zoning issues, because they were not clear. And that opened a space for the courts. Companies should begin to pay closer attention to local zoning issues in particular.

BNamericas: So when a company is preparing environmental studies, what should they be thinking about? Could they be doing things better?

Precht: The companies have to understand that environmental legislation is very specialized, and they should make sure they have specialists that are aware of all the regulations. They need to do this on the legal side too.

I'm not aware of the exact reviews that AES Gener did for the Campiche project, but companies need to understand that the environmental review process is fundamental and you have to start thinking about it from day one.

BNamericas: What options does AES Gener have now for Campiche? Is the court's decision final?

Precht: I don't have any special knowledge of the Campiche case. I've just read what's been in the press and read the court's decisions. But from what I understand, the court's decision is final.

BNamericas: But in general, if the court rules one way, does a company have another option?

Precht: It's the same in Chile as anywhere. When the court's decision is final, there are no alternatives but to modify the project or modify the rule, which Campiche is pursuing along with the regional government. But as I said, it's not usual for the courts to intervene. There have been a couple of cases, but that's it. It was usually related with zoning issues. I wouldn't take it out of perspective.

BNamericas: So when a company obtains environmental approval, they should be able to begin construction without too much worry?

Precht: Yes. I'd say so.

BNamericas: Campiche, for instance, was said to be in a green zone. Can any area be designated as a green zone?

Precht: In Chile there are zoning regulations, and within that, there are green zones.

BNamericas: But could municipalities start to designate more areas as green zones because of local opposition to projects? If a company is planning something, could local authorities designate the area as a green zone to fight the project?

Precht: Yes, they can designate more green zones because there is local zoning regulation too. But it's not something they can do fast, there is a process that takes some time. This process also needs an environmental approval.

BNamericas: Does [Chile's environmental regulator] Conama have the capacity to evaluate large projects, such as HidroAysén?

Precht: Conama has the legal attribution given by the 19.300 law. I do not know if it has enough economic resources. Authorities have said they can do it.

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