With Claudia Viale and George Bedoya
The Tía María mining project: a debate about the use of water and territory.
Tía María is a large-scale copper project located in Peru's southern Cocachacra district, in the province of Islay in the Arequipa Region. Southern Peru Copper Corporation received the concession to explore and develop this field, which would reportedly produce 120,000 tons of copper annually for 14 years, generating estimated annual revenues for Arequipa regional and local governments of US$ 132 million.
However, in September 2009 the people of Islay rejected the mining project through a municipal consultation process carried out in several districts of the province, with more than 90% of the residents voting against the Tía María development. Despite this overwhelming local disagreement with the project, such consultation is not legally binding for the mining company or the Ministry of Energy and Mines.
The conflict between the local population and the company centers on the water from the Tambo River. Agricultural activities in the Tambo Valley, which occupy more than 12,500 hectares, need about 10.2 cubic meters per second (m3 /s) to adequately irrigate their land. The flow of the river is 11 m3/s during most of the year, dropping to 7 m3/s during the dry months. Therefore, the people of Islay fear that the mine’s demands on the Tambo River will threaten their traditional agricultural activities by reducing both river flow and water quality.
The company and the Ministry of Agriculture responded that the mine would only use seven million cubic meters of the 47 million cubic meters of available groundwater, which currently flows out to sea, therefore using only water which is currently being wasted, without affecting irrigation in the Valley.
On April 19, the Ministry of Energy and Mines scheduled a public hearing on the debate to consult the people of Islay about the Environmental Impact Study submitted by the company. But popular mistrust of the hearing process sparked an indefinite strike that began on April 14, carrying a central demand to cancel the Tia Maria project.
Over 3,500 people gathered over three kilometers of the Pan-American Highway, blocking access to the southern regions of the country. The road block lasted six days, during which police and protesters clashed, resulting in gunshot injuries to two protesters.
Finally, on Tuesday April 20, the road was cleared after Arequipa Regional President Juan Manuel Guillen and some provincial mayors, announced that they had secured a roundtable meeting with the Executive that day to include the President of the Council of Ministers, Javier Velásquez Quesquén; Minister of Energy and Mines, Pedro Sanchez; the Minister of Agriculture, Adolfo de Cordova; and the Minister of Environment, Antonio Brack.
Three agreements were reached during the April 20 roundtable. First, they agreed that all project activities would be suspended for 90 days, during which a committee made up of government officials, the company, mayors and community leaders of Islay would assess the technical observations made by the mayor of Cocachacra to the Environmental Impact Assessment (EIA). Secondly, they confirmed that under no circumstances would surface water or groundwater of the Tambo Valley be used for mining activities. Lastly, they announced the construction of a dam called Patiture to provide water for agricultural and domestic use and to be financed by the Ministry of Agriculture.
This recent protest against the Tía María mining project is just one of many instances of social conflict over natural resources, as local populations fight resource extraction activities that hinder other uses of the land, such as agriculture or ecological conservation. In this regard, as economist Humberto Campodónico, author of Revenue Watch publication Resource Management in Latin America, 2000-2005, says, "The problem is not the money (revenue from extractive industries) because, gradually, a logic of not depending on the extraction of natural resources is beginning to prevail." That is, social conflicts are now less related to getting a larger share of revenues from extractive industries. Instead, they are increasingly becoming about demands to not extract natural resources at all.
Indeed, social movements in Peru that promote sustainable development not dependent on extractive industries have fostered a growing rejection of mining and hydrocarbon projects. The Cusco Regional Government even issued an ordinance to halt mining concessions in their territory, although the central government later declared it unconstitutional and it had to be modified. But this claim is also being put forth by the International Labor Organization (ILO) and the Ombudsman's Office, as a committee of ILO experts issued a report in March recommending that the Peruvian government suspend all exploration and exploitation activities affecting the indigenous and peasant communities in the country. And this issue is bound to remain in the headlines as more large-scale mining projects crop up in other regions, such as the Minas Conga project and the La Zanja project in Cajamarca, as well as the concession of 24 new oil blocks in the jungle, which Perupetro announced on May 6.
The Bolivian government collects warranty payments from Jindal Steel and activities in the Mutun mine stop.
The Mutún iron ore deposit in Santa Cruz, which contains an estimated 40 billion tons of the mineral, was supposed to make Bolivia the largest steel producer in Latin America. To further that goal, Indian steelmaker Jindal Steel Bolivia (JSB) agreed to invest US$ 2.1 billion over eight years in the exploitation of the deposit. However, the investment plan has not yet been executed, leaving JSB liable to pay a "guarantee payment" fine to the government.
In 2007, JSB signed a risk-sharing contract with state-owned company Empresa Siderurgica Mutun (ESM), establishing its multi-billion dollar investment in the Mutún site. Of the US$ 2.1 billion, $1.5 billion was to be paid out in the first stage of the operation (over the first five years), and the other US$ 600 million over the second stage (the subsequent three years). But JSB said it could not execute the agreed amount of investment, mainly due to the delay in obtaining ownership of all the land within the concession area from the government. Since 1,500 hectares had not been cleared for exploitation, the company only had access to 43% of the concession area.
Even though US$ 300 million should be invested annually over the first five years and US$ 200 billion over each of the following three years to complete the contract, only US$ 20 million has been invested so far. Consequently, the Bolivian state warned JSB that if they don’t meet the terms of the agreement, the government will collect US$ 18 million, the guarantee payment, for breach of contract in March.
Faced with the possibility of having to pay the guarantee payment, JSB introduced new members to its Board of Directors and amended its investment plan, which included a US$ 1.5 billion investment in four years, instead of over 5 years, so that steel production can begin in 2014. Furthermore, Jindal, eager to reach an agreement with the government, also assured them that it would honor the guarantee payment to the Bolivian government as a sign of commitment to the new schedule.
However, civic organizations in the district of Puerto Suarez, where the Mutún mine is located, argue that the delays are affecting the community, which had anticipated an influx of jobs and income. They reported that, despite the recent agreement JSB had reached with the government, the president of the ESM, Sergio Alandia, tried collect the guarantee payment, citing the lack of investment in the project.
Additionally, the Minister of Mining said that although an agreement was reached with JSB, the implementation of the guarantee payments is a matter for the board of the ESM. In any case, he confirmed that the collection of the guarantee payment was underway. Workers at Mutún responded by halting their activities in protest, calling for the removal of Alandia from the company, charging that his decisions would drive JSB away.
Meanwhile, Arvind Sharma, director of JSB, said that collecting the payment would be illegal and that the company would call in international arbitration, since Alandia made the decision unilaterally without consulting the other members of the board. They also alleged Alandia's attempt was based on an audit that wasn’t requested by the complete directory, and he had not allowed JSB to submit their defense. As of April 18, Sharma said the company was still waiting to hear the board's decision. The uncertainty generated by this situation led to another shut-down of activities in the Mutún site, threatening the viability of the project and sparking strikes among the social organizations of Puerto Suarez to protest the delays.
Although the ESM confirmed they would indeed collect the guarantee payments, the Ministry of Mines seemed to go back on this decision since it canceled the opening of a bank account where the amount collected was supposed to be deposited. But eventually, the first two payments were collected on April 22 and 27, even though the Board members tried in vain to negotiate a solution, and JSB began a series of legal actions.
Even though JSB still plans a legal fight to recover the US$ 18 million that was collected, the Bolivian government has held that the payments are irreversible. JSB has halted its activities until this controversy is resolved, causing civic organizations from Puerto Suarez to continue protesting as they watch development opportunities for their region slipping away.
The debate on the distribution of royalties from Pre-sal in Brazil.
Since last year, Brazil has been reviewing bills related to the exploration and exploitation of its Pre-sal hydrocarbon sites off the Atlantic coast, which contain about 80 billion barrels of oil. After review, federal representative Ibsen Pinheiro presented a reform that modifies the distribution of Pre-sal royalties among all states and municipalities. The measure was approved by the House of Representatives on March 10, but has prompted the governors of Rio de Janeiro, Espiritu Santo and Sao Paulo—the producer states which currently receive that largest share of oil revenues—to declare the changes absurd.
According to Sergio Cabral, the governor of Rio de Janeiro, which is the largest producer of oil and gas, the reform would affect environmental impact prevention and stop several sanitation, health and education projects that were already budgeted. Even the organization of upcoming sporting events (the 2014 World Cup and the 2016 Olympics) would be affected, since the US$ 4.3 billion the state currently receives would be cut to only US$ 134 million. The governor of Sao Paulo also considered the changes unacceptable due to the financial impact it will have on producer municipalities within the state. For this reason, several civil society organizations from Rio de Janeiro protested against the measure.
The demonstrations in Rio de Janeiro drew government officials, representatives of different municipalities, local education, health and trade authorities, as well as student groups, academics, artists and representatives of various social and cultural movements to fill squares, stadiums and other high-impact locations in the city.
According to the Federal Constitution, states, municipalities and the Union have a stake in the resources that come from the exploration of oil and natural gas. The current distribution of royalties gives 47.5% to the Union, 25% to the Ministry of Science and Technology, 15% to the Navy Command and 7.5% to a Special Fund which includes states and municipalities. The remaining 52.5% is distributed as follows: 22.5% among States located in front of the offshore production fields; 22.5% among the municipalities within these States; and 7.5% among the municipalities where infrastructure to serve the oil industry is installed, such as refineries, boat terminals, etc.
With the proposed reform, the Union’s take remains the same. Of the remaining portion, 50% would be distributed among all states of the country, through the so-called Participation Fund of the States (FPE), and the other 50% would be distributed to all municipalities through the Municipality Participation Fund (MPF). Thus, the royalties are distributed among all states and municipalities according to equity funds that no longer distinguish between producers and non-producers.
During the debate, some alternative distribution schemes were discussed and the Senate will consider them when it begins its own deliberations on the topic. One proposal agreed that all states and municipalities should benefit from the income of the Pre-sal and proposed that the Union receive 20% of the royalties, producer states and municipalities receive 26.25% and 18% respectively, while the rest of the states and municipalities receive 30.75% and municipalities with infrastructure for oil receive 5%.
As the bill awaits debate in the Senate, senators from Rio de Janeiro, Espiritu Santo and Sao Paulo hope to stall the approval process long enough to file an alternative proposal. The complete regulatory framework for Pre-sal oil exploration is still being discussed in the Senate, which hopes to have it approved by mid-2010.
However, on the eve of presidential elections in Brazil, President Lula da Silva is advocating a political solution through his representatives in the Senate, out of concern that a decision about distribution schemes could hurt the popularity of da Silva's party’s official candidate, Dilma Rousseff. Consequently, da Silva's advocates hope to vote on the new regulatory framework for the Pre-sal in the first half of 2010, without including the issue of distribution of royalties between producing and non-producing states, leaving the contentious issue still up in the air.
Contract renegotiations continue in Ecuador: Rafael Correa puts pressure on the actors and takes on a new Minister of Natural Resources.
Facing a situation of unstable oil production and an ongoing search for higher budget revenues, Ecuadorian President Rafael Correa scolded his own ministers, as well as private oil companies, for slowing down contract renegotiations to migrate from the current concession system to service contracts. On April 12, President Correa discussed the slow progress of negotiations launched since 2007 with some oil authorities including Germánico Pinto, then-Minister of non-renewable natural resources; Galo Borja, the current deputy minister of Foreign Trade; and Admiral Luis Jaramillo, former president of Petroecuador EP.
The renegotiation process that Correa began in 2007 aims to transform existing Production Sharing Contracts—in which extracted oil is shared between private companies and the Ecuadorian state—to Service Contracts, in which the state pays companies for their services, while maintaining ownership of the natural resource. The most recent result of this process has been a round of transitional arrangements signed in the first quarter of 2009, but their expiry is approaching, in August this year. (The Government previously announced that the deadline for defining the new model contract was last March.)
In mid-April, Correa said, "I've already said that I've run out of patience on this, oil companies are playing games with us (...) When prices soared, quietly they were stuffing their pockets and now they are dragging their feet." With respect to the companies, the negotiation of new contracts has halted investment projects in the private sector, creating a drop in expected production levels.
So far, seven transitional agreements have been signed between 2008 and 2009, namely those with Chinese company PetroOriental (block 14 and 17), Petrobras (18 and Unified Palo Azul), Repsol (16 Bogey-Capiron unified) and Italy's Agip. With these contracts, the state's take is between 35% and 46% of the company’s production, depending on the number of barrels extracted. However, with service contracts, the state would keep 85% of the value of each barrel extracted.
Correa noted that the executive is preparing a proposal for the National Assembly to allow the expropriation of oil fields. This was considered an attempt to put pressure on companies to sign the new service contracts. In his April 17 radio program, Correa expressed as much, saying, "We are sending a bill to the National Assembly which will give me facilities to expropriate oil fields if these oil companies don't want to sign service contracts."
What was unexpected was the calm reaction of the oil companies, which seem most concerned with getting answers about the new model contract the government produced in March. The companies have noticed contradictions between the text of the proposed contract and the current Hydrocarbons Law, as well as the Law that regulates the Internal Tax Regime.
The president of the Hydrocarbon Industry Association of Ecuador (HIAE), José Luis Ziritt, said that Ecuador's National Assembly must ensure the adoption of a new Hydrocarbons Law to provide the framework for the new contracts. "First should come the law and then the contracts," said Ziritt. In this sense, the HIAE has been commenting on the draft legislation. Carlos Marx Carrasco, director of the Internal Revenue Service (IRS), likewise declared that only the reform of the Hydrocarbons Law and the Internal Tax Regime Law "would allow the Ministry of Non-Renewable Natural Resources to make the signature of new contracts viable."
During the following week, on April 28, there were changes in the Cabinet of Ministers, including the dismissal of PetroEcuador's negotiating team. Following the resignation of Germánico Pinto from the Minsitry of Non-renewable Natural Resrouces, the general manager Petroamazonas (a subsidiary of the state-owned PetroEcuador), Wilson Pastor took over as head of the Ministry of Non-Renewable Natural Resources.
The new minister announced that his priority is to negotiate in "good faith" and in the shortest possible time all existing oil contracts in the country. In late April, Pastor announced the creation of the National Petroleum Agency, a new entity within the Ministry charged with carrying out the renegotiations. Pastor concurred that it is necessary to the renegotiation process to amend the Hydrocarbons Law, apparently taking the position of the HIAE and the IRS. He announced that a bill will soon be sent to the National Assembly and that new deadlines will be set for the contract renegotiations.
The Bolivian government is expanding the market for its natural gas.
On March 26, the Bolivian and Argentinean Presidents, Evo Morales and Cristina Fernandez, signed an addendum modifying the natural gas supply contract between the two countries to cover a new delivery schedule, volumes of gas and guarantees for purchase and sale. At the same time, the Bolivian government was getting ready to negotiate the use of the pipeline to Argentina to extend the sale of energy to the Uruguayan market.
José Mujica, the president of Uruguay, had already expressed interest in buying natural gas from Bolivia. On March 13, he signed a joint statement with President Morales expressing Uruguay's commitment to continue negotiations to promote the three-nation integration block known as URAPABOL (Uruguay, Paraguay and Bolivia), especially on agreements related to energy integration.
The Bolivian Minister of Hydrocarbons, Fernando Vincenti, said there are at least three options for exporting Bolivian gas to Uruguay, which is currently supplied with gas from Argentina. The first possibility, and a short-term solution, is to use the existing Argentinean Northeast Pipeline, which goes to Uruguay, after negotiation with the Argentine government. The second alternative, which would be viable for the middle-term, would be to install a liquefaction plant in Villamontes, in Tarija, Bolivia, so the compressed gas could be transported to Paraguay by land and then to Uruguay by river. The investment for this option is estimated at US$ 150 million. The third option, a long-term project which would take between seven and 10 years to implement, would be to build a pipeline nearly 3,000 km long, linking production sites in Bolivia to the Uruguayan capital.
Some analysts, such as Luis Lema, former Bolivian Minister of Hydrocarbons, and oil specialist Marcelo Campero argued that, while the expansion of export markets for Bolivian energy is important, the country should first ensure its supply of gas to Argentina and Brazil, which already have import contracts for six and 25 million cubic meters per day (Mmcd) respectively, as well as the domestic market, which demands nearly 8 Mmcd.
On the other hand, Uruguay’s current gas demand is 0.3 Mmcd and is expected to grow to 3 Mmcd—a figure similar to Paraguay's current requirements. With these figures, which show a small but significant market for Bolivia, existing export obligations to Brazil and Argentina, and the domestic needs, the total demand for Bolivian gas could total 44 million cubic meters a day: the highest hydrocarbon production capacity today. However, Minister Vicenti claims that the Bolivian supply is adequate to the demand. Carlos Villegas, the president of YPFB, likewise confirmed that the state-owned hydrocarbon company had increased its production in recent months.
Despite these reassurances, remaining uncertainty about the capacity of Bolivia to meet an increased demand has led to discussions about the figures of proven, probable and possible gas reserves. In any case, export commitments will require further investment in the sector over the next five years.
In light of these questions, two issues will be prioritized in the coming weeks. The first is the negotiation between Bolivia, Uruguay and Argentina to agree on the use of the Argentinean pipeline to export gas to Uruguay. Some Argentine officials have already declared that the country will allow Bolivia to transport its gas to Uruguay, only charging the price of the rental of the pipeline. Secondly, Uruguay and Bolivia have yet to set the prices at which gas will be exported, but it will likely be below the US$ 13 per thousand BTU (British thermal unit) that Uruguay currently pays to Argentina.
Sources: El Comercio (Peru), La República (Peru), La Razón, Eldeberdigital.com, Folha do Sao Paulo, The New York Times, El Comercio (Ecuador), El Universal, La Hora, Hoy, Hoy, La Jornada, Clarin.com
ADDITIONAL ISSUES
- March 9, 2010
- February 4 - 22, 2010
- January 20 - February 3, 2010
- January 4 - 19, 2010
- November 25 - December 20, 2009
- October 27 – November 10, 2009
- October 10 – 24, 2009
- September 25 – October 9, 2009
- September 10 – 24, 2009
- 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
