Consultation or Conflict? The Fight for the Future of Natural Resource Investments in Peru
July 3, 2013 | Andrew Miller
Like many counties in Latin America, Peru is betting heavily on natural resource extraction as a key engine of economic growth. Extractive sectors, however, have in recent years become the largest source of social conflicts across the Peruvian countryside. From the Amazon to the Andes, communities are protesting the devastation left by mining and oil projects. Successive governments – both right wing and "progressive" – have readily resorted to repressive measures.
Expanding mining operations in the Peruvian Andes have garnered international attention in the last year, in part because of large-scale protests and violent crackdowns. The epicenter has been the Conga Mine project, run by Colorado-based Newmont Mining Corporation and their Peruvian subsidiary Yanacocha. Plans to destroy four highlands lakes, held sacred by local communities, have sparked over 18 months of protests. On June 17th, a reported four thousand community members mobilized to surround and protect the El Perol Lake, one of the four at risk.
Several statistics, gathered by the government's own human rights ombudsman's office (Defensoría del Pueblo) should be cause for sober reflection by any prospective investor in the country's extractive sector: As of May 2013, there are some 225 officially registered social conflicts around the country. More than half (127) are a result of problematic mining operations (108) or oil projects (19). Over the course of President Humala's term (since mid-2011), the ombudsman's office has documented a total of 28 deaths and 795 injuries as a result of social conflicts. According to Amnesty International, at least seven civilians were killed during mining protests over 2012 in Espinar (Cuzco), Celendín (Cajamarca) and Huaraz (Áncash).
Beyond mining, the oil sector is "set to become a new source of growth" in Peru, according to an 8-page insert distributed through the June 3rd edition of Oil & Gas Journal. The paid advertisement touts Peru's oil potential, favorable investment terms, and government interest in reducing red tape. It features foreign companies, such as Canada's Petrominerales and Gran Tierra, that are expanding their operations in the Peruvian Amazon.
The insert also seeks to assuage investor fears that Peru's Prior Consultation Law is "causing some delays in access to exploration targets." Luis Ortiga Cuneo, head of Perupetro, the state oil licensing agency, is then quoted as stating, "Perupetro is working towards an agreement with indigenous communities under the Law of Prior Consultation. This is being done in such a way to guarantee inclusion in the decision process, which is highly appreciated by the communities and local authorities. Petroleum companies also accept positively all efforts we are making to establish and promote good relationships."
This statement, crafted for international consumption, contrasts with Ortiga Cuneo's recent comments to The Guardian, in which he said, "What we have to do is tell [indigenous communities] what's going to happen, how it's going to happen, and reach an agreement. This is not a question asking them 'yes' or 'no.' Prior consultation is not consultation because, imagine it, it'd be like having one country inside another. It's so they're well-informed and know what's planned." Is this what he has in mind as "inclusion in the decision process?"
Though the Consultation Law was signed into law by President Humala back in 2011 and implementing regulations went into effect April of 2012, no actual consultation has been carried out to date. We will soon see what exactly the authorities have in mind, given the June 11th announcement that consultations are slated for 26 Amazonian oil blocks. The simultaneous process is scheduled to initiate in July and last several months. According to national newspaper El Comercio, the plan is to have these blocks available for auction by the end of 2013.
Storm clouds on the horizon
Before the consultations have even begun, a number of concrete cases are pointing toward a challenging road. Involved are a series of existing oil blocks in the northern Amazonian province of Loreto, around the historic center of oil production within Peru.
Block 1AB (changing to "Block 192"): The source of most of Peru's oil extraction over four decades, the area was recently declared an environmental emergency. The widespread contamination perpetrated initially by Oxy and more recently Pluspetrol has catalyzed a coalition of indigenous federations – spanning Achuar, Quichua, Cocama, and other peoples – to band together. Consultations scheduled to start in April (the current contract expires in 2015) have been postponed, on account of a series of pre-conditions issued by the indigenous coalition: remediation of environmental damages, reparations for social impacts, due compensation for unshared oil royalties and land titling. So far the government is off to a bad start – anticipated land titles for communities have explicitly excluded oil operations from the title. This has infuriated communities, contributing to on-going distrust of the government's intentions.
Block 64: Heading just southwest of Block 1AB is another oil concession with a very different story. Since it was created in 1995, successive oil companies have tried to enter but have been forced out by unrelenting Achuar communities who don't want the same fate as their brothers and sisters across the Pastaza River. Canada's Talisman Energy announced its departure in September of 2012, but has passed the block off to Peru's national oil company, Petroperu. As part of Petroperu's modernization plan, they have taken on Block 64 as a flagship project, despite the unambiguous rejection of oil operations in the overwhelming majority of the block. Initial indications are that the Peruvian state is going to attempt to leverage the provision of education and healthcare as their bargaining chip to enter the region.
Blocks 123 and 129: ConocoPhillips abandoned these blocks in 2012 following massive popular protests in Iquitos – a city of almost a million people – against oil drilling in the river basins that form their main source of water. This followed a trend of the Houston-based company progressively reducing their footprint in the region, responding to concerns about social conflicts (Block 104) and the presence of uncontacted indigenous peoples (Block 39, now operated by Repsol). Blocks 123 and 129 have now been acquired by Calgary-based Gran Tierra, which is featured prominently in the Oil and Gas Journal paid insert mentioned above. They explain that Conoco found "14 geologic structures ready to be explored…of amazing size," and that Gran Tierra is "about to finish the seismic program and are seeking partners to continue into the drilling stage." No mention of the recent declaration of Quechua communities along the Tigre River that they reject any further oil activities in their territory.
Worrying signs for investors and communities alike
Savvy public-relations discourses aside, there are a number of deeply concerning national-level trends that suggest a maintenance or even expansion of social conflicts around oil and mining investments:
- A retrograde understanding of consultation, as expressed by Perupetro's chief and other officials, that falls very short of international standards. The government doesn't appear to have read the 2012 Sarayaku decision at the Inter-American Court of Human Rights, which offers a detailed and rigorous set of standards for how consultations must be carried out;
- The apparent inability of the Peruvian government to manage situations in which local communities – indigenous or otherwise – are unequivocally opposed to the imposition of natural resource extraction with potential devastating consequences. Cases to watch are those of the Conga mine and the Achuar in oil Block 64;
- The increasing militarization of social conflicts, and targeting of civil society leaders in spurious legal cases under the rubric of the criminalization of social protest;
- The systematic exclusion by the government – from President Humala on down – of Quechua and Aymara-speaking Andean communities from the consultation law, claiming they aren't indigenous. This prompted the protest resignation of Ivan Lanegra, a vice-minister at the Culture Ministry – responsible for implementing the Consultation Law.
What's a responsible investor to do?
Given this conflictive reality on the ground in Peru, any prospective investors should consider the following:
- Carrying out robust additional due diligence, taking a skeptical approach to information provided by the Peruvian government.
- Rigorously applying indigenous rights standards that are consistent with international human rights and indigenous rights law, including proper consultation and consent of indigenous peoples.
- Excluding operation in areas where indigenous people are directly opposed to the company or where uncontacted people live.
- Not employing extraordinary security measures like hiring heavily armed forces. This should be a significant red flag in any situation and a likely indicator that operations do not have social license to operate.