Summary on the decision issued by the DGIRA

SUMMARY OF THE DECISION ISSUED BY THE ENVIRONMENTAL RISK AND IMPACT GENERAL DIRECTION (DGIRA) REGARDING THE PROJECT “CABO DORADO” The decision which ended the Environmental Impact Assessment Process (PEIA) of the Project “Cabo Dorado” can be found in official letter No. SGPA/DGIRA/DG/04776, dated on the 29 days of May, 2014 in Mexico City. In such official letter, the DGIRA, after carrying out an Environmental Impact Manifestation (MIA) Analysis of the aforementioned project and taking into account the technical opinion of different educational and governmental institutions, decided the following: According to what is set in Article 35, Section III, paragraph a) of the General Ecological and Environmental Protection Law (LGEEP), is hereby DENIED the authorization regarding the Environmental Impact (AIA) of the project “Cabo Dorado” filled by the Company La Rivera Desarrollos BCS, S. de R.L. de C.V., which was intended to be located southwards of the town “La Ribiera”, in an area known as el Rincon, in the municipality of Los Cabos, Baja California Sur, as it does not comply with what is set in Article 13, Sections II-VII of the General Ecological Balance and Environmental Protection Law (REIA), as well as with that what is established in paragraph I of article 30 of the LGEEPA. Hereby is a summary of the observations and comments issued by the DGIRA regarding the sections in the aforementioned official letter:

1. PROJECT DESCRIPTION (Page 22 of the decision) • Sections that conforms the project’s state (pages 23 and 24 of the decision) La Rivera Desarrollos, in its MIA, shows that the Project has 3 sections that conform the project’s estate and which include 5 development phases. On that regard and notwithstanding that the petitioner details 3 sections, there are several sub-sections that refer to 2 more sections (Section IV and V) for which no evidence is provided as there is no detail on the works and activities to be developed in said section and how will they be integrated in the project.

For this specific situation, it is not deemed as irrelevant that the petitioner has 2 more sections to the ones referred to in the MIA, as the petitioner itself links such sections to identification parameters and to hydrological components of the project. As the petitioner does not disclose any information regarding the aforementioned Sections, it is not possible to carry out a comprehensive analysis for the MIA. •

Building Works Chronogram (pages 25 and 26 of the decision)

As the ecosystems are constituted by dynamic elements and any actions to be carried out in such ecosystems there must be a time frame which allows the identification of any possible alteration in the elements that conform the ecosystem. The DGIRA took into consideration the way the company states and conceives the project as it only included the area aspects and excluded the temporary matters (chronological sequence for building the works); therefore, the company underestimated the fact that ecosystems can be modified by external factors during the building works which are projected to last 20 years.

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Preparation, construction, operation and maintenance of the area (page 30 of the decision)

The Project description does not provide technical elements with a basic detail level so as to determine if the impacts mentioned in the MIA are consistent to the characteristics of the building

Works to be carried out and according to their location in the ecosystems identified in the Project.

For instance, the project includes 9 beach accesses and, regarding their dimensions, mentions that they have “15 meters minus the width and up to more than 50 meters of the longest width”.

Nevertheless, although the drawings presented show the location of each access, there is no technical reason for a variation in the width of each access, neither such differences match any specific protection element nor there is a justification for including only 9 beach accesses in a seaside area where there they projected the construction of very large beach front buildings. This aspect is relevant if it is considered that, due to their location, the beach accesses from shore must be planned taking into account the accessibility in case of emergencies and/or environmental contingency.

Likewise, the petitioner presents a generic description of the different building Works and activities that require the construction of each concept that constitutes the Project. Nevertheless, such generality does not allow the analysis of the nature, dimensions and characteristics of the required construction works and activities.

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Aqueduct (page 31 of the decision)

The water to be used by the project is said to come from wells granted under concession in the Santiago aquifer, and according to the MIA presented by the Company, it shall be transported to the project site through an aqueduct of 13.94 km long. Nevertheless, it is important to mention that in other part of the MIA the company mentions that the length of said aqueduct will be 25 km.

On that regard, it is clear there is an inconsistency in the information regarding the dimensions of the aqueduct necessary for transporting the water.

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Water Treatment (page 32 of the decision)

According to the information provided in the MIA, the project includes a water treatment plan with sufficient capacity for serving the maximum treatment volume during the maximum occupancy period, and it has an average spend of 85.5 l/s, equivalent to 2,696,646.36 m3/year.

With regards to what is set hereinbefore, in the opinion of the National Water Commission (CONAGUA), 2 cubic meters per square meter of land will be needed for a project with the dimensions of “Cabo Dorado”, which results in 4,100,000 m3 of treated wastewaters. This implies an spend of 1271 l/s; therefore, the proposed amount and volume of water, taking into account the 40 years life of the project, would be insufficient.

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Water concessions (pages 32 and 33 of the decision)

The estimations made by the company regarding water availability for the project, from its constriction phase until the end of its operation phase are non-consistent with basic variables for the water spend calculation. It is important to highlight that the aspects taken into account for the project imply a static behavior of the water resources and invariability in the water concessions during 40 years. Likewise, the population growth variations that will have an impact in the availability of the resource are not taken into account. This is relevant as the project is located in a geographical areas were server commercial activities are carried out and were the population will grow over time.

For the aforesaid reasons, the DGIRA considered that the estimations of water volumes to be used during the life of the project are inadequate as, in the future, it can cause a pressure on water resources in view of the lack of volumes sufficient to satisfy the needs of the activities proposed by the petitioner.

2. RELATION BETWEEN PLANNING INSTRUMENTS AND THE APPLICABLE LEGAL SYSTEM (page 33 of the decision).

• Marine Ecological Program of the Gulf of California (POEMGC) (pages 34 and 35 of the decision) The Company promoting the Project stated in its MIA that the current legal system is not applicable to the Project as the Works and activities to be carried out are exclusively taking place onshore.

Nevertheless, upon analysis of the MIA, the DGIRA identified that, according to the project description and its location, it includes the Onshore Maritime Federal Area (ZOFEMAT) which is regulated by the POEMGC, as there are construction works such as the construction of 9 public access to beaches located in the ZOFEMAT. Moreover, 9 hotels, single-family residences, 2 beach clubs, 1 wellness center with beach club and golf course are going to be built, and the impact will be accumulative in the region.

Regarding the aforesaid, the DGIRA decided that the aforementioned legal system is, as a matter of fact, applicable as it regulates the ZOFEMAT, and as a result of the works and activities to be carried out in the different phases of the project, it an indirect impact in the marine area and a direct one in the area regulated by the POEMGC. •

Ecological Program of the Municipality of Los Cabos, Baja California Sur. (POELMC) (pages 35 and 44 of the decision)

According to the DEGIRA analysis and regarding the relevance of this instrument, it was detected that the petitioner omited the following ecological criteria applicable to more tan one Environmental Management Unit (UGA) where the Project is located: Environmental Management Unit (UGA)

Ecological Criteria

UGA T-13

C5, C10, D4, D8, F1, F2, F3, H1, H2, H3, H4, H5, H6, H7, and UGA T -14 C4, C5, K11.

C6, C10, C12, D1, D4, D8, D9, F1, F2, F3, F5, F6, F7, K12, UGA T-19 B3, C11,H2, D3,H7,D4, D5,K13, D7, K14, D8, K15, K16, K17, K18.

H1, H2, H3, H4, H5, H6, H7.

Furthermore, the petitioner lacks the necessary arguments to establish that meets the A1, C5, F5, I10, I14 and I18 criteria included in its MIA. •

Decree which declared as protected natural area with the character of National Marine Park the area known as Cabo Pulmo (pages 43-44 of the decision).

Regarding this instrument: the petitioner stated that the project is located outside the area declared as Natural Protected Area (ANP), and therefore it is not binding of the use of land, development potential and works and activities proposed by the “Cabo Dorado” project.

Nevertheless, upon analysis of the MIA and the location of the project, the DGIRA determined that the decree and Management Program apply to the project as the works and activities are located within the influence area of said ANP. On that regard, the petitioner did not present an analysis of the applicable ecological criteria of the UGA T-14 and T-19 of the POELMC; therefore, the DGIRA determined that the petitioner does not demonstrate consistency of the project with the ANP Decree and its Management Program.

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Mexican Official Standard NOM-059-SEMARNAT-2010 (Page 44 of the decision)

The petitioner, in the MIA, only mentioned that during the characterization tasks of the Project site the Standard was applied so as to classify the species identified in the estate and mentioned mitigation strategies for its protection.

After the analysis carried out by the DGIRA it was noted that the petitioner did not show the list of species identified in the NOM-059-SEMARNAT-2010 as part of the existing species in the estateand the marine and terrestrial Regional Environmental Systems (SAR).

3. DESCRIPTION OF THE REGIONAL ENVIRONMENTAL SYSTEM (SAR) AND SIGNALS OF DEVELOPMENT AND DETERIORATION TRENDS IN THE REGION (Pages 45 and 49 of the decision).

According to Article 13, Section IV, of the REIA, the MIA must contain a description of the SAR and the signals of development and deterioration trends of the region.

Derived from the analysis by the DGIRA, the latter concluded that the information analysis structure submitted by the petitioner in the MIA regarding biotic components has no technical basis so as to assess environmental elements such as the hydrology and terrestrial flora and fauna that will be directly affected by the project in an ecosystem context; that is, to highlight their importance and function in the area, which is essential to assess the impact of the project on the functional integrity and existence in the SAR where the project will take place.

4. IDENTIFICATION, DESCRIPTION AND ASSESSMENT OF THE ACCUMULATIVE AND RESIDUAL ENVIRONMENTAL IMPACTS OF THE SAR (Page 49 of the decision).

This section is where the petitioner must focus its analysis to decision criteria so as to assess the possible effects of the works and activities to be carried out in the concerned ecosystem(s), while taking into account the set of elements that make them up as well as proving that the use of natural resources will respect the functional integrity and load capacity of said ecosystems.

From the analysis of the information presented in the MIA, the DGIRA observed the following: •

Methodology (pages 50-52 of the decision)

The petitioner did not substantiate the technical basis of the methodology used, nor clarified the interaction concept used in several of the tables where is shown a connection between the surface of the estate and the aqueduct to the different environmental elements. Moreover, the petitioner also failed to mention which criteria was used to determine that the project does not interfere with the ANP of Sierra Laguna and Cabo Pulmo.

On the other hand, the petitioner did not explained the difference that might exist between the different sites and the water bodies grouped in the soil science component and between the urban area and the water bodies grouped in the vegetation and land use component.

Based on the above mentioned observations, the Index of Environmental Amplitude (IAA) lacks technical grounds as it was applied according to the interactions listed in the aforementioned tables, thus making it non-reliable for the identification of environmental impacts.

Lastly, the impacts identified in the project with regards to the SAR, then natural environment and the project elements did not justify nor methodologically justify the analysis used for identifying

environmental impacts. Similarly, the residual impacts were not correctly identified. •

Identified Impacts (pages 52 and 53 of the decision). a) Regarding the environmental impacts of the project to the SAR: There is no clear o technically justified reasoning in the description of the identified environmental impacts; they are only enlisted without the corresponding technical support. b) Regarding the environmental impacts of the project to the natural environment: There are inconsistencies in the information regarding the amount of impacts found, the number described, the technical arguments used for the description lack a correct technical analysis and special ecological studies for the correct identification of environmental impacts were not carried out. c) Regarding the environmental impacts of the project elements to the natural environment: There are inconsistencies in the information when comparing the amount of impacts found and the impacts described, special ecological studies were not carried out nor environmental indexes were applied to describe the possible negative impacts on the natural environment. • Failure to identify environmental impacts (pages 53 and 54) The petitioner failed to identify, describe and assess several environmental impacts that the project could cause either directly or indirectly, such as: impacts to the marine environment, specifically the ANP of Cabo Pulmo, due to eutrophication processes; pollution of Cabo Pulmo reef due to the chemicals used in the gulp course and the green areas, increase of the salt wedge of Santiago aquifer, due to the extraction of the water supply for the project.

5. STRATEGIES FOR PREVENTING AND MITIGATING ACCUMULATIVE ENVIRONMENTAL IMPACTS OF SAR (Pages 54 and 55 of the decision).

AND

RESIDUAL

It is considered that due to the inconsistencies and lack of technical support in the SAR description and in the identification, description and assessment of accumulative and residual environmental impacts, the preventive and mitigation measures presented in the MIA does not match the environmental impact level that will be generated by the project.

Likewise, the DGIRA considered that the strategies for preventing and mitigating the accumulative and residual environmental impacts were presented in a way that lacks technical support that shows that they application will prevent, control, minimize and/or compensate the environmental impact levels caused by the project development.

6.

REGIONAL ENVIRONMENTAL FORECAST AND EVALUATION OF ALTERNATIVES, IF ANY (Page 55 of the decision)

The analysis carried out by the DGIRA identified that the petitioner failed to analyze the future scenario for the project, take into account the forecasts of periods of drought due to climate change and a decrease in water availability in the aquifers, since the current conditions of such aquifers could be drastically modified in the future.

Moreover, the petitioner failed to present a future scenario that takes into account the project repercussions on the eutrophication and pollution of Cabo Pulmo reef.

7. INFORMATION REGARDING THE DECISIONS OBTAINED (Pages 56-64 of the decision).

The analysis carried out by the DGIRA and issued by official letter including the decision made on the project called “Cabo Dorado” was carried out with the support of technical opinions emitted by various academic and governmental institutions, such as: the Centre for Scientific Research and Higher Education of Ensenada Baja California (CICESE), the Directorate General of the Federal Maritime Zone and Coastal Environments (ZOFEMATAC), the Department of Urban Planning, Infrastructure and Environment of the State of Baja California Sur, the Ministry of Economic Fostering and Development, the Directorate General of Environmental Policies and Regional and Sectorial Integration (DGPAIRS), the National Commission for the Knowledge and Use of Biodiversity (CONABIO), the Institute of Ecology of UNAM, the National Commission for Natural Protected Areas (CONANP) and the National Water Commission (CONAGUA).

On that regard, it is important to note that the decision made by the DGIRA regarding “Cabo Dorado” was taking into account the reviews of the aforementioned institutions.

8. LEGAL TECHNICAL ANALYSIS BY THE DGIRA (Pages 64-67 of the decision) Once assessed the works and activities of the project and their correlation with the applicable legal provisions, it is considered that the set of elements that make up the ecosystems in the construction, operation and development areas of the project, and not only the natural resources affected, are jeopardized. Likewise, the inconsistencies in the information presented by the petitioner coupled to elements referring only to the area and the economic investment, does not consistently justify the negative impacts that the environmental system will suffer in time-space aspects.

On that regard, the DGIRA weighed the possible impacts of the works and activities to be carried out in the ecosystem(s) and their elements, well beyond the resources that the petitioner mentioned will be affected. As a result, several inconsistencies in the information were found, which jeopardized the functional integrity and load capacity of the SAR. In that same regard, the petitioner does not provide sufficient technical elements to show that the ecosystems will not be significantly affected by the construction woks and throughout the life of the project; what is more: it presents a poor identification, description, and assessment of cumulative and residual environmental impacts on the SAR. AS a result of the above, the mitigation strategies lack objectivity. Therefore, the DGIRA determined that the future scenario of the project lacks the technical bases that prove that the project will not generate serious ecological imbalances in the SAR.