ANÁLISIS QUINCENAL: Transparency and Extractives Update from Latin America
By Carlos Monge, RWI Latin America Regional Coordinator
With Claudia Viale and George Bedoya
September 10th – 24th, 2009 |
Español |
Doe Run receives another extension on Peru's Environmental Adaptation and Management Program.
For the third time in five years the Peruvian State has extended the deadline for the Doe Run mining company in the district of La Oroya in the Junín Region to meet the environmental standards set forth in the Environmental Adaptation and Management Program (PAMA). The government granted the first extension in 2004 and gave Doe Run an extra 39 months in 2006.
Doe Run is in charge of the La Oroya Metallurgical Complex, which smelts and refines minerals extracted by several other companies in Peru's central highlands. It inherited huge environmental liabilities when it bought the smelting company in 1997, securing a low purchase price specifically because of its commitment to invest in the PAMA and address the environmental situation in La Oroya, which holds the unfortunate distinction of being the city with the world's highest levels of lead pollution. Between the low purchase price and the recent minerals boom, Doe Run have more than recovered their investments, but they have reaped these benefits while continuing to systematically disregard the PAMA.
It is worth remembering that, to meet the PAMA requirements, Doe Run was to have completed a Copper Circuit Sulphuric Acid Treatment Plant, which would extract the sulphuric acid from the circuit. The plant is currently about two-thirds complete, but all work was halted in June 2009 for financial reasons and the company says it needs US$ 150 million to complete construction, in addition to US$ 110 million owed to its suppliers. A report by expert Jorge Manco Zanconetti estimates that company profits between 2005 and 2008 exceeded US$ 500 million, raising suspicion that Doe Run has been remitting these profits to its headquarters in the US since they have not been directed to higher investments to complete the PAMA.1
Doe Run's most recent PAMA deadline expired in October 2009, and the company has requested a new extension of 30 months. It was granted a 20-month postponement by the Multi-sector Technical Commission of the Executive Branch,2 after an official visit to the metallurgic complex, a report by the Peruvian School of Engineers and two studies evaluated by the regulatory entity Osinergmin. The company, however, continued to insist on 30 months, and even requested six months more.
Faced with the complete halt of company activity and fearing the loss of their jobs, Doe Run workers themselves demanded that the Ministry of Energy and Mines grant the 36-month extension, protesting by blocking a section of the Central Highway and starting a regional strike that included clashes with police. Regional authorities also joined in the request, saying that the company's lack of activity was seriously affecting the local economy.
Congress finally agreed to a 30-month extension to the PAMA deadline, denying any further postponements. The decision was celebrated in La Oroya, since it should allow workers to return to their jobs in the mine and prevent threats to their wages for the immediate future. But we will have to wait and see if Doe Run completes the PAMA in the time allotted, since it has so far shown no will to honor its commitments. It also remains to be seen if the State will stand firm this time against a company which has been indifferent to the mortal effects of current pollution levels on workers and their families.
Ecuadorian government discloses New Hydrocarbon Law.
The Ecuadorian Government has presented its New Hydrocarbon Law (pdf) for debate. The law's main objective is to increase State presence in the oil sector, in accordance with the new Constitution enacted in November 2008.
The law's main proposals are: 1) active participation of the State in the oil sector, assigning 100% of revenues from future oil contracts to the government, thus reducing overall private participation; 2) provisions for Service Contracts and other methods for hiring companies, e.g., alliances with the State in cases of oil fields that are hard to access; 3) the creation of a "Sovereign Wealth Fund for Oil Revenues" that would force private companies to give the government 20% of their gross revenues to guarantee a payment on terms that are independent of oil price fluctuations; and 4) the elimination of mandatory competition for awarding contracts, which could therefore be awarded directly or through an optional bidding process.
The legislation also contemplates additional provisions, such as State participation in transport fees for the use of pipelines that run on Ecuadorian territory, and the creation of a Regulatory Agency for the Oil Sector to replace the National Hydrocarbons Office. Under the new law, companies could pursue disputes in national or regional courts, but could not go, for example, to the International Centre for Settlement of Investment Disputes (ICSID).
The government has also commissioned a report about all oil contracts, to "identify the companies that are detrimental to the State" and "bring order" to all strategic activities. This report would also contain recommendations and a schedule to "vindicate the rights of the State" as relates to oil issues.
Both the new law and the commissioned report have generated fear among the leading private oil companies, especially because the contract renegotiation process that began in 2008 yielded only temporary Ecuadorian contracts for Andes Petroleum from China, Repsol from Spain and Petrobras from Brazil. What the Ecuadorian governments seems to be seeking with these measures is the power to negotiate final agreements with these international companies, while at the same time strengthening state-owned Petroecuador and Petroamazonas.
It is also important to note that production and exports for Ecuadorian oil companies have fallen 3.1% and 58.2% respectively between January and June of this year, as compared to 2008 figures. Companies blame low international oil prices, but they also say they need better conditions in order to invest in the sector. The government has said that if companies do not meet their investment plans, their current contracts will be terminated.
The State's objectives are clear, but the judgment of public opinion and of the Congress are still pending. The government expects a final version of the law to be submitted to Congress in November and the Executive's goal is to approve the New Hydrocarbon Law early in March 2010.
Repsol announces discovery of a large natural gas deposit in Venezuela.
The Spanish oil company Repsol YPF announced the discovery of a large natural gas deposit in the Gulf of Venezuela. The drilling carried out thus far, in the appropriately-named "Pearl" (Perla I) area of the Cardon IV block, indicate there could be 7-8 trillion cubic feet (TCF) of gas 60 meters deep over a 33 kilometer area. If these estimates are confirmed, Perla I would be the largest natural gas deposit ever found in Venezuela and one of the largest in the world.
The discovery was announced during meetings being held in Spain between Venezuelan president Hugo Chávez, Spanish Prime Minister José Luis Rodríguez Zapatero and the King of Spain, Juan Carlos I. President Chávez also met with the president of Repsol YPF Antonio Brufau with whom he shared his "great expectations" about the discovery.
We should note that, although Repsol YPF operates this well in a consortium with the Italian company Eni, the Venezuelan state-owned company PDVSA will also participate with a 35% share in the development phase, with Spanish and Italian concerns sharing equally in the remaining 65%, according to the contract these two companies signed with PDVSA.
President Chávez did not take long to highlight the significance of this discovery to his country saying it would place Venezuela among the top five gas giants in the world. To illustrate the magnitude of the deposit, Repsol said the amount of gas found in Perla I "was enough to supply natural gas to Spain for five years," which prompted Chávez to add that the discovery was "positive for both Spain and Venezuela."
However, the reported figures are still preliminary and the well is still being evaluated. Meanwhile, the Venezuelan government continues drilling to find deposits in the Rafael Urdaneta gas field, a project made up of 29 blocks, 18 of which are in the Gulf of Venezuela.
This discovery could mean a new source of revenue for the Venezuelan government, whose budget has contracted significantly due to the drop in international oil prices since July 2008.
It is also interesting to compare this case to the massive oil reserves found in the Pre-sal area in Brazil, where the government has proposed a legislative change to ensure the participation of the state-owned company, Petrobras, at a minimum level of 30%. In both countries, state-owned companies would thus have a strategic role, ensuring each government a significant portion of the revenue from its new hydrocarbon reserves.
Sources: Perú 21, Elcomercio.com (Ecuador), El Comercio (Peru), El Universal, El Universo, La República (Peru)
1Information Report developed by Jorge Manco Zanconetti & Consultants. Available here.
2The "La Oroya" Commission is made up of members of the Ministry of Energy and Mines and the Ministry of the Environment, the Supervising Agency of Investment in Energy and Mines (Osinergmin), the Junín Regional Government and Doe Run workers.
PREVIOUS ISSUES
- August 26 – September 9, 2009
- August 11 – 25, 2009
- July 10 – 25, 2009
- May 23 - June 9, 2009
- April 7 – 21, 2009
- March 21 - April 6, 2009
- March 6 - 20, 2009
- January 20 - February 3, 2009
- January 5 – 19, 2009
- November 9 - November 24, 2008
- October 25 - November 8, 2008
- October 9 - October 24, 2008
- September 24 - October 8, 2008
U.S. Said to Allow Drilling Without Needed Permits - The New York Times
Australia Gas Deal Renews Tension - Financial Times
Charged With Fraud, Nigeria's Ruling Party Leader Resigns - Reuters
Western Senators Propose Ban on Pacific Drilling - The New York Times
To Limit Corruption around Mining in Africa, Follow the Money - The Globe and Mail
Court Backs Oil Project - The New York Times
Transparency Increases, But There Is Still a Long Way to Go - The Phnom Penh Post
IMF Develops Project to Help Africa Deal with Illicit Trade - African Manager
Three-day Conference on Africa's Natural Resources Starts in Tanzania - Standard Times Press
After Oil Rig Blast, BP Refused to Share Underwater Spill Footage - ABC News
Finger-Pointing, but Few Answers at Hearings on Drilling - The New York Times
Complaints Over U.N. Prize Sponsored by Equatorial Guinea's Obiang - Reuters
Guide: Community-Company Grievance Resolution for Australian Mining Industry - Oxfam Australia (pdf)
Cote D'Ivoire: President for Life, and Then Some - The New York Times
In Midst of Massive Spill, Oil Industry Fighting Transparency and Accountability - Oxfam America
Leaked Oil Contracts in DRC Threaten Resource Wars and $10 Billion Rip-Off by British Company - Carbon Web
Contracts Confidential: Ending Secret Deals in the Extractive Industries
Contract transparency is sorely needed to improve the management of natural resource wealth. In a new report from RWI, authors Peter Rosenblum and Susan Maples delve into government and private sector objections to contract disclosure and make conclusions about what information may legitimately and reasonably be kept confidential, and how civil society institutions can better confront the challenge of secret deals.
Learn more about the report ...
NEW TRANSLATION: Revenue Redistribution at the Local Level
Many resource-rich countries are attempting to compensate their producing regions through shares of resource revenues to be spent at the local level. In "Extractive Industries Revenues Distribution at the Sub-National Level," development economics consultant Matteo Morgandi presents a comparative analysis of international legislation for distribution of extractive revenues from across all levels of government. Prepared at the request of the Peruvian National Congress, the report studies the legislative practices of seven resource-rich countries to identify potential and address challenges. Please note that this report is now also available in Vietnamese.
Learn more ...