MEXICO CITY (Reuters) – Residents of a Mexican city on the U.S. border voted against completing a billion-dollar brewery being built by Constellation Brands Inc, the government said Monday, dealing a fresh blow to investor confidence under President Andres Manuel Lopez Obrador.
FILE PHOTO: Bottles of Mexico’s world famous Corona beer speed past a worker in the bottling line of Mexico City’s Modelo brewery May 19, 2004
Lopez Obrador, a leftist, backed the weekend vote in the city of Mexicali on the brewery, which opponents said poses a threat to the local water supply in the desert region. The New York state-based company has repeatedly denied that is the case.
The rejection of the plant, started under the previous government as one of the biggest foreign investments of recent years, has raised more questions about how reliable contractual agreements in Mexico have become under Lopez Obrador.
“They have to respect the decision of the people. I think (the company) will understand when there’s a result like this one,” Lopez Obrador told a regular morning news conference.
The vote follows the demise of a $13 billion Mexico City airport, a partly built project that Lopez Obrador scrapped in October 2018 a few weeks before taking office.
Both cancellations were the result of referendums he had pitched as exercises in local control. Both had low turnouts.
Constellation did not reply to a request for comment. The U.S.-based company previously said it would consider other locations if Mexico became problematic.
Constellation’s shares tumbled 12% on Monday to close just above $105, down from a previous high of $208 on Feb. 20.
Only 36,520 people in Mexicali, a city of 1 million, cast valid votes. Over three-quarters rejected the brewery because they did not want water used for “these types of industries.”
That meant only about 4.6% of Mexicali’s electorate participated, according to employers’ confederation Coparmex, which slammed the process.
“President Lopez Obrador is destroying Mexico,” Coparmex said in a tweet.
Lopez Obrador said his support for the result of the local referendum did not mean his government opposed foreign private investment. He said he planned to discuss an alternative site for the brewery with Constellation (STZ.N).
The results came as the Mexican peso hit a new low, trading at 25 pesos per dollar for the first time ever.
“That may be due to a larger perception of risk in Mexico” connected to the referendum, said Gabriela Siller, head of economic analysis for Mexico City-based Banco Base.
Several Mexican business lobbies blasted the vote, saying it would generate uncertainty and hurt investment at a time when Mexico’s economy is weak and at risk from the coronavirus pandemic.
Only about 1% of Mexico’s electorate participated in the public consultation on the fate of the Mexico City airport.
Constellation, which brews Modelo, Corona and other Mexican beers for export to mostly American drinkers, has countered that the brewery would affect less than 1% of local water supplies, and that the plant had all the requisite permits.
A Mexican government official said under Chapter 14 of the newly ratified United States-Mexico-Canada Agreement, the cancellation could be considered an indirect expropriation if the U.S. government wanted to pursue the matter.
“Surely the U.S. government is directly talking to the Mexican foreign ministry about this,” the person said, speaking on condition of anonymity due to the sensitivity of the matter.
Reporting by David Alire Garcia, Miguel Angel Gutierrez, Noe Torres, Anthony Esposito and Daina Beth Solomon in Mexico City; Editing by Richard Chang, Matthew Lewis and Gerry Doyle