ANÁLISIS QUINCENAL: Transparency and Extractives Update from Latin America

By Carlos Monge, RWI Latin America Regional Coordinator
With Claudia Viale and George Bedoya

September 25 – October 9, 2009

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Peru: Population of Islay rejects mining activities after a local consultation process.

Argentina: Gas consumers will have to pay unsubsidized energy bills.

Bolivia: The implementation of the Mutún mining project faces several setbacks.

Peru: Population of Islay rejects mining activities after a local consultation process.

On September 27th, the inhabitants of the province of Islay—located in the Arequipa Region—participated in a municipally-organized local consultation process to express their opinion about the Southern Peru Copper Corporation's Tía María mining project in the district of Cocachacra.

The result of this consultation, which took place in the districts of Cocachacra, Deán Valdivia, Punta de Bombón, Mejía and Matarani, was a resounding rejection of the project. Participants had to answer two questions: If they agreed with the Tía María project and other mining projects in the area and if Tía María or other mining projects should be allowed to use underground water from Cocachacra. In Cocachacra, on the first question, 2916 people (93.1%) voted against, while 139 people voted in favor. On the second, 2929 people (93.5%) were against the use of underground waters and 112 were in favor. But it should also be mentioned that in this district, there was a high rate of absenteeism: of the 6437 people eligible to vote, only 48.7% did. In Deán Valdivia and Punta de Bombón, 95.7% and 92.96% voted against the first question, respectively. The trend was the same in Mejía and in Matarani.

However, this consultation was not legally binding, since neither the National Elections Jury (JNE) nor the National Electoral Process Office (ONPE) was involved. However, the process was supervised by the Civil Transparency Association and officials from the Ombudsman’s Office, and the population of Islay still hopes that the consultation will be used to halt the project. Elsewhere, the Regional Council of the Arequipa Regional Government has approved and presented an agreement to the Ministry of Energy and Mines requesting that Southern Peru temporarily halts exploration activities. But the Regional Government as such has not formally signed the agreement, instead convening up a multi-sector commission to try to resolve this issue.

The aspect of the project that worried people the most is the use of underground water which filters from the Tambo River, which could impact over 12,500 hectares of agricultural land of the Tambo Valley. The company has been trying to demonstrate that it would only use surface water, without affecting the river flow downstream. The downstream flow irrigates the area's entire watershed. 
It is also important to point out that some of the consultation participants said that even though they were against mining activity now because of the potential negative environmental impacts on the water supply, they would be willing to consider another option that did not include the use of underground water. In fact, they said that they would be in favor of mining operations if the company agreed to desalinize seawater and build a reservoir in the area.

The Islay consultation is the most recent example of a tendency towards citizen engagement by local governments on the viability of proposed regional extractive projects with negative impacts, either real or perceived, on renewable natural resources. Similar processes have been conducted in districts and provinces of Piura and Moquegua. It seems that—due to a lack of will on the part of the Central Government or companies to carry out the consultation processes established by ILO Convention 169—these consultations are a task that municipalities will be forced to continue taking on as their own.

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Argentina: Gas consumers will have to pay unsubsidized energy bills.

In August, the Argentinean Government decided—after several protests and demands from consumers—to temporarily restore gas subsidies in order to relieve energy price hikes and respond to pressure from those looking to repeal Decree 2067. The Decree added an extra payment to gas charges to create an energy fund that would secure national gas supplies though imports.

The increase in gas bills was rejected by high income consumers, who would be the most affected by price hikes that were estimated as high as 400% for middle and high level energy consumers. The cities in the provinces filed judicial complaints and even the Congress was against the price increase. The government decided to temporarily suspend the measure, which meant spending around US$ 500 million in subsidies for these consumers.

Now, almost two months later, these controversial gas price hikes are on the agenda once more.  The Ministry of Planning set forth new gas prices on October 1 and offered no subsidies for those consumers above a certain level of consumption. As expected, opposition parties and several consumer rights organizations rose again to demand that energy bills do not include these price increases.

Meanwhile, deputies from opposition parties keep trying to repeal the decree and the resolutions that allowed the price hikes in the first place. Consumers also carried out protests and mobilized to demand that  the government keep the subsidy.

At the height of the controversy, the opposition in the House of Representatives argued for a repeal of the rate hikes, but they did not have enough members present to not reverse the decision: Of the 129 deputies needed to address opinions of the Energy Committee, only 63 attended. However, they did agree to discuss the increase during sessions about the 2010 budget.

Despite legal rulings that have favored consumer rights, such as the cases of Jujuy, Chubut and Santa Fe, where the decree ordering the price increase was declared unconstitutional and was barred the energy bills, the government has appealed each time, so users will be forced to adjust to the new, unsubsidized, rates.

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Bolivia: The implementation of the Mutún mining project faces several setbacks.

A number of difficulties and setbacks have hampered Bolivia's El Mutún iron mining project—one of the largest in the world, with 40 billion tons of iron reserves. Located in Puerto Suarez, Santa Cruz, the mining and steel production project operates as a joint venture between the Bolivian State, ESM Mutún Steel Company and Jindal Steel Bolivia, a subsidiary of the Indian company Jindal Steel & Power.
In 2007, Jindal Steel and the Bolivian government signed a contract for the exploitation and industrialization of the iron ore from the Mutún Hill. According to the contract, ESM Steel would provide the iron reserves and the land where they are located, while Jindal would provide capital investment and technology. Jindal committed to investing US$ 2.100 billion over eight years, almost three quarters of which would be disbursed in the first five years.

However, that deal has run into a wall. The company has not yet begun to follow the investment plan because they have demanded full ownership of the land where the project will take place. The government rejects this argument and has threatened legal action against the company if it does not begin investing.
The delay continues because there are still some agricultural properties in the area whose owners are refusing to sell. For example, three cattle estates (Ongole S.A, Campiña Grande and San Antonio) have filed an objection to the National Agrarian Reform Institute resolution that cut the extension of their properties.

Faced with this situation, Jindal has proposed several amendments to the contract signed in 2007, including changes in investment levels, the dates of delivery, volumes extracted and phases of the project. Meanwhile, the Minister of Mining, Luis Echazú, says Jindal has already received almost all the agreed land, which would be enough for them to implement the steel plan, thus dismissing the company's arguments.

Further complications have emerged with a complaint made by the minister of Transparency and Anti-Corruption, Nardy Suxo, against Guillermo Dalence, then president of the ESM, because of the alleged purchase of 18 parcels of land at prices that exceeded their real value. According to this claim, the 2500 hectares that make up the exploitation area of the Mutún project were purchased by Dalence at US$ 2 million, when their value did not exceed US$ 46,000. Dalence was dismissed after this claim was filed.

Together, all of these unresolved conflicts have made it difficult to establish a clear schedule for implementation of the project. But two new developments suggest the project could begin to move forward again. First, ESM appointed an interim president, Sergio Alandia, who would replace Dalence. Second, a meeting was announced between Jindal and ESM executives to define a new budget and timeline for the exploitation and industrial activities of the project.

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Sources: Perú 21, Clarin.com, El Comercio (Peru), Eldeber.com.bo, Eldeberdigital.com, La Razón, La República (Peru), Página|12

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