The Politics of Private Welfare in the Peruvian Mining Industry

Home , Cerro de Pasco, Time Life, Toquepala mine

Extracting from the Extractors: The Politics of Private Welfare in the Peruvian Mining Industry

Cecilia Perla B.A. Economics, Universidad Católica del Perú, 2001 M.A. Economics of Development, Institute of Social Studies, Holland, 2004 M.A. Political Science, Brown University, 2007

A Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Department of Political Science at Brown University

Providence, Rhode Island

May 2012

This dissertation by Cecilia Perla has been accepted in its present form

by the Department of Political Science as satisfying the dissertation requirements

for the degree of Doctor of Philosophy

Date ______

Pauline Jones Luong, Advisor

Date ______

Melani Cammett, Reader

Date ______

Patrick Heller, Reader

Date ______

Barbara Stallings, Reader

Approved by the Graduate Council

Date ______

Peter M. Weber, Dean of the Graduate School

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Curriculum Vitae

Cecilia Perla was born in Lima, Perú on June 4, 1978. She received her B.A. in Economics from Universidad Católica del Perú in 2001. After a few years of working for the public and nonprofit sectors, Cecilia pursued graduate studies at the Institute of Social Studies in The Hague, Holland, earning an MA in Economics of Development in 2004. Later on, she moved to the US to continue her education. During her graduate studies in the Department of Political Science at Brown University, Cecilia presented her work in diverse academic forums such as the Latin American Studies Association Conference, the Political Science Studies Association Conference, the University of Lausanne in Switzerland and King’s College, London. She received her MA in Political Science in 2007. Cecilia has been granted a number of scholarships, conference funding and travel grants to pursue her graduate studies, including a fellowship from The Netherlands Fellowship Programme (NFP), a GPD fellowship from Brown University and an Inter American Foundation Fellowship.

Acknowledgements

Whoever said that research is a solitary enterprise? Writing this dissertation has showed me that it is very much a collective process, a work that is indebted to numerous friends, colleagues, associates and strangers through its conception, transformation and execution1.

Many people and institutions are behind the final version of this project. First of all, I would like to thank Pauline Jones Luong, for chairing my committee and providing me with constant encouragement and insightful feedback, as well as endless professional and personal advice. Melani Cammett, Patrick Heller and Barbara Stallings completed a fantastic committee and each in their own way improved my drafts with their expertise. At an early stage of the project, the support and advice of Richard Snyder was extremely valuable. I am also very grateful to my peers at Brown, both at the Department of Political Science and at the Department of Sociology, who gave me feedback at different stages of the process and doubled-up as vital support group when I felt stuck.

I am extremely grateful to the institutions that made this project financially viable. Financial support for this project came from Brown University’s Graduate School Grants and the Center for Latin American Studies at the Watson Institute for International Studies, which provided pre-dissertation fieldwork grants and travel grants in the summer of 2006 and 2007. A Grassroots Development Fellowship from the Inter American Foundation allowed me to carry out 14 months of fieldwork in Peru between March 2009 and May 2010.

In the field, many residents and authorities of the four mining localities I visited kindly gave up their time to answer my questions and pointed me to interesting and unexpected issues. The cooperation of Southern Copper Corporation and Minera Barrick Misquichilca, which hosted me at their operations and allowed me to interview their employees and participate in the activities of their Community Relations teams, was indispensable for this research. While in Lima, I learned a lot from interviews and informal conversations with many academics, development practitioners and graduate students doing research on extractive industries in Peru and other Latin American countries.

My whole family has been fantastically supportive through this long process. My mother’s encouragement has been fundamental during all these years living abroad. My grandfather has been an inspiration to me – beyond this project – and it is always a treat to listen to his early memories of living in a company town as a mining engineer. Finally, my husband’s unlimited supply of love, patience and kindness helped me overcome the low points and sharpened my enjoyment of the high points along the way, and was always by my side to remind me of the important things in life.

1 The writing process is pretty lonely, truth be told.

Table of Contents

1. Mining and Development: A New Political Economy

2. Companies as Welfare Providers in Local Spaces: Theoretical Lenses

3. The Transformation of Mining Companies’ Public Duties in Peru

4. Patterns of Allocation of Mining Companies’ Discretionary Funds

5. Explaining Social Investments of Mining Companies: Corporate-Level Factors

6. Explaining Social Investments of Mining Companies: Local-Level Factors

7. Summary of Findings and Agenda for Further Research

8. References

List of Tables

Table 1.1 Variation in the distribution of mining companies’ discretionary funds

Table 1.2 Determinants of the distribution of mining companies’ discretionary funds

Table 2.1 Corporate giving, selected countries 1994-2004

Table 2.2 Measuring local success of adopting global frames: three conditions

Table 3.1 Landmark environmental and social regulations in the Peruvian mining sector

Table 3.2 Social Funds currently in operation in the Peruvian mining industry

Table 4.1 Community Relations Operating Budget, annual average by company

Table 4.2 Most different cases: MBM and SCC

Table 4.3 Variation in the distribution of mining companies’ discretionary funds

Table 4.4 SCC – CROB by operation (in US$ millions and percentages)

Table 4.5 Cuajone – SCC, CROB by type of investment (in US$ millions and percentages)

Table 4.6 Cuajone – SCC, CROB by geographical area (in US$ millions and percentages)

Table 4.7 Total SCC Solidarity Mining Fund (accumulated 2007-2009), Committed funds by operation

Table 4.8 Cuajone - SCC Solidarity Mining Fund (accumulated 2007-2009), Committed funds by type of investment

Table 4.9 Cuajone – SCC Solidarity Mining Fund (accumulated 2007-2009), Committed funds by geographic location

Table 4.10 MBM – CROB by operation, (US$ millions and percentages)

Table 4.11 Pierina – MBM, CROB by type of investment (US$ millions and percentages)

Table 4.12 Pierina – MBM, CROB by geographical location

Table 4.13 Total MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by operation

Table 4.14 Pierina – MBM, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment

Table 4.15 Pierina – MBM, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location

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Table 4.16 Lagunas Norte – MBM, CROB by type of investment (US$ millions and percentages)

Table 4.17 Lagunas Norte – MBM, CROB by geographical location (US$ millions and percentages)

Table 4.18 Lagunas Norte – MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment

Table 4.19 Lagunas Norte – MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location

Table 4.20 Toquepala – SCC, CROB by type of investment (US$ millions and percentages)

Table 4.21 Toquepala – SCC, CROB by geographical location (US$ millions and percentages)

Table 4.22 Toquepala – SCC, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location

Table 4.23 Toquepala – SCC Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment

Table 5.1 SCC – Main statistics

Table 5.2 SCC: Company commitment to CSR on the ground

Table 5.3 MBM – Main statistics

Table 5.4 MBM: Company commitment to CSR on the ground

Table 6.1 Pierina: Land surface rights bought for the operation

Table 6.2 Pierina: Local success in adopting global frames

Table 6.3 Cuajone: Local success in adopting global frames

Table 6.4 Lagunas Norte: Local success in adopting global frames

Table 6.5 Populations in the area of influence of Toquepala: Ilabaya and Candarave

Table 6.6 Toquepala: Local success in adopting global frames

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List of Figures

Figure 1.1 Two decades of publications on mining and development in Peru, by mine

Figure 2.1 Corporate-level factors: Company’s implementation of CSR practices

Figure 2.2 Local-level factors: Successful local adoption of globally relevant frames

Figure 4.1 Mining companies’ discretionary funds CROB and SMP (US$ millions)

Figure 4.2 SMP: Ratio Committed/Deposited funds - Selected companies, 2008 (US$ millions)

Figure 4.3 CROB and SMP - Selected companies, 2008 (US$ millions)

Figure 4.4 CROB 2008 by type of investment – Selected companies (US$ millions)

Figure 4.5 Geographical distribution of SMP funds, 2007 (percentage of committed funds)

Figure 4.6 Geographical location of the case studies

Figure 4.7 SCC – Solidarity Mining Program Funds deposited and committed (US$ millions)

Figure 4.8 MBM – Solidarity Mining Program Funds, deposited and committed (US$ millions)

Figure 5.1 Corporate-level factors: Company’s implementation of CSR practices

Figure 5.2 Barrick Gold’s contractors on workforce, by region

Figure 6.1 Local-level factors: Successful local adoption of globally relevant frames

Figure 7.1 Variation in the distribution of mining companies’ discretionary funds

Figure 7.2 Determinants of the distribution of mining companies’ discretionary funds

List of Acronyms

ANA Autoridad Nacional del Agua (National Water Management Authority)

AMAS Asociación Marianista de Acción Social (Marianist Association for Social Action)

CBC Centro Bartolomé de las Casas (Bartolome de las Casas Center), NGO

CCCIEMBM Comité Central de Comunidades de Influencia de la Empresa Minera Barrick Misquichilca (Central Committee of Communities in the Area of Influence of Minera Barrick Misquichilca)

CCP Confederación Campesina del Perú (Confederation of Peruvian Peasant Communities)

CEDEPAS Centro Ecuménico de Promoción y Acción Social (Ecumenic Center for Social Promotion and Action), NGO

CENTROMIN Empresa Minera del Centro del Perú (Mining Company of Central Peru), which operated mining concessions.

CGTP Confederación General de Trabajadores del Perú (General Confederation of Peruvian Workers)

CIPCA Centro de Información y Promoción del Campesinado (Center for the Information and Promotion of Peasant Populations), NGO

CNA Confederación Nacional Agraria (National Agrarian Confederation)

CODISPAS Comisión Diocesana de Servicio Pastoral Social (Diocesan Commission for Social Pastoral Service)

CONACAMI Coordinadora Nacional de Comunidades Afectadas por la Minería (National Coordinator for Communities Affected by Mining)

CONAM Consejo Nacional del Ambiente (National Environmental Council)

CORECAMI Coordinadora Regional de Comunidades Afectadas por la Minería (Regional Coordinator for Communities Affected by Mining)

CPCC Cerro de Pasco Copper Corporation

CROB Community Relations Operating Budget

CSR Corporate Social Responsibility

DGM Dirección General de Minería del Ministerio de Energía y Minas (General Directorate of Mining Affairs of the Ministry of Energy and Mines)

FONCODES Fondo Nacional de Cooperación para el Desarrollo (National Cooperative Fund for Development)

GMI Global Mining Initiative

ICMC International Cyanide Management Code

ILO International Labor Organization

MAE Ministerio del Ambiente (Ministry of the Environment)

MBM Minera Barrick Misquichilca S.A.

MINAG Ministerio de Agricultura (Ministry of Agriculture)

MINEM Ministerio de Energía y Minas (Ministry of Energy and Mines)

MINEROPERU Empresa Minera del Perú (Mining Company of Peru), which held the rights of concessions.

MINPECO Empresa Comercializadora de Minerales del Perú (Mineral Trading and Exporting Company of Peru)

MMSD Mining, Minerals, and Sustainable Development Project

MTPE Ministerio de Trabajo y Promoción de Empleo (Ministry of Labor and Employment Promotion)

OGGS Oficina General de Gestión Social del Ministerio de Energía y Minas (Social Management Office of the Ministry of Energy and Mines)

OSINERGMIN Organismo Supervisor de la Inversión en Energía y Minería (Supervisory Body for Investment in Energy and Mining)

PLADES Programa Laboral de Desarrollo (Labor Development Program), NGO

POLTR Programa de Oportunidades Laborales Temporal y Rotativo (Temporary and Rotational Work Opportunity Program)

SCC Southern Copper Corporation – Peru

SMP Programa Minero de Solidaridad con el Pueblo (Solidarity Mining Program)

SNMPE Sociedad Nacional de Minería, Petróleo y Energía (National Society for Mining, Petroleum and Energy)

STECAMBM Sindicato de Trabajadores de las Empresas de Contratas y Afines de la Minera Barrick Misquichilca S.A. (Union of Workers of Contract and Associated Companies of the Mining Firm Barrick Misquichilca S.A.)

SUNAT Superintendencia Nacional de Administración Tributaria (National Office of Tax Administration)

UN United Nations

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Chapter 1. Mining and Development: A New Political Economy

Rural woman: “I live right next to a mine with Carolina, my cow. Two years ago a man from the mine came and told me ‘Madam, we’re going to improve your pastures’. Now Carolina eats more. They also vaccinated her so she won’t get ill […]. With this help from the mine, Carolina produces twice as much milk, and I am twice as happy! Voice over: “The type of mining you want does exist among us. Mining companies have given in three years more than 1,300 million soles [about US$450m] in development for their neighbors. National Society of Mining, Oil and Energy”1

“If we augment stories of the past or, even better, if we find remains of our forefathers or if we ‘find out’ that we are part of a Mochica nation, for instance, we will have better guarantees that nobody will touch our land.”2

1.1. Introduction

Mining seems to be hopelessly intertwined with images of unfairness and plunder in countries that, like Peru, have underground wealth. In people’s imagination, mining is associated with visions of large multinational companies operating in poor, isolated and rural areas, and not uncommonly connected with pictures of environmental mismanagement and striking contrasts between modern, wealthy operations and deprived, traditional communities existing almost side by side. Companies, it is believed, give to mining communities far less than what they take from the ground.

From the massive looting of gold and silver by the Spanish conquistadores in the

17th and 18th centuries, to the activities of UK and US mining companies during the 19th

1 Radio advert produced by the National Society of Mining, Oil and Energy, 2008. Available in http://www.youtube.com/watch?v=L0ubjIh3bZA

2Local resident in a village in the North of Peru. Quoted in Salazar-Soler (2009, 189). 13 and 20th century, the history of extractive industries in Peru has helped to feed an historical resentment against large mining corporations (Scorza 1970, Glave and

Kuramoto 2002, World Bank 2005, Barrantes et al 2005, North et al 2006). This situation has been exacerbated in the last decade, when mining expanded into areas with no previous experience of extractive industries as a result of the rising demand for raw materials coming from China, India and other developing countries (Bridge 2004). As a result, profits of mining companies skyrocketed, bonuses of their CEOs ballooned and mining companies’ share prices soared. At the same time, news of social unrest and social and environmental conflicts between companies and communities proliferated in

Peru and across other mineral-rich Latin American countries (De Echave 2005, Widener

2006, North et al 2006, Welker 2006, Bebbington et al 2007). Once again, historical fears of dispossession, conflict, contamination and injustice were revitalized.

However, recent efforts to promote corporate social responsibility (CSR) have sparked a proliferation of social and environmental initiatives by mining companies in the region (Gutierrez and Jones 2004, Peinado-Vara and Vives 2004, Peinado-Vara 2006,

IADB 2006). As part of these programs, mining companies are directly providing social goods and services to populations adjacent to the mines (Tavis 1988, Newell 2005,

Yakoleva 2005, North et al 2006) – as opposed to the traditional contributions of mining such as taxes and royalties which are channeled through the State and therefore become part of the public budget – and heralding them as social development contributions rather than old-fashioned aid or philanthropy (Sanborn and Portocarrero

2006). The radio advert quoted at the beginning of this chapter, part of a media

14 campaign promoted by the SNMPE, the industry body in Peru, is just one example of the new investments that mining companies are now prepared to undertake – and the

“development” language in which they publicize it. Agricultural extension services, together with health and education facilities, basic infrastructure, productive projects and food security are all part of the investments that mining companies now directly fund in their areas of influence as part of social responsibility programs toward their communities.

Through their discretionary spending, companies are increasingly seen as partners in the development of the populations living near the mines. Leaving behind their traditional image of enclave economies, they aim to reinvent themselves as clean and green corporations committed to the development of the community. Mining companies’ discretionary funds for social investments not only have the potential to improve local livelihoods in areas that are often poor and isolated, but also to close the gap between the important economic contributions mining generates for the central state and the strong social disaffection it creates at the local level. Could the local distribution of mining companies’ discretionary funds be the advent of a radical change in the normally strained relationships between foreign capital and host countries’ societies in developing countries?

Although in recent years the creation of discretionary funds has become the industry norm in Peru and almost all large-scale mining companies have now established them, they vary widely across three important dimensions. First, some funds are incredibly large while others are small. Second, there are companies that spend

15 disproportionate amounts in projects while others prefer to fund donations. Third, the geographical distribution of such investments sometimes privileges fence line populations (those villages right next to the mining operation) while in other cases more funds are directed to geographical areas further away from the operation. The variation in the level, type and geographical distribution of the funds, which is verified across companies and even across different operations of the same mining company, has important consequences for the welfare prospects of local residents and raises questions about the factors that determine them.

But if the shifting boundaries of the public and the private have given greater prominence to mining companies as contributors to local development, the adoption of decentralization policies and participatory mechanisms in Peru has afforded local populations new opportunities to directly engage mining companies (MINEM 2001,

Damonte 2005, Alayza 2007, Arellano 2008, Himley 2010a). This trend that encourages participatory processes is not exclusive to Peru and has been identified in other mineral- rich countries such as Australia (Beach et al 2006, Cheshire 2010), South Africa (Kapelus

2002, Hamann 2003), Canada (Gediks 1993), the Philippines (Holden 2005), Ecuador

(Kuecker 2007) and Colombia (MPRI 2003).

Beyond legislative innovations on participation, the organic connections between local and international organizations dedicated to monitor the social impacts of mining have strengthened, and as a result the amounts of information available on the subject and the general public awareness have increased (Scurrah 2008). At the global level, civil society organizations and multilateral organizations are increasingly

16 mobilized in favor of communities affected by extractive industries, especially indigenous communities and those directly affected in environmental terms, and their international guidelines to engage and compensate them offer additional traction to local claims-making (MMSD 2003, UN 2005, ILO 2009a). The high profile gained by indigenous and environmental issues at the international level has created a context in which local demands framed in these terms have higher chances of being heeded. With a history of environmental disasters and mistreatment of indigenous populations around the world, it is not surprising that these two issues have becomes the Achilles’ heel of extractive industries and have built an impressive track record as the basis of negotiations and large compensations from companies to affected communities3.

Local residents are becoming aware of the global success of environmental and indigenous frames as a means to pitch local demands to mining companies and are increasingly adopting them, as illustrated by the words of the community leader quoted at the beginning of this chapter, hoping to ‘find out’ his indigenous roots to strengthen his leverage vis-à-vis the mining company. Hence, in this context, more informed and more connected local populations are not only aware of what has become legitimate to ask mining companies, but also what are the most successful ways to do so (Ballard and

Banks 2003, Kuecker 2007, Beach et al 2006).

These new participatory mechanisms and regulations may not be observed with equal zeal by all mining companies and governments, and they run the risk of been seen

3 For instance, the Ok Tedi mine in Papua New Guinea, which was co-owned by the State and the mining company BHP Billiton, created such a controversy due to its environmental and social effects and such a strong pressure on the mining company that BHP Billiton gave up its 52% stake in the company and placed it in a social fund for the population of PNG. 17 as a formality and just carried out to ‘check them off the list’ (Fulmer et al 2008). And there are still populations in many rural areas that do not have real access to these opportunities or their limited resources prevent them from seizing the new openings available to increase their leverage when negotiating with mining companies. Even so, it has become more difficult for companies to completely elude at least some level of participation and carry out their activities without securing the ‘social license’ and cooperation of local populations (McPhail and Davy 1998, Yakoleva 2005).

In sum, while mining companies’ resources for social development have increased across mining companies in Peru, the ways in which these resources are spent vary widely. In this project I investigate the encounters of mining companies which are now perceived as legitimate developmental agents, and local populations that have within their reach new strategies and opportunities to increase their leverage vis-à-vis companies. The limited involvement of the State that rolled back in the 1990s as a result of structural adjustment policies completes a picture in which direct and unmediated encounters between mining companies and local populations have become usual

(Revesz and Diez 2006).

This dissertation explores the negotiations between mining companies and local residents over the allocation of the companies’ social investments, and the conditions under which such allocation can enhance the welfare prospects of local populations. I contend that the level and type of discretionary resources depend on two main sets of factors. The first factor determines the “supply side”, and is connected to the intensity of the institutional constraints that companies adopt to put their CSR commitments into

18 practice. The second factor determines the “demand side” and refers to the ability of local actors to adopt a legitimate global frame to make demands on company’s resources.

1.2. Methodological notes

My design involves the controlled comparison of four mining sites in Peru: Lagunas

Norte, Pierina, Cuajone and Toquepala. The first two operations belong to Minera

Barrick Misquichilca (MBM) and the two latter to Southern Copper Corporation (SCC).

The case selection allows making comparisons at two levels. First, I compare outcomes across companies and connect different corporate characteristics with variation in outcomes. Then, I compare operations of the same company and connect local level factors to variation in outcomes (Prezeworski and Teune 1970).

The subnational comparative approach development in this research allows controlling for a number of cultural, historical and ecological conditions (Snyder 2001).

In the first stage, it holds country-level characteristics constant and examines how companies that formally commit to a similar CSR agenda differ in their practice of social responsibility on the ground, and how this in turn affects their distribution of discretionary spending. In the second stage, it holds company characteristics constant, and explores how different local capacities of social actors confronting the same company are more or less able to influence the allocation of corporations’ discretionary funds. By doing so, this design also eases one of the problems of a small-n comparative design, that is, few cases too many variables (Lijphart 1971, Brady and Collier 2004).

Hence, this two-level research design offers the possibility of testing the extent of convergence across extremely different companies and the extent of divergence across operations of the same company.

A geographical focus on Latin America and Peru in particular, is warranted because the region has attracted large mining investments in the last decade. Four of the ten countries that received most mining investments between 1990 and 2001 are

Latin American, and investments in mining exploration in Peru grew 2,000% in 1990-

1997, while worldwide total investments grew only 90% (World Bank 2005, Bebbington et al 2007). As encounters between companies and communities multiply and global mining companies expand to new frontiers, historically conflictive relations tend to exacerbate. Studying ways to avert these clashes and build better relations has become urgent for Peru.

My analysis is based on twelve months of qualitative fieldwork carried out in

Peru4. It involved an initial period in Lima followed by periods at four mining areas in the highlands of Peru: two operated by Minera Barrick Misquichilca (MBM) in the north of the country, and two owned by Southern Copper Corporation (SCC) in the south. I closed my fieldwork with a final period in Lima, gathering documentation, doing a last round of interviews and following up new developments on my four cases.

In the first three months of fieldwork I was based in Lima, gathering documentation and interviewing civil society representatives, company officials,

4 Pre-dissertation fieldwork was funded by the Graduate Program in Development of Brown University, through two summer grants in 2006 and 2007. The twelve month dissertation fieldwork was made possible by a doctoral fellowship from the Inter American Foundation (2008-2009). 20 consultants and academics. I also secured the consent of the two mining companies to live in each of the mining camps and shadow the companies’ community relations’ teams in their daily activities. I preferred not to have an institutional affiliation in Peru, given that mining and development is an ideologically charged topic, and any affiliation would carried had the risk of opening some doors and necessarily closing others.

During the next eight months, I devoted two months to each of my four cases.

My strategy was to move to an urban center relatively close to the mining operation and make it my temporary base. I then allocated a few weeks to carry out interviews with local leaders and authorities and visit the villages in the area of direct influence of the mining operation. After having a better idea of the local social dynamics, I shifted gears and joined the company’s community relations team and shadowed them in their daily activities – this involved moving from the urban center to the mining camp itself. I carried interviews with almost all community relations officials at each of the four mining operations, and accompanied them to the different appointments and meetings they had with local residents.

Although the bulk of my primary data comes from the more than 140 semi- structured interviews I conducted with local government officials, staff of companies and organizations and local leaders, my permanent presence on site also afforded me the chance to participate in a number of community assemblies, company meetings and workshops in which both parties engaged in negotiations on the distribution of discretionary funds. The opportunity to observe and experience the encounters between company representatives and local residents on the ground was invaluable to

21 contrast the actual processes of allocation with the discourses constructed about them

(Schatz 2009).

1.3. The argument in a nutshell

In this project I address the question: What explains the variation in the allocation of discretionary spending by foreign extractive firms, looking at the specific case of the mining sector in Peru? The outcome to be explained is then the ways in which mining companies distribute their discretionary funds and, as previously mentioned, I conceptualize its variation along three dimensions: the level, the type and the geographical distribution of discretionary funds. The first dimension, the level, reflects the amount of resources that a company commits to particular investments. Bigger budgets are considered as having higher potential for local welfare improvement than smaller ones. But although size matters and it has received attention (GPC 2005, 2007,

2008) it is not a sufficient condition to guarantee higher levels of local welfare, as we have learned in relation to the impacts of public social investments on development.

The new, higher standards with which public investments are assessed should be also applied to the impacts of private companies’ investments in local development. Thus, budget sizes have to be evaluated in light of the quality of those investments, that is, the particular ways in which they are allocated.

The second and third dimensions I analyze seek to broaden the exclusive focus of recent analyses on budget sizes (GPC 2005). The second dimension explores the allocation of funds by type. I classify funds by type in projects or donations. Donations

22 constitute interactions between the company and a local group at a specific moment in time, and they normally involve writing a check or making a transfer of funds or assets from the company to the recipient group, which commits to using the funds or assets for a determined purpose. Donations involve instantaneous interactions, no follow up is required and normally no evaluation of the impact is made. In contrast, projects involve a longer relationship between the company and the beneficiaries: the project has to be conceived and written, then approved by the company and later implemented, sometimes during a period of months. It requires continuous visits from the Community

Relations team to the residents that are benefitting from it and a constant monitoring of its progress. Normally, when projects are over, they involve some kind of impact assessment. For these reasons, I consider projects to have more potential to improve local welfare than donations.

In turn, the third dimension is the geographic distribution of discretionary resources. Companies have two areas of interest: fence line populations, which are the immediate neighbors of the mining operations, and villages/urban centers further away.

Fence line populations are made of those residents who are directly impacted by the presence of the company, either because their ownership of land is affected when the company arrived or the access and quality of water and air is compromised by the presence of the operation. These populations also confront higher risks of contamination if the mining operation were to suffer a problem. Moreover, fence line populations tend to have fragile livelihoods (even before the presence of the mine), limited access to monetary income and weak connections with local political authorities

23 and the state. Given their social and political circumstances, these populations are in a more vulnerable position than those further away, which are at lower altitude where land is more fertile, are better connected to urban centers and have access to more diversified economic opportunities. Hence, funds allocated to fence line populations, or in the mine’s “direct area of influence”, are seen as potentially having higher welfare impacts and are therefore more desirable than those allocated to villages and urban centers further away from the mines, that is, in the mine’s “indirect area of influence”.

To explain variation in this three-pronged dependent variable, I examine two mining companies operating in Peru: Southern Copper Corporation (SCC) and Minera

Barrick Misquichilca (MBM). Each company has two mines in operation (SCC has

Toquepala and Cuajone; MBM has Lagunas Norte and Pierina).

Table 1.1. Variation in distribution of mining companies’ discretionary funds

High quality Low quality Projects over donations Donations over projects Fence line over the rest The rest over fence line High level Pierina (MBM) Lagunas Norte (MBM) Larger budgets Low levels Toquepala (SCC) Cuajone (SCC) Smaller budgets

Even though the four mines are in the same country and they belong to two mining companies (so two pairs share corporate characteristics), there is large variation in the distribution of discretionary resources across the four cases. Pierina’s outcome has the most potential to be welfare enhancing, while in Cuajone the results are the least encouraging. Lagunas Norte and Toquepala are in-between cases.

It is interesting to consider the variety of these results in light of the literature on mining and development, which holds extremely polarized views of the potential social impacts of the private sector, and regards local populations as agents with little hope to have any leverage vis-à-vis large and powerful multinational corporations. In this project, I hope to challenge these two widespread ideas.

The academic fascination with scrutinizing and discovering the ‘real’ motivations of companies, either as profit-seeking entities with no real respect for people or nature or front-runners of modernity and the most efficient social development agents in rural areas has created a deep fissure in the literature (McPhail and Davy 1998, Jones et al

2007). Here, I decline to take an a priori judgment of the moral character of mining companies and evade the debate on whether companies are motivated by good/altruistic or bad/profit-seeking intentions, which are at the heart of the fissure in the literature, and assess companies by their actions. As Welker contends, in a large and complex organization as a multinational corporation, it is very hard to identify in any conclusive way the company’s intention, and ultimately, intentions may not even be correlated with outcomes.

“…it is unproductive to reduce the content of corporate action to a singular intention, whether imputed to individuals or to the corporation as a whole. Not all corporate action rationalized as socially responsible in necessarily ethical, but by the same token corporate actions rationalized as strategic cannot always be assumed a priori to be unequivocally bad from the perspective of everyone involved.” (Welker 2006, 16).

Taking an agnostic perspective on motivations, I seek to circumvent the problem of judging intentions or evaluating ‘true’ moral commitments of corporations and instead concentrate on the institutional constraints that compel company officials to

25 allocate their discretionary funds in a more or less welfare-enhancing fashion – regardless of what their personal preferences are. From the point of view of local communities’ development prospects, the actions are more important than the motivations behind the actions because, as Welker (2006) suggested above, noble motivations are no guarantee of good results. By assessing the extent to which companies have implemented rules, procedures and institutional structures to put their

CSR rhetoric into practice, I concentrate on the constraints that inform and guide the actions of companies’ employees. This grounded analysis of companies’ actual patterns of social investment uncovers the conditions under which companies can make a larger contribution to local welfare.

But if the literature on the contribution of mining companies to local development is split – and this project seeks to reconcile them by looking at what is actually happening on the ground – the perception of fence line populations is almost unanimous in portraying them as the ‘weak link’: groups with limited resources and opportunities that do not stand the chance to negotiate, confront or obtain anything from the global giants (Holden 2005, Jenkins 2005). In this setting where poor and isolated populations confront large extractive multinationals, it is unsurprising that the result favors the latter.

Although it is difficult to completely reject this characterization given the power imbalances involved, in this project I question the universal validity of this view and contend that local residents have new opportunities to increase their leverage, and under some conditions they can make successful claims on companies and influence the

26 allocation of discretionary resources. The opening of participatory spaces at the local level, tighter connections with international organizations and higher levels of literacy and awareness are part of the new arsenal from which local populations can draw to increase their negotiating power. By employing the new weapons available to them, local residents are able to ‘extract from the extractors’. These findings are in line with the work of other authors looking at the Peruvian mining industry such as Damonte

(2005) and Himley (2010a).

The framework I advance to explain the variation in patterns of allocation of mining companies’ social investments combines (1) the company’s CSR practices and (2) local populations’ ability to use globally relevant frames.

Table 1.2. Determinants of the distribution of mining companies’ discretionary funds Local use of global frames Effective Ineffective Pierina (MBM) Lagunas Norte (MBM) High Larger budgets Larger budgets Company’s CSR Higher quality Lower quality practices on the ground Toquepala (SCC) Cuajone (SCC) Low Smaller budgets Smaller budgets Higher quality Lower quality

Although most companies have adopted the language and the general commitments of social responsibility, the implementation of those commitments in practical terms is uneven. While some companies have adapted their organizational structures, established procedures and created institutions to incorporate CSR principles in their daily routines and in the allocation of their social development funds, others are less keen to ‘walk their talk’, prefer to maintain complete control over the allocation of

27 their discretionary resources and avoid creating unnecessary constraints over activities and resources that they consider are entirely voluntary. I expect that companies that self-impose more institutional constraints to behave responsibly – reallocation of resources, shifts in personnel, creation of new divisions and the establishment of new procedures – are more exposed to external pressures and have the need to justify themselves internally, and therefore are more likely to invest higher levels of discretionary funds and have a higher quality in the composition of the funds spent.

Villagers living adjacent to mining operations tend to have limited resources, low levels of organization and fragile livelihoods, which compromise their opportunities for collective action when negotiating with mining companies. Yet, I contend that under certain conditions, they have new prospects to increase their leverage and sway the allocation of mining companies’ social investments in their favor. How do they accomplish this seemingly impossible feat? Local residents have now learned to present their demands using global frames that are considered legitimate by global civil society organizations to which mining companies are accountable to – such as financial institutions and shareholders – or by global organizations that could affect their public image and reputation – such as NGOs and activist networks. Global frames made available in the public sphere by domestic NGOs do not have running costs and require little organizational resources to be adopted by fence line populations. Mining companies feel compelled by these frames because they have formally adopted CSR agendas and are therefore more vulnerable to demands made in these terms.

In particular, I have identified two current global frames that make local populations more able to ‘extract from the extractors’. The indigenous identity frame allows local populations to portray themselves as ancestrally connected to the land where the company operates and make claims as such, and its influence is illustrated by the quote at the beginning of this chapter. The environmental frame positions locals to demand compensations as environmentally affected populations by the company’s contamination of land, air and water resources. Their salience is undeniable and now, “if someone plays the ‘environmental card’, nobody will laugh anymore, and transnational companies will incline their heads to this discourse” (Rochabrun 2011).

Even if local residents do not have direct contact with such global organizations and are not part of formally constituted associations, the mere fact of using a common language, referring to global concerns and raising the threat that they could rally international support if their demands are not heeded, makes them part of the network and provides them with a type of traction that they did not have before. Global frames travel to these villages through local entrepreneurs that connect fence line populations with non-governmental organizations working in the region – which are in turn linked with national and global civil society organizations. Given that NGOs do not tend to have direct or permanent presence in fence line villages, local entrepreneurs are crucial actors. These ‘pollinators’, which are individuals rather than organizations, represent the last link the chain that connects global civil society with micro-political processes in their villages. More than brokers between organizations, they are individuals that take global discourses, adapt them to their own context, make them resonate with their own

29 situation and their history of encounters with the mining company and provide a shared language to engage the mining company. By adopting global concerns to their local context, residents find a common language to present their demands, get more traction in their negotiations with companies and increase their possibilities to be heard.

I expect that the successful use of frames will affect the size and the quality of company’s social investments. I expect to find that when a frame is successfully adopted, investments will tend to be larger, in projects rather than in donations and more concentrated in fence line populations than in farther removed regional spaces.

1.4. Engaging and bridging the literature

This analysis of the patterns of social investments of mining companies in Peru hopes to contribute to various research agendas. First, the project expands on studies of the governance challenges of mineral-rich countries, but in contrast with the national and fiscal focus of most studies in this area, it explores the interactions of actors at the local level and deals with flows of private resources and how they unleash distributional politics and affect the welfare of local populations. Second, it contributes to the literature on non-state welfare providers by concentrating on the political economy of social provision by private, for-profit organizations and its consequences on building state capacities at the subnational level. Finally, it proposes new directions on the studies of mining and development in Peru and perhaps other Latin American countries, where research has been unnecessarily concentrated on issues of conflict and in a handful of emblematic cases.

Extensions to the resource curse literature

Discretionary funds can be seen, in theoretical terms, as a new type of connection between the extractive industries and the domestic economy. Extractive companies have been major economic players in many developing countries for decades but, traditionally, their most important connection with the host country was through taxes levied by the central state (Auty 2004)5. In consequence, political economy studies of mineral-rich countries focused on the distributive conflicts around fiscal revenues, the economic and institutional challenges of resource booms and the conditions under which windfall revenues may boost or hinder economic and political development (Auty

1993, Karl 1997, Ross 1999, Humphreys et al 2007, Jones Luong and Weinthal 2010).

Discretionary funds, being directly allocated by private actors and spent at the local level, constitute the polar opposite from the centralized and fiscal connection normally analyzed in the literature. Although these resources may be small in contrast with the taxes that companies pay, they are big enough compared to most local budgets

(public and private), and their allocation can make a difference to the development prospects of local communities. The study of the distributive politics over this mining- related private resource is an extension to the literature on the resource curse at the local level (Arellano 2008).

Discretionary funds are loosely regulated by guidelines from the Ministry of

Energy and Mines but in practice are private resources allocated by private companies.

5 The other traditional connection is the economic dynamism generated in labor and goods markets, which are not considerable in the case of mining due to the lack of backward and forward linkages (Hirschmann 1958). 31

The autonomy of these funds has triggered countless local processes of distributional politics, in which company’s Community Relations teams have discretion on what to fund at the operation level, and a whole set of local actors strive to influence the allocation in their favor. Local actors’ success in influencing such allocation will lie on their available resources and their ability to deploy them. The process of allocation is, then, a fundamentally political one, the result of negotiations and compromises – in part persuasion, in part coercion – that happen in the local arena.

Moreover, mining companies’ discretionary funds were specifically promoted in

Peru as resources that would contribute to social development – far from what standard resource curse theories would expect. These funds were created with a promise of a positive local impact, presented in a new spirit of transparency, participation and efficiency (as the private sector manages them), and aimed to amending the distortions caused by mining revenues that were extremely concentrated in Lima and did not trickle down to local areas. It becomes then interesting from a theoretical and policy perspective to evaluate to what extent they are delivering in their promise.

Provision of welfare by private for-profit actors

Welfare provision in developed and developing countries differ in one important point: while in the former the main provider tends to be the state, the same does not always hold true for the latter. In developing countries, there is an array of private actors stepping in when the state is not able to provide (Cammett and MacLean 2011). For instance political networks and religious organizations such as Hezbollah have become

32 efficient providers of social services in Lebanon (Cammett 2006). In extreme cases of state collapse, humanitarian organizations and international NGOs have taken on the task, like in the case of Liberia, where the country budget is US$120m while the UN budget for the country is US$875m (Smith 2006).

In mineral-rich countries, extractive companies have become important providers of basic services (Carter 2000, Valente 2006, Welker 2006). In Peru, “in regions where mining investments are important, there is a system of allocation and distribution of resources running parallel to the state's system of allocation and distribution” (Carrillo

2009, 294) and even critics accept that “mining is the economic sector that has directly contributed most with local development” (De Echave et al 2009a, 284).

The study of welfare provision by a private, for-profit actor has special characteristics that are worth exploring. On the one hand, for-profit actors may be the source of considerable resources that have the potential to contribute to local development and improve living conditions of people living in fragile livelihoods. These funds represent an opportunity for urgent poverty alleviation, as they could improve access to basic goods and services of poor and isolated populations in places where the state has little capacity to reach. On the other hand, private providers are not subject to the same levels of political accountability as public resources are, and their private and voluntary nature partially shields them from criticism of being insufficient or revealing a skewed distribution. Moreover, companies’ ultimate goal of profit maximization may not always be aligned with a sustained welfare provision and promotion of social justice.

Hence, it becomes urgent to understand how to avoid the potential accountability

33 problems unleashed by a system of welfare provision led by private actors and instead harness the opportunities offered by these funds for the benefit of local populations6.

Mining and development in Peru: moving beyond conflict and ‘emblematic’ cases

In the case of Peru, the study of mining companies as welfare providers is particularly important. It is important to note that the academic debate on mining and development of the last fifteen years has been extremely lively and it has attracted important resources and generated high quality scholarship. Yet, despite the great number of excellent analyses that have been produced (Arellano 2008, Barrantes et al 2005,

Bebbington et al 2007, Bebbington et al 2009, Damonte 2005, De Echave et al 2009a, De

Echave et al 2009b, Gil 2009, Himley 2010a, Portocarrero, Sanborn y Camacho 2007,

Salas 2002, Salas 2004, Salas 2008, Szablowski 2007) conflict has unnecessarily dominated the research agenda, leaving other processes understudied.

The emphasis on the study of conflict has had unexpected consequences on the cases that received most attention. Situations in which the relationship between mining companies and local populations ended up in episodes of open confrontation were privileged, and a few so-called ‘emblematic cases’, among which are Yanacocha,

Antamina, Tintaya, and Tambogrande, were by far the most researched. About the rest, including some very important companies and mines, very little is known.

6 Thanks to Gerardo Damonte for making this point. 34

This focus on emblematic cases was partly due to a purposeful selection of mines by civil society organizations that sought to rally political support, attract international allies and create a domestic public opinion to put issues of mining and development in the public agenda (Moss 2001, Scurrah 2008). But after this first impulse, ‘research inertia’ developed. The publication of documents and books with rich and detailed information about these particular conflicts gave rise, as is usual with many other research topics, to the mushrooming of analyses about those same cases. Hence, the initial push given to the emblematic cases, justified from a point of view of advocacy to improve public policies on the social aspects of mining, was the beginning of a selection bias from which it gets more difficult to break free.

The disproportionate attention to conflict and to the same small set of cases may misrepresent the more typical encounter between mining companies and local 35 populations, which is not one of open confrontation, let alone one of utter rejection of the mining project, but instead a process marked by continuous bargaining, by mistrust and lack of capacities, by testing the boundaries of what can be demanded and offered, seasoned with a few skirmishes. The analysis of the private social investment strategies of Southern Copper Corporation and Minera Barrick Misquichilca, two global mining companies that have received less attention, seeks to redress this balance.

1.5. Chapter organization

In the next chapter, I present the theoretical framework of the project. I explore the crucial shift in the public-private divide that has placed mining companies in a position of welfare providers in their areas of influence, and assess competing explanations on the distribution of discretionary funds that bridge the global civil society literature, dependencist approaches and social mobilization theories. I draw on their insights to an extent, but suggest that they fail to explain the micro-political dynamics that take place in the routine encounters between fence line populations and mining company officials.

I then present my theoretical framework that combines company level and local level factors.

Chapter 3 describes the domestic processes that encourage mining companies operating in Peru to take over developmental roles in their areas of influence, and present the national-level parameters in which companies carry out their social investments. I contend that a combination of changes in the regulatory framework, the

36 creation of new privately managed funds for social development, the arrival of global companies with new ideas of social responsibility and an increasing public awareness of the social impacts of mining in local populations created the perfect storm that compelled companies working in Peru to improve their social and environmental profile.

Chapter 4 presents the patterns of allocation of discretionary funds of mining companies in Peru. After offering a general view of the social investments carried out by all large-scale mining companies, the analysis zooms into the four cases under discussion. This chapter shows that although all companies perform within the same national level parameters and the same rhetoric of CSR, their actual practice of these principles and hence their allocation of social investments varies widely across companies.

Chapters 5 and 6 develop a two stage explanation of the patterns of discretionary funds. In chapter 5, I develop indicators of CSR practices, describe the two companies under study and score their performance on the indicators. Corporate factors are revealed as an important predictor of levels of funds disbursed, but fail to be conclusive on the types and geographical distribution of social investments. Chapter 6 turns to local level explanations. I examine the four local settings in which company officials and fence line populations interact and discuss the extent to which the successful use of global frames explain the variety of outcomes. Finally, chapter 7 summarizes and concludes by offering some theoretical and practical implications of the reality of private provision of welfare in the highlands of Peru.

Chapter 2. Companies as Welfare Providers in Local Spaces: Theoretical Lenses

The aim of this chapter is to present the theoretical landscape in which this project is placed. It is organized in two sections.

The first section presents competing explanations on the diverse patterns of allocation of mining companies’ discretionary resources for social development. The literature can be classified according to the actor that is identified as the crucial influence on the adoption of the CSR agenda by mining companies – and hence the main causal force behind the allocation of their discretionary funds. Three key actors are seen as having the strength to influence companies’ behavior: global civil society, the host country’s government and local civil society. I discuss the mechanisms put forth by these theories to explain the processes of allocation of discretionary resources by mining companies and present their limitations. In particular, I argue that the puzzling subnational variation found across four mining localities in Peru exposes the imitations of the literature and provides important insights to advance a new explanation of the distribution of private welfare provision by extractive companies. In doing so, I suggest that the magnitude of the changes in the political economy context of the last thirty years warrants a new theoretical examination of the nature and the implications of private welfare provision in mineral-dependent countries.

In the second section I present the theoretical framework of this dissertation, which draws on extant theories but at the same time expands on them. I also generate 38 specific hypotheses that are tested in subsequent chapters. While this exercise in theory building has the subnational variations revealed in the case of Peru as its main focus, I consider that the proposed theory could be successfully applied to other countries, given the socioeconomic similarities between the localities at the point of extraction and the multinational presence of many mining companies. The ways in which I envisage this theory to travel are addressed in chapter 7. I propose that in order to understand the variety of private ‘welfare packages’ that mining companies offer to local populations, two sets of factors must be considered: the first is the institutional structures of CSR practice deployed by companies on the ground, while the second is the capacity of local populations to frame their claims in terms of globally-relevant discourses and in this way influence the allocation of companies’ discretionary resources.

2.1. Engaging the Literature: Causal Forces Behind Mining Companies’ Distributive Strategies

There is a general agreement on the fact that the private sector has been called to expand its duties into areas that were previously the exclusive realm of the state. Now multinational corporations, especially those in the extractive industries, are budgeting important amounts of resources to social development. What does the literature have to say on the determinants of the distribution of these social development funds?

Broadly speaking, three main sets of actors have been identified as promoting corporate involvement in social provision: global civil society, the host country’s

39 government and local social movements. Here, I review these three approaches and argue that, although they highlight certain factors that may be at play, they show serious limitations at explaining the patterns of allocation of companies’ discretionary funds.

2.1.1. Globalists: International Pressures on Mining Companies

The 1990s were a decade marked by neoliberal ideology, deregulation and the “retreat of the state” (Strange 1996), which increased the freedom and power of corporations.

Yet, it was also a time in which the eruption of transnational activism created new constraints on companies based on norms about socially expected corporate behaviors.

These ‘soft’ constraints have been shown to have ‘hard’ consequences, as a company’s public image has practical implications on its profitability, and has lend support to the argument that global civil society is shaping a “market for virtue” (Vogel 2005).

The last decades have seen an exponential rise in non-state actors in the international sphere, an arena in which sovereign states had an unquestioned primacy before (Risse-Kappen 1995, Strange 1996, Held et al 1999, Giddens 2000, Sassen 2004).

The international stage is now full of new types of global organizations, such as shareholders associations, non-governmental organizations, campaign committees, global social movements, and networks of many kinds (Keck and Sikkink 1998, Tarrow

2001, Vogel 2005). These non-state actors are putting in practice new tactics to discipline corporations that have been increasingly studied, classified and theorized such

40 as shareholder activism, watchdog activism, consumer activism, in addition to formal litigation and high-level advocacy initiatives (Keane 2003, Holden 2005, Utting 2005).

Scholars that can be placed under the banner of globalists contend that civil society organizations are the main actors behind the adoption of socially responsible business practices, either directly by exerting pressure on companies’ headquarters at the international level or indirectly by supporting domestic NGOs to encourage a CSR agenda at the national level (Reed 2002). The power of civil society organizations has been pointed out as a key factor promoting change in business practices and the adoption of social responsibility policies across industries. For some authors, they have been the main force acting at cross-purpose with the process of global economic liberalization: as the latter aimed at freeing capital from economic and legal constraints, the former strove to discipline or “re-embed” it through market structures, legal mechanisms and shared social values (Keck and Sikkink 1998, Tarrow 2001, Kobrin 2001,

Hall and Biersteker 2002, Ruggie 2003, Ruggie 2004, McAteer 2007). This process through which private actors create institutions to bind global capital that has been left loose by states evokes Polanyi’s (1944) double movement.

The “transnationalization of the opposition”, as Kapelus (2002) calls it, has had significant consequences for the private sector, including mining companies. Pressures from shareholders and consumers have created an environment in which the public adoption of CSR principles is generalized (Whitehouse 2003, Hamann and Acutt 2003).

But corporations are doing more than just sharpening their CSR rhetoric. Within a decade (1994-2004), global businesses increased the funds devoted to social

41 development initiatives. Companies registered in the USA doubled their social funds and those in the UK multiplied them by five (see Table 2.1), and extractive companies are considered to be on the lead of the international movement for CSR (Yakovleva 2005). A number of regional and country-specific studies suggest that in fact, many mining companies are spending considerable budgets not only on media campaigns but on real social development projects on the ground (Hamann 2003 for South Africa, Imbun 2006 for PNG, Welker 2006 for Indonesia, Jones Luong unpublished for Azerbaijan and

Kazakhstan, Garvin et al 2009 for Ghana, Idahosa 2002 for Sudan, although reporting negative results), and those that are not socially responsible run the risk of being abandoned by their customers and threaten their financial returns.

Table 2.1. Corporate giving, selected countries 1994 2004 USA (total) US$7bn 0.9% profits US$15bn 1.3% of profits UK (FTSE 100 companies) £200m 0.25% of profits £950m 0.9% of profits Source: Jones et al (2007). Includes giving on corporate citizenship, corporate social responsibility and corporate social investments.

To what extent are Globalists able to explain the variety of distributive outcomes across the mining operations analyzed in this project?

The increasing presence and influence of global civil society on the public agenda of extractive industries in Peru is undeniable. The arrival of new global mining companies in Peru in the 1990s was closely followed by the appearance of some transnational networks that direct their efforts to monitoring companies around the globe, and now Peru features regularly in many international reports (Bothends 2003,

CorpWatch 2007).

Some of these international organizations are important in the promotion of research and policy documents on the social impacts of mining, such as the UK-based

Peru Support Group (Bebbington 2007). Other transnational organizations became essential sources of cross-national information and have built an impressive Internet presence, reporting daily news and producing dozens of reports and campaigns about the social performance of the industry7. Finally, a few global organizations chose to provide direct support to existing domestic organizations, such as Oxfam America and others (Moss 2001, Scurrah 2008a, Arce 2008).

Hence, global civil society organizations targeting extractive industries have an important presence in Peru, and they have played a role in raising awareness of the social and environmental impacts of mining, advocating for legislative changes, providing valuable information and supporting academic research on the subject. In some cases, global organizations have become directly involved in particularly conflictive or controversial cases by publicizing them abroad and providing material and organizational resources to domestic NGOs involved in them.

But if globalists account for the general trend across the extractive industries of rising awareness of the social impacts of mining and of the rights of local residents to be consulted and recipients of discretionary funds, they fail to explain the variation in the patterns in the distribution of discretionary funds within mining companies. Companies

7 Among the best known are www.minesandcommunities.org, www.miningwatch.ca, www.foei.org/mining/index.html and for Latin America www.conflictosmineros.net and www.olca.cl. In Peru, there is Red Muqui www.redmuqui.org and the Ombudsman’s Report on Conflicts www.defensoria.gob.pe/conflictos. 43 with more than one mining operation reveal different patterns of allocation across sites.

If they are subject to the same global demands to become more socially responsible, why would the same company behave in such different ways?

In addition, most literature on the influence of global civil society focuses on the connections between global civil society organizations and domestic, urban based organizations. It concentrates on how international support flows to the domestic level and how domestic cases inform and support global campaigns. The next link on the chain, that is, the contacts between domestic NGOs and residents of fence line villages, remains understudied. Moreover, the insights from global and domestic level connections are unlikely to apply to the micro-level, because global organizations do not have a direct presence in these localities. The impacts they may have on local residents and the mechanisms through which they reach these villages are likely to be very different than the institutionalized, structured, organization-based connections established between global and urban NGOs. In sum, globalists fall short in their geographical reach, as they have overlooked whether and how the influence of global civil society organizations may reach very local contexts and through which mechanisms it is put in practice by fence line populations in their daily encounters with mining companies.

2.1.2. Dependencists: The Role of the Host Country’s Government

The study of the relationship between foreign capital and the state, especially in the extractive sector and in Latin America, favored the application of different varieties of

44 dependency theories until well into the 1980s. Dependency theories argue that the terms of engagement of foreign companies, from the tax regime to the social and environmental responsibilities companies have with the host country, emerge mainly from negotiations between corporations and states at the national level.

For some authors, the margin of maneuver of host governments is extremely narrow, and businesses have the upper hand across key issues and through time

(Gunder Frank 1969). Yet, others suggest that host governments are not completely helpless on this negotiation: they bring to the table assets of their own to bargain, such as local knowledge that could be relevant for businesses’ success, guarantees of social order and the capacity to set the tax and legal regimes, among others (Vernon 1972,

Moran 1974, Cardoso and Faletto 1979, Evans 1979, Becker 1983, Kennedy 1992). Other authors have noted the cyclical nature of the power that host governments can exert over foreign companies. While at the beginning of the relationship companies have more leverage to set the terms as host countries compete to attract foreign investors, once the capital investment is made the company loses negotiating power vis-à-vis the government, and could become involved in an “obsolescing bargain” (Vernon 1972). The cyclical nature of this relationship is also influenced by the international context and the prevalent notions of what is acceptable. For instance, during the 1960s, when many

Latin American countries adopted nationalist political projects, it was considered at least tolerable for governments to unilaterally change the contractual terms in which companies operate or nationalize industries. This behavior would be met with much more resistance today.

Although largely skeptical of the role of foreign companies in host countries political and economic development prospects, dependency theories have offered the most important analytic frameworks to study business-state relations, providing scholars with a rich conceptual apparatus and a more nuanced understanding of companies’ behavior. Ironically, it appears that we have learned more about business- state relations from its critics than its supporters (Biersteker 1981).

In the case of Peru, the literature on mining and development of the 1970s also reveals this focus on the government as the crucial actor that engages mining companies and is called to negotiate the terms of their presence. In practice, however, the analyses differ on whether the government actually succeeds in playing this role effectively (Brundenius 1972, Dore 1977, Stepan 1978, Kruijt and Vellinga 1979, Becker

1983, Dore 1988).

At the time, an emphasis on the government was warranted. Peru, like many other countries, had a large public bureaucracy with a very active role in the economy through state-owned enterprises like CENTROMIN and MINEROPERU, which operated large mining concessions, and MINPECO, the state monopoly in charge of trading and exporting all metals, mining and metallurgic products (Dore 1977).

However, from the 1980s onwards, changes in the political economy context of many developing countries made some aspects of this framework dated. First, as part of the structural adjustment programs implemented in many developing countries, state- owned enterprises were privatized and the direct involvement of the state in the market was transformed (Williamson 1994). The privatization of state-owned mining companies

46 in the areas of production and commercialization constituted a fundamental change in the institutional landscape of the extractive industries. Under the strong encouragement of the IMF and the World Bank, Latin American governments privatized or shut down around 1,600 public companies (Estache and Trujillo 2008, 136). In the extractive industries, most state-owned companies that were directly operating mines and smelters were transferred to the private sector, and state monopolies of mineral purchases and commercialization were eliminated8. In Peru, the state presence in mining declined steeply from 50% in 1990 to 15% in 1997 to a meager 1.5% in 1998

(Szablowski 2002, 269).

An aggressive plan of privatization resulted in a radical change in the ownership structure of the extractive sector in Peru. Before neoliberal reforms, Peru had only one private large-scale mining company, SCC, which is part of this project. Currently, it hosts

14 of the 18 companies that belong to the International Council on Mining and Metals – the association of the world’s largest mining companies. This is the highest concentration of large mining companies in any one country (Slack 2009).

In itself, the withdrawal of the state from its productive role does not entail that that the state becomes less relevant, and in fact, it can become more important through asserting its taxation and regulatory roles through well-established administrative and legal systems. Unfortunately, in the case of Peru and many other countries with weak institutional and bureaucratic structures, the state failed to complete its transformation

8 There are a few exceptions to the privatization policies implemented in the rest of the region, such as CODELCO, Chile’s state-owned copper company, and the public oil companies in Brazil, Venezuela and Mexico. 47 from a productive actor to a regulatory actor, and this greatly reduced its possibilities to monitor and discipline the private sector.

A second change that left dependency theories with an urgent need to be updated was the increasing political importance of subnational spaces. The rising levels of local empowerment were partly the result of decentralization policies implemented by developing countries’ governments, which increased the public profile of local actors.

During the 1980s, Latin America saw regional or local elections implemented in Brazil,

Chile, Peru, Colombia and Venezuela (Fox 1994). Even the hierarchical and centralized

Institutional Revolutionary Party (PRI, Partido Revolucionario Institucional) in Mexico agreed, in 1997, to elect mayors by popular vote (Grindle 2007).

In Peru, the extension of the franchise to illiterate citizens and the introduction of elected local governments at the beginning of the 1980s were followed by the creation of elected regional governments in 2006 and the gradual delegation of responsibilities and resources to sub national levels (Muñoz 2005). Currently, around

50% of all government investments are decided at the regional and local levels, in contrast to 15% in 1994 (Casas 1995, MEF 2011). Although not all subnational governments have the same capacities to take control of their new responsibilities, it is widely accepted that local bureaucracies have increased their decision-making power as they are transferred more duties and resources (GPC 2005). As society becomes aware that local governments manage more resources and take more decisions, subnational organizations of all kinds are likely to become more active and consolidate subnational public agendas.

As the Peruvian central state retreated and subnational levels of government and local actors increased their power and political relevance, mining companies came to face a new context. In it, the role played by the central government is that of a creator of the framework in which companies’ allocation decisions are made. The

Ministry of Energy and Mines regulates the types of discretionary spending companies should have and how to report them, and issues legislation on environmental and social standards that companies have to follow. To this extent, dependency theories’ emphasis on the importance of the central state is supported.

Yet, dependency theories fail to account for what happens once those centrally- defined regulatory parameters are set. In the case of Peru, no government agency has the ability or interest to get into the nitty-gritty of how companies distribute their private funds – which tend to be a collection of small investments of a few thousand dollars each – and sometimes does not even have the capacity to verify the accuracy of companies’ reports on their social investments. Countries with stronger, more able states or in which governments decide to get more involved in the distribution of private welfare provision may keep companies on a tighter leash and monitor their spending patterns more closely. Yet, in Peru and other countries with weak state capacity that aimed to be as attractive to foreign investment as possible, regulation of companies’ social investment programs have low political priority .

Without rejecting the importance of the state as an actor that defines national parameters to allocate companies’ social spending, I contend that in the case of Peru the real action does not occur at the central level, because there is a gap between the

49 formal regulations that the government issues at the central level and the implementation of such regulations by mining companies on the ground. Actual decisions of allocation are defined by the political dynamics that happen at the local level (and this is not exclusive to Peru, see Ballard and Banks 2003). Along the lines suggested by Szablowski (2002, 2007), the Peruvian government has chosen a strategy of “selective absence” (Szablowski 2007), in which national regulations are given merely as ‘guidelines’ or ‘suggestions’, leaving the door ajar for local demands on companies but in which the government refuses to act as mediator or arbiter of any particular case.

In their daily encounters, the Peruvian government tends to leave the company and local residents to resolve their problems between themselves (Himley 2010a).

Hence, the crucial questions arise after the government has defined the national level parameters: how do companies implement the national regulations and how do they behave in those areas where the law does not mandate a specific course of action?; and what resources and opportunities are within reach of local populations to influence companies’ allocation preferences? To answer these questions, attention must be turned to the local level, to establish whether formal regulations have become actual

CSR practices and what are the resources available to fence line populations to extract from the extractors.

2.1.3. Local civil society: The Power of Social Movements

If the retreat of the state was partially countered by the consolidation of global civil society that aimed to establish a governance regime from above, it was also met by the

50 rising empowerment of local actors. While the focus on local level encounters and negotiations between companies and residents is generally absent from globalist approaches, some important insights may be drawn from theories of mobilization from below, which place the dynamics of the local arena at the center of their concerns.

The argument advanced by these theorists contends that local configurations of power are the determinant factor behind the new social responsibilities of mining companies. These scholars argue that social movements emerge when three conditions are met. First, a social movement must have a motive, that is, a shared grievance that seeks to be rectified. Grievances are considered, however, the weakest constraint of the three, as “there is always enough discontent in any society to supply the grass-roots support for a movement” (McCarthy and Zald 1977, 1215). Moreover, the subjective perception of a grievance is more important than the objective conditions of dispossession, and the salience of a pre-existing grievance can be raised by movement entrepreneurs if the resources become available and an opportunity arises (McAdam

1982, 35). Second, it requires resources to aggregate interests around that discontent, to mobilize their constituents and to rally the general public in favor of its cause. Local civil society theories have been criticized as too vague on their definition of resources

(McAdam 1982), but most agree that they encompass material and non-material resources and at least some level of organizational structures to ensure the endurance of the movement. Finally, it needs to identify a window of opportunity in the political and economic context that is promising for effective action – for instance, indications of political openness in a repressive context, an external event that places the movement’s

51 issue at the top of the public agenda or anything that increases the benefits of action or reduces the risks of social action (McAdam 1982, Tarrow 1998, Benford and Snow 2000,

Meyer 2004). The political opportunity will also influence the type of tactics and strategies that the movement employs, from confrontational to negotiated (McAdam

1982, Tarrow 1998). According to these scholars, motives, means and opportunity are the triad for the organization of a social movement that has a chance to take successful action.

This approach would suggest that the presence of local social movements encourages companies’ CSR strategies and compel them to distribute social funds locally. In this approach where the squeaky wheel gets the grease, fund allocation by mining companies reflect the resources, capacities and opportunities that local actors are able to deploy in an organized manner to make successful claims on mining companies.

But just how much traction do these theories have to explain the distribution of discretionary resources in Peru and in particular in the four mining operations under study? At a macro level, local civil society theories find some confirmation on the positive impacts of increasing political openness since the early 2000s on civil society participation. As opportunities for political feedback increased in the country, people found it easier to voice their opinions in the public sphere and mobilize through diverse means (Arce and Bellinger 2007, Arce 2008). In the case of the extractive industries, this political opening was illustrated by the creation of CONACAMI9, a grassroots

9 A more comprehensive explanation of the development of CONACAMI is presented in chapter 3. 52 organization representing the plight of peasants living in areas affected by mining, and one of the most important social movement organizations in the Peruvian extractive industries.

Likewise, a more widespread presence of NGOs and activist networks in Peru after the arrival of global extractive companies in the late 1990s provided local organizations with vital information, resources, and awareness of the new demands they could make to extractive companies that would not have been heeded before – and the best strategies to obtain them. These connections, which have been shown to be successful in establishing more horizontal relationships between less powerful groups and the government and providing crucial resources for mobilization (Tarrow 1998,

Meyer 2004), revealed to be equally useful in facilitating local collective action and establish more balanced relationships between local populations and extractive companies in Peru (Arce 2008).

However, local civil society theories face serious limitations to explain the distribution of discretionary spending in Peru. In particular, they fail to explain how fence line populations with very little access to resources and very weak indigenous organizations that could serve as the foundation for creating a social movement get, in some cases, larger amounts of discretionary spending than more mobilized and vigilant areas.

In fact, villages immediately adjacent to mining operations have very low organizational density, and most of them are subsistence organizations created around government programs targeting the poor. Walking around these villages, it becomes

53 patent that public mobilization and social protest are “luxuries that most subordinated groups cannot afford” (Scott 1985, xv). Blocking highways, planning campaigns, organizing demonstrations and preparing public denunciations are all initiatives that take time and money, resources that most residents of these areas do not have. Fence line villages also have extremely limited connections with global civil society organizations or activist networks. In most cases domestic NGOs (an actor that normally promotes organization, provides funds and empowers) do not reach them either.

The presence of CONACAMI could be raised as the exception to this uniform lack of organizations. However, CONACAMI does not work as a traditional organization, but as a loose association of individuals that intermittently coordinate local initiatives and provide information. CONACAMI resembles more a pollinator rather than an organization that aggregates interests or encourages mobilization at the local level10.

Moreover, the way in which fence line populations make demands on a daily basis do not tend to rely on social mobilizations or the power of numbers (which, in any case, locals do not have). Although social protests around extractive industries in Peru have had a few violent and tragic incidents, these are not the norm in company- community engagements in Peru, and full-on confrontations seem to be the exception rather than the rule. Instead, demands tend to be made in a negotiation key; not with a desire to challenge the whole system or solve a grievance, but with the more modest aim to ‘game’ the system, to play it within its limits. And yet the outcomes from the cases studied reveal that sometimes this negotiated strategy of underprivileged groups,

10 Interview with national leader of CONACAMI. Lima, 10.11.09. 54 with little access to resources and connections with international organizations, seems to work in their favor. Local civil society theories are unable to account for this type of strategy, in which the means by which civil society make claims to companies is not through the creation of social movements and the use of its classic tactics (protests, demonstrations, or insurgency). Rather, civil society in mining localities draws on the strength of frames that have been endorsed at the global level as legitimate ways of making claims on extractive industries. In order to demand more and better quality investments, therefore, local entrepreneurs are less inclined to organize a social movement than to spread elements of globally-relevant frames – the ‘right’ vocabulary, the ‘correct’ identification of victims and villains, and the ‘appropriate’ way to make demands – as a way to extract from the extractors.

In sum, current theoretical frameworks offer some insights to the question of the allocation of discretionary funds, but all fall short in explaining the variety of ‘private welfare packages’ revealed in a controlled comparison of four mining localities in Peru.

Globalists emphasize the importance of transnational activist networks and their increasing power to influence businesses, but fail to explain variation across different operations of the same company – which presumably are under the same pressure from the same global actors at the international level – and privileges the study of the connection between international and domestic-urban NGOs at the expense of what happens in very local contexts. Dependencists’ focus on the importance of government regulations that guide companies allocation of discretionary spending, but in countries where state enforcement is weak there is a big gap between formal guidelines and

55 actual implementation, and it is the latter what ultimately determines the allocation of discretionary spending. Moreover, decentralization policies have increased the importance of subnational levels of government and local civil society actors that dependency theories do not take into consideration. Finally, political opportunity theories rightly vindicate the importance of local level factors, but their explanations hinge on some level of formal civil society organizations, the access to resources and connections, and the adoption of confrontational tactics that fence line populations in mining localities do not have access to and do not tend to employ.

Taken together, these theories share two common characteristics that make them unsuitable to explain the cases under study. First, they all emphasize organizations, be they global, national or local, as the most important way to overcome collective action and influence the behavior and distributive decisions of other actors – in this case mining companies – when in the four mining localities under study the number of formal organizations is quite low. Second, they fail to inquiry about the micro-political processes that occur at the very local level, where fence line populations meet mining companies’ officials – which is precisely the level at which the distribution of discretionary resources takes place. Aware of the serious limitations of these approaches, in the next section I offer an alternative framework to explain the variety of distributional outcomes revealed in the four cases under study.

2.2. A Framework to Explain Private Welfare Provision by Mining Companies

In this section I propose a framework to study corporate strategies of welfare allocation and local responses that gives a role to global factors and recognizes local agency at the same time. I argue that the distribution of private social development funds is influenced (1) by companies’ internal institutional arrangements that translate CSR statements of intention into CSR practices and (2) by local residents’ ability to adopt globally relevant frames to make claims on companies’ funds. In doing so, I build on globalist arguments by extending their analysis to the mechanisms through which global ideas reach villages near mining operations; explore a non-movement-based tactic through which fence line populations increase their leverage on mining companies, and shift the attention from examining corporate promises of CSR to studying the concrete institutional mechanisms they put in place to translate their words into deeds.

2.2.1. Corporate Factors: The Practice of CSR on the Ground

On the side of the corporation, the crucial factor that determines the allocation of discretionary spending is the extent to which companies have in place processes and mechanisms to implement their CSR promises.

There is considerable scholarship that focuses on the widespread adoption of codes of conduct, mission statements, ethical pronouncements and guiding principles for social responsibility as indicators of the expansion of CSR among businesses

(Kauptein and Schwartz 2007, Kline 2005, Murray 2004, Rutherford 2006, Sethi 2005,

Vogel 2005). Although corporate adherence to these codes is on the rise, much research

57 concludes that such formal pledges and declarations of values – the ‘greening’ and

‘blueing’ of business discourses – may not translate immediately into practice.

Commitments asserted from the boardroom of the international headquarters of a multinational company, even in the cases in which they are more than window-dressing exercises, may not be necessarily applied at the mining operation – incidentally, Enron had one of the most comprehensive ethics policies and a quite advanced code of conduct (Naidu 2006, 8). To be truly meaningful:

“CSR initiatives must translate from broad statements of intent at the global or corporate levels into tangible changes in behavior and performance at the local level.” (Gouldson 2006, 5).

A promising way to assess a company’s level of CSR is to evaluate the procedures they have in place to engage local residents and overcome disagreements, and the extent to which these practices are mainstreamed into the daily behavior of its employees on the ground. For the Peruvian case, I have found very little research on the mainstreaming of CSR practices into companies’ procedures in general (but see

Damonte 2005 and Salas 2008 for Antamina), and no studies that focus on SCC or MBM, the two companies I examine.

Given that I argue that the implementation of CSR practices is a determinant of the final pattern of allocation of companies’ discretionary resources, the challenge is to come up with indicators that assess CSR practices (the explanatory variable) without referring to the patterns of allocation that they generate (the dependent variable).

Drawing from the literature on organizational studies (Jones et al 2007, Weaver et al

1999, Kemp 2010, Ellis and Bastin 2010), I evaluate three indicators that captures a

58 different aspect in which companies can establish institutionalized processes to mainstream community-oriented CSR practices into their operations: (1) the status of the Community Relations office within the company, which focuses on the internal awareness of CSR, i.e. among employees, (2) the company’s attitude toward local accountability and participation of local populations, which focuses on the external public, and (3) the company’s internal rules/institutions and planning process to decide the allocation of discretionary funds, which is particular to the budget allocations for social development (see Figure 2.1.). Companies are placed on a high-low continuum in each of the indicators, and they are additive. I expect to find that the more companies bind themselves by their voluntary commitments through instituted practices as reflected in these three aspects, the more exposed they are to be held accountable to their promises by local residents and therefore they will tend to show higher levels of and better quality discretionary spending11. Hence, a score of three ‘highs’ is expected to result in larger budgets, more projects and more concentrated in fence line populations. It must be noted that companies’ scores are likely to change with time, so the scoring will be a photo of a particular instant, rather than a result set in stone.

11 Better quality spending is defined along two dimensions. First, in terms of the type of investment, it is spending that privileges projects over donations, which potentially have higher developmental impacts. Second, in terms of distribution, it is spending that privileges fence line populations over the rest of villages, as they are the ones directly impacted by the operation and also tend to be the poorest and most vulnerable. 59

Figure 2.1 Corporate-level factors: Company’s implementation of CSR practices

Explanatory variable: Company's Dependent variable: Allocation of CSR practices. Indicators: companies' discretionary funds. • Internal status of the office of In particular: Community Relations •Level: Amount of resources • Company's attitude toward local allocated transparency and accountability •Type: Projects or donations •Company's mechanisms to •Distribution: Fence line allocate discretionary funds populations or the rest

The internal status of the Community Relations area is an indication of institutionalized practices of CSR within the company and of the congruence between company’s rhetoric and performance (Jones et al 2007). It is not the same to have a

Community Relations team at a level of a mere coordinator than one with a seat on the

Board of Directors. The internal place of Community Relations areas in large-scale mining companies operating in Peru varies greatly. For instance, Compañía Minera

Antamina has a Vice President of Environmental and Community Affairs in charge of community relations, and Xstrata has a Manager of Community Affairs, while other companies may just have a coordinator for the area, a subcontracted consultant in charge of community relations or even subsume its activities under the area of

Environmental Affairs (MPRI 2003, 9). If Community Relations becomes an official part of the organizational chart, with budget, personnel and responsibilities, their members will acquire a vested interest in its own survival. In contrast, if Community Relations is only ‘loosely coupled’ to the rest of the areas, it is more likely that CSR principles will remain restricted to the personal inclination of certain individuals and not become part of the organizational processes of the firm (Ahlstrom 2010). 60

But beyond the place in the official hierarchy, the image of the Community

Relations team within the company is also relevant. The opinion of other areas about the role of Community Relations, the respect it enjoys and its perceived contribution to the company will affect the level of support they are given to do their job and their decision-making ability to plan and act as a unit. If Community Relations as a team is not taken seriously internally, it can generate situations that affect their relationship with local residents. If Community Relations does not have the authority and autonomy to negotiate in the name of the company, or if its promises are later denied by the higher management, the external legitimacy of the Community Relations team legitimacy will be jeopardized. I contend, therefore, that the internal status of the Community

Relations team (within the area and across departments of the company) affects its external performance (in its relationships with local residents). All other things being equal, a Community Relations area with a higher internal status and which garners more respect from other areas is expected to allocate larger and better quality discretionary budgets.

The second indicator, the attitude of the Community Relations team in relation to local demands of accountability and participation, captures the implementation of

CSR practices toward the external public (Humphreys 2000, Kemp et al 2011).

Companies’ headquarters in Lima are likely to comply with information requests from well-organized and well-connected NGOs in the capital, but not all of them are equally open and transparent to demands of information coming from smaller NGOs or groups of citizens in their districts. To what extent do they seek to establish a quotidian

61 relationship with local residents, clarify their questions and doubts and offer information on their activities? I expect that Community Relations teams that have defined channels to process and respond to local concerns and are more amenable to accommodating demands of information and participation will be likely to receive complaints and queries through those same channels. Once companies establish these institutional channels and expose themselves to social feedback, they are more likely to respond to it, and therefore will have larger and better quality discretionary budgets for social development.

The third and final indicator of CSR practices is the type of institutions and process through which discretionary funds are allocated12. The company could establish a participatory and deliberative process through which funds are disbursed, or it could adopt a more top-down approach to fund allocation. Given that their role as welfare providers is relatively new, companies sometimes find themselves lacking the technical capacities and social expertise to deliver. In the opinion of a former head of the General

Directorate of Mining Affairs (DGM) of the Ministry of Energy and Mines in Peru, most companies’ social programs are heavily ‘supply-driven’ rather than informed by the demands and needs of local residents:

“Companies do not have little agricultural expertise, so they prefer to carry out projects on basic infrastructure because they know perfectly well how ‘steel- and-cement’ projects work. There is no capacity for anything else, that’s why they do ‘steel-and-cement’ projects. *…+ They invest on what they have experts for. If that month happened to pass by the expert on guinea pig reproduction,

12 Companies have considerable leeway in defining the procedures to allocate their social investment funds. Some (minimal) level of participation is established in the SMP laws and there are no rules for the allocation of CROB. As will be shown in chapter 3, even the bare minimum requirements can be disregarded in practice if the company is not committed to them. 62

then they will start a project on guinea pig reproduction.” (Interview 1, 26.05.09).

In addition to a potential lack of expertise of mining companies as welfare providers, the adoption of participatory mechanisms to allocate them are considered by companies as something inherently unattractive, delaying the process and ‘wasting’ time compared to a top down allocation based on company’s own criteria, as documented for some companies in Carter (2000). Yet, other companies see the social payoffs of encouraging residents’ deliberation in the process in terms of social legitimacy of the allocation of social investments (Sen 1999, Palazzo and Scherer 2006).

The procedures that companies implement to disburse their funds are therefore an important indicator of CSR practices and are expected to have a direct and positive impact on the level of funds and their quality.

2.2.2 Local Factors: Successful Local Adoption of Global Frames

Early in 2010, a newsletter from an industry association condemned the two forces that, according to them, were preventing the operation of new mines in the country and

“keeping Peru in poverty”:

“Gold explorations in Northern Peru have not been able to continue developing, due to the strong opposition of pseudo-environmentalists and quasi-Marxists, with important support of the Catholic Church.” (Minas y Petróleo 2010, 6-7).

Although the views portrayed above may reflect the ideas of minority of

‘corporate loyalists’, most people would agree that the demands that are hitting mining companies hardest come from two areas: the company’s environmental performance in the often ecologically delicate regions around their operations and its respect for

63 peasant communities rights as indigenous peoples. This is partly because of the long history of social dislocation and environmental scars produced by extractive industries for almost two centuries but, most importantly, because the increased international salience gained by these issues in the last twenty years has created a favorable context to frame demands around them.

The heightened international sensitivity for the fate of indigenous populations and for the environmental future of the planet that were marked, among many other milestones, by the adoption of the ILO Convention 169 and the Rio Summit of 1992, have increased the leverage of communities affected by extractive industries that express their grievances in terms of these two frames (Gediks 1993, Ballard and Banks

2003).

I follow Taylor’s definition of framing as “a process by which individuals and groups identify, interpret and express social and political grievances” (Taylor 2000, 511) and a tool directed to attract the sympathy and adherence of external actors. Frames help individuals to give events a meaning and guide their action (Benford and Snow

2000). The environmental frame offers local populations the possibility to demand compensations as environmentally affected populations (in their use of land, air and water), while the indigenous identity frame allows local populations to portray themselves as ancestrally connected to the land where the company operates and make claims as such.

Environmental rights frames have been adopted by diverse groups to define issues that need to be addressed and to allocate blame (Taylor 2000). The ‘culprit’

64 identified may change with the context and the strategic choices of local movement entrepreneurs, as Harper (2005) shows in her study of the very different environmental movements that emerged around the contamination of two rivers in Hungary, and

Zimmerer (1993) concludes from his analysis of the social construction of environmental claims around soil erosion in Cochabamba, Bolivia.

Indigenous rights frames have also been used by marginalized groups as an instrument to seek fundamental civil, political and socioeconomic rights (Brysk 1996,

Yashar 2005, Van Cott 2007, Azevedo and Salazar-Soler 2009). Claims of having an indigenous ancestry to attract international attention to a particular cause have been documented by Li (2000) among the residents of Lindu Lake to challenge the creation of a dam in Indonesia, and by Sharp and Boonzainer (1994) among the Namas in South

Africa, as a result of the creation of a national park and conservation area, among others. In the particular case of mining, ethnic identification is understood by local populations to be an effective resource for asserting their property rights and the attention to their socioeconomic needs vis-à-vis the state and the mining companies.

But “if they are to fit the preconfigured slot of indigenous people they must be ready and able to articulate their identity in terms of a set of characteristics recognized by their allies and by the media that presents their case to the public” (Li 2000, 157). A community leader from Huancavelica, a traditional mining region in the south of Peru, summarizes this new context pragmatically.

“Back then with the gamonales *landlords+, they called us yanaconas *servile workers]. [The Military Government of] Velasco gave us the land and called us peasants. Now, with the [ILO] Convention 169, which gives us the right to

demand from the mine, well, I guess we’ll call ourselves indigenous” (Alfaro 2005, quoted in Salazar Soler 2009, 209).

Attempts of re-indigenization of the agrarian peasantry to demand rights to land or other resources are common across Latin American countries (Green 2006, Herrera

2009) and have multiplied in Peru (Durand 2006a, Durand 2006b, Paredes 2006, Canepa

2008, Salazar-Soler 2009), some more successfully than others. In the case of Indonesia,

Robinson (1986) already noticed how even in localities that did not have a particularly strong sense of ethnic identity or cultural specificity, residents can start expressing their demands to mining companies in an ‘indigenous key’.

Through these frames, local populations have, in a way, discovered the modern

Achilles’ heel of mining companies: they have learned that companies are increasingly expected to be socially and environmentally mindful, and that they are penalized when they fail to meet global standards of responsibility towards nature and indigenous populations in the areas where they operate. Local residents – encouraged by savvy local entrepreneurs who have adjusted their rhetoric and focus according to the new circumstances – have learned to express their grievances through a rhetoric that is most familiar and appealing to international audiences (Favre 2009). Tsing (2004) talks about the friction created by globalization, but global frames also offer traction to local residents by offering a common language to make demands on companies and the incentives to frame their claims in a particular way.

Yet, although the adoption of environmental and indigenous frames has been confirmed in many global struggles as successful ‘weapons’ to increase local leverage from North America to Papua New Guinea, they are not readily applicable to all

66 contexts. For a frame to be successfully adopted by local populations, certain conditions must be met.

How can we tell whether a frame has been successfully adopted by a local population? To determine the conditions under which one expects a frame to be successfully adopted, we need to define it independently of the outcome we want to explain, as it would be tautological to state that a frame is successful when it achieves its goal (in this case, the goal of getting higher levels and better investments). Here, I define the successful adoption of a global frame by a fence line population according to three conditions (see Figure 2.2). I argue that the successful use of a frame will influence the level, type and distribution of the company’s discretionary funds. I expect to find that the successful adoption of a global frame sways funds toward projects and away from donations, because fence line populations prefer to establish a long-lasting relationship with the mine that would guarantee future interactions with what is seen as the new powerful neighbor in town. I also expect that the successful use of frames by fence line populations will attract funds toward their localities, and therefore will result in larger investments in fence line villages than in farther removed regional areas.

Figure 2.2 Local-level factors: Successful local adoption of globally relevant frames

Explanatory variable: Successful Dependent variable: Allocation of local adoption of global frame. companies' discretionary funds. In Conditions: particular: •Frame availability •Level: Amount of resources •Frame groundedness allocated •Frame articulation •Type: Projects or donations •Distribution: Fence line populations or the rest

The first condition is that frames must be available to local populations: the supply of concepts and examples has to be within village leaders reach. Ideally, local organizations would be able to join a network and establish permanent contact with groups of activists or NGOs, which provide frames and accompany the process of adapting them to local situations (Keck and Sikkink 1998, Widener 2006, Kuecker 2007,

Scurrah 2008a, Scurrah 2008b).

However, a permanent face-to-face contact between global and local organizations may not be indispensable. In areas that do not enjoy the permanent presence of NGOs, the supply of frames may be secured even if local populations are only under the loose ‘sphere of influence’ of regional NGOs that make elements of global frames available and serve as a pollinating core for the wider region. Even under this much looser connection, an organization that provides sporadic face-to-face contact

(through short courses, meetings, or visits to deliver some printed educational material) and a limited virtual presence (e-newsletters, websites), are able to spread concepts and endow local populations with elements to structure their frames.

The second condition to build a successful frame is that available frames have to be locally relevant, that is, grounded in the local context. This means that not any frame will do. It has to be recognized by local populations as a legitimate way to speak about their grievances and make claims, and therefore each mining locality has a limited menu of options determined by their local history.

The literature on identity politics has relevant theoretical insights to offer on this issue. Moving beyond stale debates between essentialists who contend that identities

68 are immutable and given, and constructivists, who claim that individuals select the relevant identity depending entirely on the context, a more sensible intermediate position has emerged. According to it, identities are neither predefined nor are they unconstrained individual choices, individuals may hold a number of different and overlapping identities, and they can change over time. Identities become more salient under determined circumstances, and they can be reinforced or weakened by a changing context, policy choices or the presence of certain actors (Ferguson 1999, Li

2000, Ballard and Banks 2003, Scott 2009). Preferences to adopt a certain frame have to be explained in relation to both the historical context and the current circumstances of local populations.

The “invention of tradition” (Hobsbawm and Ranger 1992) is hardly ever practiced in a vacuum, and some latent elements must be ‘awakened’ by the new context. For instance, if the locality has suffered from water scarcity in the past which have become more acute with the presence of the company, residents may be more motivated to make claims in an environmental key. Or if local residents formed peasant communities and have a history of community struggles against other communities or the government that may have strengthened their communal identity (Damonte 2005), the situation may be more suitable for making claims in an indigenous key. An environmental or an indigenous frame may be available, but if there is no pre-existing local grounds to embrace them, residents will find them alien and they will be unlikely to succeed as a strong source of legitimate claim-making. In sum, a grounded frame is

69 one that is able to resonate with the imagination of the local audience (Benford and

Snow 2000).

The third condition for a successful frame is that it has to be articulated in the history of company-community interactions, and therefore must be recognized by the company as a valid frame to be used. Given that the company is the target of local populations’ claims, the frame adopted will be successful if it reflects the relationship that companies and local populations have developed during their encounters. In the first contacts, local populations and companies establish certain ‘rules of engagement’: topics of contestation are defined, strategies deployed and precedents set.

Development specialists with experience in the field are well aware of this:

“Mining companies have a socializing role in local populations. They establish, according to their first contacts, certain patterns of relationship with local populations.” (Interview 2, 18.09.09).

Given that the company is the target of local populations’ claims, the frame adopted will be successful insofar it reflects the relationship that companies and local residents have developed during their encounters. For instance, if locals have environmental or indigenous grievances that can be persuasively connected to the company’s presence in the area, or if local residents can make a case that they have been affected in any way by the presence of the mine, the frame is articulated.

Moreover, if the company has made public statements or has openly pledged to respect corporate guidelines in environmental affairs or their interactions with indigenous peoples, local populations may have opportunities to hold the company to its own word if they frame their demands in this way. Baltazar Caravedo, one of the leading analysts

70 and promoters of CSR in Peru, identifies this as the most effective route to increase private sector accountability, and argues that empty discourses will not be sustainable in the long term:

“The more promises one makes, the more one gets trapped by those promises. *…+ The make-up artists of CSR, sooner or later are going to end up trapped by the content of their rhetoric. *…+ Those who have CSR only as a discourse will end up having it in practice.”13

It is important to note that these three conditions are conceptually distinct. The first condition, availability, is a sine qua non condition – without it, frames are unthinkable. The second and third conditions of being grounded and being articulated are only relevant once the question of availability has been settled, and refers to the frame acceptability in the eyes of two specific publics or audiences: the local populations and the company, respectively. However, all three are necessary for a frame to be deemed successful.

To reiterate, if a frame is grounded, that means that it resonates with locals, and is able to represent local demands, giving them a common language to express their grievances to the company. A grounded frame helps overcome a collective problem – not the classic “collective action” problem stated by Mancur Olson – but one that is as important: that of speaking the same language to the company and standardizing local claims. In turn, if a frame is articulated, that means that it resonates with the company and is able to express local concerns in a way that is recognized as valid by company’s officials. An articulated frame is able to package local demands in a way that companies

13 Interview with Baltazar Caravedo, available online at www.youtube.com/watch?v=NWp- Q30ZZe0&feature=channel_page 71 accept as potentially threatening (to their image and ultimately to their bottom line) if they do not resolve them. Once the condition of availability is met, a frame is expected to be successful in influencing a company’s fund allocation only if it is both grounded and articulated, that is, if the two main publics at which it is directed are on board.

Table 2.1. Measuring local success of adopting global frames: three conditions Condition Definition Type of condition Available Local entrepreneurs and groups have Necessary condition. access to elements to build the frame. Grounded Frame is recognized as valid to Audience condition: Resonates represent local grievances. with local residents.

Articulated Frame is accepted as valid to make local Audience condition: Resonates claims. with the company.

The new demands placed on mining companies as welfare providers, the rising empowerment of local populations and the withdrawal of the state from local spaces have multiplied the occasions in which local residents and company officials stand face to face in unmediated interaction. This new political economy context requires us to update our theoretical approaches to understand how mining companies distribute their social investment funds, and why sometimes such allocations are more welfare enhancing than others.

Here I question the explanatory power of current approaches that identify three potential causal forces behind the allocation of discretionary funds: global civil society, the host government and local social movements and, drawing on their strengths, present the argument that will guide my analysis. I contend that different patterns of

72 mining companies’ welfare provision are the result of the extent to which companies institutionalize CSR practices and procedures and the ability of local populations to adopt global frames to make claims on companies.

The argument extends and improves on previous approaches in three main ways.

First, I stay clear from a focus in company’s rhetoric on CSR and the debate on whether officials are ‘genuinely committed’ to CSR, and move on to examine company practices and mechanisms of CSR that will constrain officials regardless of their personal ethical values. In order to do so, I look inside mining companies, something that has rarely been done for the Peruvian case.

Second, I take local agency seriously, but I move away from a focus on local social organizations to local frames. Organizations require time and money, and villagers near mining operations do not have enough resources to sustain them. In contrast, frames have no running costs and can be as effective as organizations to agglutinate people, generate shared understandings and provide a common language. Because of their low social and organizational density, I contend that local residents normally do not aim to create a social movement or aim to confront the company, but negotiate with it using globally relevant frames that could provide them with powerful international allies if the company does not fulfill their promises. Hence, these frames are not necessarily and often decidedly not connected to any social movement (cfr. Benford and Snow 2000).

Finally, I take global influences seriously too, but I examine the mechanisms through which the resources (material but mainly ideas) provided by transnational networks reach fence line villages. At this micro-level, the mechanism at play is not a 73 connection between international and urban-domestic organizations, but rather a much looser and intermittent link between local NGOs that serve as pollinators in a wide area and local entrepreneurs that capture the elements of global frames available in the public sphere and adapt them to local circumstances in their villages.

Chapter 3. The Transformations of Mining Companies’ Public Duties in Peru

At Compañía de Minas Buenaventura, the largest Peruvian-owned mining company, an unusual transition took place in 2004. The daughter of the recently retired senior official of the Welfare Office, who was in that position for nearly thirty years, was hired to that same post. The mother had been in charge of the office from the 1970s and until the late 1990s. The daughter, who was already working elsewhere, was encouraged by her mother to apply to her old job, as a way to “keep close to the people and to the company”. The daughter’s professional credentials, as well as her first-hand knowledge of the office and the company – growing up, she had accompanied her mother in numerous trips to Buenaventura’s mines – got her the job. Yet, it may not be accurate to say it was precisely the same job. “My position has changed a lot in the last thirty years; my mother would not recognize some of the things I do now” (Interview 3

20.11.09).

The changes in the responsibilities of the Welfare Office of this particular company are a reflection of the broad changes in the public perceptions and expectations on mining companies, as well as the way mining companies themselves conceive their public roles and responsibilities. What have been the main changes in the public duties of extractive companies in Peru? How have other public and private institutions both stimulated and reacted to these changes in the mining industry?

The aim of this chapter is to document the transformations in the notion of public responsibility of mining companies, as reflected in gradual changes in four areas: the legal framework on environmental and social issues; the transformations in the mission and the organizational chart of mining companies; the new resources designated for social investments; and the changes experimented by others public and private actors that reinforce the new public roles of mining companies.

In analyzing the transformations in the national-level parameters within which companies operate, this chapter also seeks to identify a few elements of the new national context that are used by companies and residents at the local level to engage in negotiations over the allocation of discretionary resources. Some of these elements are gaps that need to be filled in and interpreted locally; others are recommendations or mild obligations that are locally enforced under certain circumstances; others are opportunities for networking and information exchange that may or may not be seized.

These gray areas at the national level have opened new arenas of negotiation and contention between mining companies and local residents that are resolved differently in different places.

The rest of the chapter is organized as follows. First, I present the changes in the legal framework in which companies develop their social and environmental responsibility policies. Part of the changes in companies’ public roles derives from a new legal framework. Although in Peru enforcement mechanisms may be weak and underfunded, and laws can be “watered down” by a reluctant administration to prevent being fully applied; the adoption of a law could become an opportunity for other actors

76 if they are able to use them to hold companies accountable. Second, I analyze the internal organizational transformations experienced by mining companies. The creation of new areas and the demand for new types of personnel suggest a rising awareness of a new set of public responsibilities. Third, I present the funds that have been created to finance the new public responsibilities of mining companies. I argue that the importance of local politics and the pressures to decentralize responsibilities and wealth led to both the government and private companies to direct a larger share of resources to their local areas of influence. Fourth, I present important changes in other private actors that also reinforce the new context. These are, in a way, informal institutions and practices that help delineate the new contours of the public responsibilities of mining companies and make them less likely to deny or evade their new roles.

All these changes have feedback effects and are to some extent self-reinforcing, which makes it hard to establish a line of causality: was legislation the factor triggering the process, or was it the creation of new private funds earmarked for public investments? Was it the pressure from international organizations or was domestic civil society the ultimate force behind change? Although this is hard to disentangle, what is clear is that these processes have created a new configuration of company’s public responsibilities that is very different from the one they faced three decades ago.

3.1. Regulatory Changes: New Social and Environmental Legislation Provides Leverage

Until the early 1990s, Peru’s social and environmental legislation on extractive industries was minimal. On the social side, companies’ social investments were

77 restricted to their workers’ welfare. On the environmental side, a universally applicable set of regulations was simply nonexistent (World Bank 2005).

The nationalistic military regime of the 1970s had established some welfare provisions for mining workers and their families in the General Mining Law of 1971, such as adequate housing, schools, recreational facilities, and medical and hospital assistance

(MINEM 1971). A democratically-elected government gave a new General Mining Law in

1981 (Glave y Kuramoto 2002), but left the Welfare and Safety provisions of companies towards their workers unchanged. Later, in 1992, as part of the structural adjustment program implemented in Peru by a resolutely neoliberal government, a new General

Mining Law was approved. Once again, the social duties of mining companies were circumscribed to their workers and their families.

It is intriguing that despite the extreme changes in economic policy and on the ideas of the public responsibilities of the private sector – from the industrialist, nationalist military regime of Velasco in the 1970s to the neoliberal structural adjustment project of Fujimori in the 1990s – the welfare titles of the three General

Mining Laws given during that period14 are virtually identical, keeping workers as the target population under the social responsibility of extractive companies. Although mining companies’ social duties remained the same, their environmental responsibilities did change under Fujimori, and in fact those changes enabled new social legislation to be introduced as a result.

14 In Peru, General Mining Laws were given in 1971 (DL 18880, June 8, 1971), 1981 (DL 109, June 13 1981) and 1992 (DS 014-92-EM, June 4, 1992). 78

Before, there were no State guidelines on environmental protection, and this generated a large list of incidents that contaminated water, air and land, known as environmental legacies. According to estimates of the MEM, there are 610 environmental legacies in Peru15 and their clean-up will cost around US$250m, although the private evaluation of three companies working to remedy the legacies in one single province, Hualgayoc, counted 1,200 and according to FONAM, a government agency, the number of legacies is 1,935 and require a remediation budget of US$474m (FONAM n/d). It seems there is still work to do on the definition of a passive, as well as an estimation of remediation costs (Oblasser and Chaparro 2008). The World Bank and other international organizations forcefully suggested the adoption of new environmental regulations in the early 1990s (World Bank 2005, 16-18). In a situation in which Peru was eager to improve its image and recover the support of multilateral organization, the government and the industry association had little bargaining power – according to an industry spokesperson (Interview 4, 02.09.09) – and the legislation was introduced. A senior official at Southern Copper Corporation (SCC) agrees on the source of the pressures:

“It was the pressure coming from the World Bank what made Peru issue environmental legislation in the extractive industries, and that opened the field to Corporate Social Responsibility.” (Interview 5, 30.04.10).

In fact, SCC would be the first company to carry out an environmental assessment in 1992, even before the new environmental regulation was formally in place. SCC’s Environmental Remediation Plan (known by its Spanish acronym, PRA –

15 More recently, MEM updated that number to 850, but did not estimate remediation costs (World Bank 2005). 79

Programa de Remediación Ambiental) became the basis of the Environmental

Management and Adaptation Plans (PAMA – Programa de Adecuación y Manejo

Ambiental) that all mines and smelters already in operation had to file with the Ministry of Energy and Mines to get themselves up to current standards16. The PAMA ensures that the company is taking care of the emissions, effluents and discharges of the operation, and that they do not go over the maximum legal limits of potentially dangerous metals. It also has provisions and emergency plans to preserve water, air and land quality during the life of the mine.

In 2003, the government adopted new legislation to regulate mine closures17.

This was a very important law to prevent the generation of additional environmental legacies. Before, mine closure was simply an administrative procedure. One had to fill in a form and file it at the MEM. The name of the procedure, “mine abandonment”, was indicative of the complete lack of supervision that depleted mining sites attracted from the government (Interview 4, 02.09.09).

Along with these laws, the environmental management capacity of the MEM increased, and a plethora of institutions were created to supervise and manage different aspects of the new environmental governance system. In 2008, the Ministry of the Environment (MINAM) was established, although it is still struggling to convince the rest of the ministries to transfer their environmental functions (along with personnel and budgets) to be able to centralize them. Despite some improvements, however, the

16 PAMAS are required for all operations underway – a sort of retroactive regulation – while new operations have to prepare Environmental Impact Assessments (EIA) before they are built. 17 Mine Closure Plan Law No. 28090 and Mine Closure Plan Regulation DS No. 033-2005-EM. 80 system still lacks credibility, and many actors consider that the political priority of promoting Peru as an attractive country to develop mining ventures trumps any considerations for environmental affairs. Recently, in January 2010, this view was supported by the government’s expedite promulgation of two presidential decrees that identified 33 large-scale infrastructure projects as government priorities and exonerated them from presenting EIAs. The decrees boast the approval of the Ministry of the

Environment but have nevertheless generated strong reactions from recognized environmental lawyers and other specialists, who considered it “a terrible setback”18.

The newly introduced environmental regulations of the 1990s also opened the door for legislation that dealt with the direct impacts on residents in mining localities. As this project focuses on the local politics of negotiation with mining companies and the tools that locals may use to “extract from the extractors” and redirect more resources to their villages, they merit a separate treatment.

The EIA regulation of 1996 was a first attempt to present EIAs at Public

Audiences, but it was very restricted. It was only in 2001, after the few first large mining projects like Yanacocha and Pierina were already in operation and Antamina was well under construction, that the MEM published its first Guidelines for Community

Relations. The guide, published by the General Directorate of Environmental Affairs (as the MINEM had no specific Office for Social Affairs at the time) was a comprehensive guide for mining companies on how to deal with local populations during the life of the mine. It encouraged companies to provide information, carry out consultations, and

18 Castro, Mariano. “The end does not justify the means: Decrees endanger environmental protection”. In: El Comercio 24.01.11. 81 maintain good relations with local populations. The guide presents a wide variety of useful strategies to disseminate information and get local feedback, although it also accepts that their application is up to the company’s own initiative, apart from the

Public Audience stated by law (MINEM 2001, 42).

The regulation of citizens’ participation on the EIA included two stages of consultation, one that involves a series of workshops to explain the impacts of the project to the populations directly affected by it. The second stage is the Public

Audience, a broader and more political session that is held in a near urban center and that is open to everyone.

The inclusion of this consultation process in the EIA was the turning point in which mining companies finally felt that their ‘communities of interest’ had expanded beyond the welfare of their own workers (Interview 4, 02.09.09). It tipped the balance in favor of tending to local populations and making them the main beneficiaries of mining companies’ social spending, while company workers were consigned to a secondary place (together with the fact that workers numbers had declined and unions were very weak).

In 2003, the MINEM established the DS 042-2003, expanded even further the public responsibilities of mining companies, stating that they ought to “maintain a harmonious relationship with the population living in the area of influence of the mining operation *…+ maintain a continuous dialogue with regional and local authorities, the population of the area of the mining company and their representative organizations, providing information about their mining activities *…+ promote preferentially local

82 employment and offer opportunities for improving their technical skills *…+ acquire preferentially local goods and services” and “develop together with local populations a set of institutions for local development.”19

Yet, these good intentions were hard to enforce until 200820, when the MEM issued the official form that companies had to fill in to report their social activities21.

Through their Annual Statement of Sustainable Development, companies were required to report their social investments of the previous year for the first time in 2008. This was an important step to transform vague principles into more concrete and measurable efforts to contribute to social development.

A final piece of regulation that is relevant to be discussed here is the Mining

Easement Law22. Although, strictly speaking, this is not a social regulation, it is important because – just like social regulations – it places companies and populations face to face without the intermediation of the State.

Table 3.1. Landmark environmental and social regulations in the Peruvian mining sector 1993 – 2008 Year Law Name Features 1993 DS 12-93- Law and Regulation of Introduced EIA (Environmental Impact EM; Environmental Assessment), PAMA and Environmental Audits to DS 016-93- Protection of Mining Regulates mining procedures and environmental EM Activities protection. It established that titleholders of mining concessions that have completed the exploration stage and are planning to move on to the production stage must file an Environmental Impact Assessment (EIA) with the Ministry of Energy and Mines.

19 All are excerpts from DS 042-2003. 20 This is an extended problem in Peruvian legislation, where Laws state general principles and intentions and Regulations get into the details of how to operationalize those principles. There can be years between issuing a law and its regulation. 21 Resolución Ministerial No 192- 2008-MEM/DM, Formato del Anexo IV de la Declaración Jurada Anual de Actividades de Desarrollo Sostenible – DAC. 22 Law 26570. 83

1994 Peru ratifies the ILO ILO Convention 169 becomes binding in Peru. The Convention 169 on main principle of the convention is that indigenous Indigenous and tribal and tribal peoples should be consulted in matters peoples that concern them (ILO 2009b). 1994 Law 26410 National Established CONAM and defined general Environmental Council guidelines on environmental quality standards, Law (CONAM) maximum permissible levels and contamination parameters. 1996 Law 26570 Mining Easement Law Stated that if no private settlement is reached between mining companies and surface owners, the mining company can start an administrative procedure to ensure its access and use of the land. 1996 RM Nº 335- Public Audiences to Required EIAs to be presented in a Public 96-EM/SG present the EIA Audience. Only representatives of registered institutions could attend, if they had registered at MEM before. 2001 Guidelines for A set of guidelines to carry out the SIA and Community Relations improve community relations developed by the MEM. 2001 Law 27446 National Established SEIS, a coordinating system for all Environmental Impact public projects, governed by CONAM but allowing Evaluation sector decision-making powers System (SEIA) 2002 RM 596- Citizens' Participation Hearings and consultations must be arranged to 2002-EM in the EIA. ensure public participation as part of the process of approval of the EIA.

2003 DS 042- Sworn Statement of The company must submit a sworn declaration to 2003-EM Social Development. adhere to a sustainable development framework. It presents a list of all social projects and programs developed during the previous year. It must be submitted every year in September. 2005 Law 28090; Mine Closure Law and The Mine Closure Law and its regulation introduce DS 033- Regulation of the Mine the requirement of a mining closure plan as part of 2005-EM Closure Law the environmental regulation. As part of this plan, companies are expected to plan a “social closure”, involving consultations and guarantees that the population will be at least as well off as before the mine started. 2008 DS 028- Regulation of Citizens’ Introduces and regulates citizens’ participation in 2008-EM, Participation in mining all stages of mining projects (concession, RM 304- operations exploration, exploitation, operation and closure). 2008-EM Companies must have a protocol or guidelines of community relations.

Source: MINEM and World Bank (2005).

In the Peruvian legislation, the State owns the underground but there is private ownership of surface lands. This context of dual ownership allows central government

84 authorities to grant mining concessions in places where other private economic activities (such as farming or herding) are being developed. This means that companies get their mining concessions from the government, but have to negotiate the surface rights with private landowners, who could be individual or peasant communities and may or may not have formal titles to their land. In 1996, the government approved the

Mine Easement Law, which stated that if no private settlement is reached, the company was entitled to start an administrative process to expropriate the land.

Although the government has been wary of applying this easement procedure and strongly encourages companies to negotiate directly with land owners (Damonte

2005, Gil 2009, Himley 2010a), it has been argued that its existence can be used to exert pressure on communities which face the tough choice of either selling or losing their land (World Bank 2005, 107). The MEM can respond to their critics by saying that the law has seldom been applied and that settlements are reached “peacefully” in private, but the fact that the State leaves two actors with vastly different capacities to deal with these negotiations is a recipe for many disagreements, misunderstandings and unfair settlements (Bernales 2004).

Despite the proliferation of new legislation in this area and the rising importance given to issues of participation and consultation with local populations, most of the regulations are found wanting. First, they are often pitched in terms of guiding principles instead of enforceable laws. Second, they are phrased in a vague manner, such as

“companies must ensure that populations are well informed”23 (over which period of

23 RM 304-2008-EM. 85 time?, through which mechanisms?, what is the minimum quorum for meetings?, how to measure level of information?). Finally, the legislation still has serious gaps. For instance, in March 2009, after the second time that local protests prevented SCC’s local audience for the US$1bn Tia Maria Project in Arequipa, the government and the company were left on their own to negotiate an ad hoc solution, because there was nothing in the law that would suggest a course of action. These are situations that should be avoided, as any ad hoc resolution is bound to be affected by the parties’ vested interests.

All these shortcomings in the social regulations have led critics to argue that the process of local consultation and local involvement is full of problems, and that companies treat them as mere informative sessions (Alvarado 2002, De Echave et al

2009b, Pulgar-Vidal and Aurazo 2003). Granting that this new set of recommendations are not as strong as some may want them to be, they do have contributed to create a context in which local demands could have more weight, provided that organizations use regulations as tools to get more leverage to pressure companies. For instance, if companies do not get a ‘social license’ from the community because locals object to some aspect of the project and justify their objections based on regulations that companies have voluntarily adhered to, the government will find it very hard to support the company and will be likely to withhold the concession until some deal is reached.

Alberto Benavides, the CEO of Compañía de Minas Buenaventura and a leading figure in the Peruvian mining industry admits that things have changed and local-level negotiations are more important than before:

“Before, mining was considered an activity of ‘national interest’ and it had the right to do anything. There were no worries about relations with communities. Today we have to negotiate with them, and if they say ‘We don’t want you to work on this area’ there is no way we can do it.”24

During the life of the mine, there will be certain moments in which the company will have to ask locals for their support – an expansion of the operation, the need for additional water, the approval of the mine closure plan, etc. (Himley 2010a, Damonte

2005). All these will be opportunities that locals may take to make claims on the company, as I will illustrate in the comparison of four mining operations in chapter 6.

Szablowski (2007) has suggested that the creation of this body of regulations, which is voluntary but can be used to compel behaviors of mining companies, respond to a purposeful State strategy of selective absence. In his study of land acquisitions by a mining company in Peru, Szablowski (2007) notes that:

“The principal coping strategy demonstrated by these regimes [like the Peruvian one] is one of selective absence. While the state plays a clear regulatory role in some areas, it operates through an indirect delegation of authority in others. Through the regulatory slight of hand afforded by these strategies, the Peruvian state aims to off-load many of the economic and political costs associated with mediating mineral development without prejudicing its position within the international economic order (Szablowski 2007, 74, original emphasis).

Hence, through this selective absence and keeping most regulations in terms of guiding principles, the State has placed itself in a peripheral position, staying in good terms with the industry but at the same time offering some tools that may be used by local populations, domestic NGOs and global civil society organizations to exert pressure

24 Interview with Alberto Benavides de la Quintana, leader of one of the largest mining business groups in Peru. Diario El Comercio, July 12 2006.

87 on extractive companies, as I shall present in chapter 6.

3.2. Changes in Companies’ Internal Structures: Organizational Innovations for Private Welfare Provision

Companies’ internal structures and the strategies they display toward their

‘communities of interest’ have also experienced important transformations.

At a conceptual level, there has been a change in what can be called the social mission of mining companies. From a concentration on the welfare of mining workers and their families and a philanthropic calling to – in their own words – ‘civilize’ them, companies have refocused their efforts on populations living in nearby villages and updated their language with notions of partnership and sustainable development. At another, more practical level, there has been a process of institutionalization and professionalization of that relationship, reflected in new organizational structures that have standardized the encounters of mining companies and local populations.

Before, social support was given primarily to what is now called the ‘internal public’ (workers and their families) through the company’s Welfare Office. All aspects of life were taken care of by the company, as noted by Kruijt and Vellinga (1979) for the case of the Cerro de Pasco Copper Corporation (CPC) in Peru. There, the company would cover the workers’ basic needs, such as health and education for the family, and even extra-curricular activities for the children and the wives like “family schooling, mothers clubs, recreational clubs, children’s boy scouts clubs, sewing courses for mothers, propaganda films and family visits” (Kruijt and Vellinga 1979, 89).

This was the standard welfare package that mining workers used to get in any

‘modern’ large-scale mining company25. Located in isolated places, with limited public services and few pre-mine residents, corporations had to build company towns from scratch, attract workers from elsewhere, and provide for all their needs. In the world of company towns, all aspects of life were regulated. Company managers saw themselves not only as suppliers of jobs, but bestowed with a civilizing mission and “sought to succeed as society builders” (Lankton 1991, 144, emphasis added). Marcosson exults the transformations of the small town of Butte, in Montana, USA, since the arrival of

Anaconda Mining Company.

‘Where once flannel shirted miners dominated the turbulent scene, today a varied citizenry, alive with civic pride, comprise a population that has more than quadrupled since the days when Daly took over the Anaconda mine. Modern apartments have risen on the sites of the tents of the rip-roaring days, department stores have been built where once the rough broad-fronted stores stood, and stately churches have supplanted the frame meeting houses.” (Marcosson 1957, 350).

For the Peruvian case, Samamé (1972), a long-time advocate of the positive impacts of mining in the country and the most renowned historian of mining, provides a mirror image of Marcosson’s account:

“Mining has in our Andes a highly civilizatory mission, incorporating to the national economy large groups of illiterate peasants that before were living in subhuman conditions. Each mining center is not only a factory, but also an urban center, which now can be reached by road and is communicated with the rest of the country through mail, telegraph and radio. In this center, the worker has a place to live, with electricity, water and sanitation, the right to medical assistance for him and his family, free school for his children and has access, at a minimum cost, to satisfy his food and dress needs. The average daily pay in mining is

25 See Finn (1998) and Marcosson (1957) for cases in Chile and Gaventa (1980) and Lankton (1991) for cases in the Appalachian Valley and Lake Superior in the USA.

between 5 and 10 times higher than in agriculture. These economic and social conditions allow the children of miners to study and train to be efficient men, becoming professionals, technicians and highly qualified workers, and producing a genuine and irreversible social development.” (Samamé 1972, 506-507).

In contrast to the benefits provided to workers and their families, the needs for public services of the ‘external public’ were only covered to the extent that many of the company workers came from neighboring villages. Sometimes, from their position as workers and often through the Union, they would ask the company’s help to fund a local festival or rebuild a chapel. Likewise, local households could complement their incomes by selling their local produce to the company, and in this way benefit from the presence of the company. But these benefits tended to be scattered and only amounted to isolated interventions based on informal agreements, “largely confined to the goodwill of an engineer or the kindness of a social worker from the company’s Welfare Office”, as the head of Community Relations of a Peruvian mining company stated (Interview 6,

22.06.09). These interactions were considered secondary from the business point of view, and the relationship established with the external public was unstructured and haphazard, nothing more than a collection of arbitrary decisions made by specific individuals (Durand 2005).

During his fieldwork on eight US company towns in Peru, Goodsell (1974) observes the unstructured social aid given to neighboring communities by CPCC, the largest and most powerful mining company in the country.

“Help is rendered to various charities, schools, churches, hospitals and governmental units in the surrounding region. Most companies maintain a regular ‘donations’ account in their budget to cover this activities; Cerro, for instance, regularly spends US$35,000 a year in this way. Sometimes the gift in

the form of cash, to be spent for such things as scholarships, school books, a new school building roof, and disaster relief.” (Goodsell 1974, 180-181).

As late as 1998, when CSR was already a fairly well-known concept, mining companies’ investments were still mainly philanthropic (sports, books, local fairs), or if they were on local infrastructure projects, they were off the back of the infrastructure that companies had to construct for the operation of their business anyway, such as road-building and electricity connections (Caravedo 199826).

The relative importance of the internal and external publics has shifted dramatically in the last twenty years. The emphasis is now on the welfare of local populations, and companies have left behind the language of philanthropy to adopt contemporary notions of sustainable development and partnership. An industry spokesperson argues that these new concepts are now integrated in managers’ approach to local populations.

“Everything has changed now. Everyone knows the definition of sustainable development and quotes the Bruntland report on their websites. Mining managers understand that they cannot restrict their social interventions to a ‘quick fix’. There are no quick fixes; it’s all long term work.” (Interview 7, 21.08.09).

Carter’s (2000) ambitious study on 11 companies spanning 7 countries and 3 continents, including four in Peru27, documents this change in companies’ roles and the acceptance of mining companies, albeit unevenly, of their new responsibilities as local developmental agents.

26 According to Caravedo (1998), most mining companies have supported rehabilitation of roads (93.3 percent), support to local activities (70 percent), support to local sports (66.7 percent), provision of electricity (63.3 percent), and donation of books (60 percent). 27 The four cases in Peru are Cerro Verde, Orcopampa, Yanacocha and Tintaya. 91

“Beginning with contributions to health, education and infrastructure, companies move to promote productive activity in their selected communities and to encourage the protection and revitalization of the natural environment through ecological projects and education. Further, some companies have found it appropriate to engage in ‘community development’, a holistic, participative and people-centered approach to community activities.” (Carter 2000, 337).

At the same time as mining companies’ social duties toward local populations have expanded, they have experienced a process of institutionalization and professionalization, and new structures were needed to engage with a new community of interest. Although in Peru these new institutional structures remain in flux (Damonte

2005), many mining companies have established an area of Community Relations that interacts with the people living near the operation on a daily basis. Of the 19 companies that are classified as ‘large-scale’ in Peru, all have an area of community relations established and separate from public relations (Meza-Cuadra 2008).

Community Relations areas have been established as part of companies’ internal structures and are in charge of keeping a fluid and cordial relation with local organizations by disseminating institutional information, providing small donations, and serving as the first point of contact between the company and the population in its area of influence. They are “the company in the community and the community in the company”, as a community relations official described it to me. For its characteristics – small-scale aid within the company’s organizational structures, physically located within the operation’s compound – Community Relations areas are able to provide a quick response to minor issues of “social friction” with fence line populations.

With the creation of these areas, new types of professionals were required in the extractive industries. The kindness of an engineer or the goodwill of a social worker

92 were no longer enough to manage larger budgets, greater responsibilities and institutionalized structures to engage with local communities.

“Before, mining companies had at most 16 types of professionals working for them (different types of engineers, technicians, administrative support, etc.). Now, there are hiring more than 40 different types of professionals, including nutritionists, agriculturalists, anthropologists, veterinarians, sociologists, and many others. They are hiring professionals that only ten years ago they wouldn’t have imagined they would need!” (Interview 7, 21.08.09).

To sum up, in the past, companies’ social duties were directed primarily to their workers and their families, and they developed welfare programs within the mining camps. Some argue that this was carried out under a well-intentioned civilizatory mission (Samamé 1972, Marcosson 1957), while for others it was an attempt to domesticate labor and keep workers under control (Kruijt and Vellinga 1979, Durand

2005). The little aid provided to the neighboring populations was unstructured and philanthropic. Now, companies’ welfare efforts have refocused from the internal to public the external one. The main social contribution of mining companies is the one they offer to neighboring populations, and it has become the favored way of evaluating their social responsibility (much more than labor practices, which in some cases can be appalling). Companies’ interventions are presented as long-term developmental efforts, and in many cases they are highly institutionalized.

Whether the practice lives up to the rhetoric remains to be seen and depends on specific cases. It is well known that the good intentions of formal institutional structures do not necessarily translate smoothly into application. Even companies with relatively similar institutional structures, budgets and personnel, may fare very differently in

93 terms of their actual commitment to social responsibility on the ground, as I present in chapter 5.

3.3. Changes in Resources for Social Development: Fresh Funds to Target a New Public

For decades, the Peruvian mining industry has lived with a paradox: while the central

State relies on the considerable revenues it generates, there is, at the same time, a widespread feeling that mining is a disrupting force that generates environmental disasters and social conflicts. To ease the widespread feeling that companies take from the ground much more than what they give back for social development, they have announced in the past years new ways to share their profits with local populations.

On the one hand, the State has established some fiscal mechanisms to redistribute part of the taxes and contributions paid by companies to subnational government to be spent on local social investments. These are resources that are transferred from mining companies to the State and become public funds in the full sense. I call these non-discretionary funds, because both the size of the fund and its allocation are decided by the government.

On the other hand, companies directly manage additional funds that are to be spent specifically on social investments. I call these discretionary funds, as private companies manage the resources and decide how, when and on what they are assigned.

There are three types of discretionary funds: the Community Relations Operating

Budget, the Solidarity Mining Program and Social Funds. These funds may have been created by a State regulation (like the Solidarity Mining Fund or the Social Fund), but in

94 practice, they are under the control of private companies and their allocation is decided through negotiations between companies and local populations. Therefore, the main difference between these two types of funds is who has the last word over its level and distribution. In this project, I focus on the three types of discretionary funds and the local distributive politics they unleash.

Community Relations Operating Budget

The first of the discretionary funds at the disposal of mining companies is the

Community Relations Operating Budget (CROB).

Since the early days of mining, companies have assigned some funds for social projects in their areas of influence. There has always been some company money to fund local anniversaries and fairs, prizes for schoolchildren, help in building a community center or a church, health-related donations, etc. Yet for decades, such funds were relatively small in size and companies did not have to inform anyone about the way they managed them.

When the function of community relations became more institutionalized and professionalized, the recently created areas of Community Relations28 received budget allocations to manage the relations with locals. This budget is normally used to respond to the requests presented by the population, ensure social peace and guarantee that the company maintains its social license to operate.

28 I call it Community Relations “area” to use a general term. The position and importance of this area in the company’s organizational structure varies widely, from a Vice-Presidency to a sub-office. 95

The Community Relations budgets are entirely decided by the company. Due to the fact that it reflects a company’s internal decision, it is not surprising that the sizes of such budgets vary from company to company and even from operation to operation within the same company. If the company decides to sharply cut or increase its budget in a particular year, it is only accountable to its shareholders.

For the first few years, these funds were completely under the control of companies, and could be spent freely without any supervision or constraint. Since 2008, companies were expected to file a Sworn Declaration on Sustainable Development at the MINEM, which includes a record of all the social investments made during the previous year, and details about geographical allocation, number of beneficiaries, and type of investment, among others. And in 2010 there was an explicit regulation to make this information available to the general public29, companies feel more pressure: yes,

CROB remains the most flexible of all discretionary funds and, in principle, a company’s

CROB can be consistently zero, but companies are not only compelled to report their activities but are also exposed to the questions and complaints of civil society.

The slight changes in the level of disclosure that companies are subject to in relation to their CROBs are likely to influence their budget allocation decisions at the beginning of every year and prevent extreme fluctuations. Moreover, the increasing institutionalization of Community Relations as an area of all major mining companies

29 DS 052-2010-EM. The level of confidentiality of this information was not clear before, as the Annual Sworn Declaration on Sustainable Development is an annex to the Annual Declaration that companies present with technical information on production, expected expansions, and inputs – including dynamite. During the years of internal violence, the government decided to make the Annual Declaration confidential to minimize opportunities for terrorist organizations to raid mines and get ahold of dynamite. The annex itself contained no classified information, but it was still part of the Annual Declaration, which placed it in a gray area (Polo y la Borda 04.03.09). 96 also plays in favor of budget stability. Still, these are expected to be rather soft constraints in the face of a change in the company’s bottom line. Confronting a bad year, it is unlikely that mining companies will keep their spending promises intact, especially when some companies’ officials warned during the 2009 economic downturn that “it is impossible for CSR programs to be disconnected from a company’s financial results”30. An analysis of CROBs for a set of large-scale mining companies as well as a detailed evaluation of CROB in the case of the four mining operations of SCC and MBM is presented in chapter 4.

The Solidarity Mining Program

The SMP is a State-sponsored initiative under which mining companies sign voluntary agreements with the State to make local investments in their areas of influence31. This program resulted from a process of negotiations to force mining companies to share the extraordinary profits accrued during the commodity boom of the early 2000s. At the time, the Peruvian government was under strong pressures from civil society groups that demanded additional taxes on mining companies that, in their view, were not sharing the benefits of the boom with the country. The adoption of a windfall profit tax had strong popular support and many candidates took it as a campaign commitment during the presidential elections of 2006.

30 Luis Campos, regional environmental director of Minera Yanacocha. En: “Gasto Social? Responsabilidad social en época de crisis”. El Comercio, 29.02.09. 31 The Solidarity Mining Program (Programa Minero de Solidaridad con el Pueblo – PMSP), is also known informally as the Voluntary Contribution (Aporte Voluntario). It was approved in December 2006 by the supreme decree DS-071-2006. 97

Yet, as soon as the APRA administration took office under Alan Garcia, it refused to establish a special windfall profit tax on mining companies, claiming to respect the legal framework in which these companies were operating and warning that any changes in the rules of the game might scare away new potential investments (Aste

2007). Instead, the government drafted the Solidarity Mining Program, with the political promise was that it would rise funds in the region of US$150m (S/.500m) a year, and according to the decree that created it, would be a “voluntary, extraordinary and temporary contribution” of the mining industry that would last for five years32.

The public discourse of the advantages of the SMP over a windfall tax rested on the principle that the State was incompetent and could to be trusted. Setting a windfall tax would generate more revenues for a State that was incapable of spending even the money it already had, and in the end, the funds would risk disappearing in the public budget for other urgent matters. Instead, the SMP would generate public funds that would be efficiently managed by mining companies through civil associations, and would be earmarked exclusively for social development projects.

Legally, signing this agreement was not compulsory – and in fact some companies decided not to sign it – although there was a strong social and political pressure to join the SMP, and most large and medium-scale companies have done so.

SMP started off in July 2006 with 31 companies, for September 2006 there were 35 and currently there are 39 signatories.

32 It is said that Prime Minister Jorge del Castillo was the leader of the SMP initiative. 98

By signing a SMP agreement, each company commits every year 3% of its net profits (after tax but before participations) of the previous year to its trust, 2% of which goes to a Local Fund and 1% to a Regional Fund. The agreements stipulate that the contribution to the Solidarity Mining Program is only paid when the average annual price of the metal the company produces is above the “reference price”33. Each signatory company agrees to create a trust fund in which it will deposit its resources.

The advantage of creating a trust is that the funds are legally transferred out of the company’s accounts and hence company officials cannot reallocate them for other purposes, but at the same time are shielded from potential discretionary decisions from the government, as they are held in a private bank and can only be used to fund social development projects in the areas of influence of the mining operations (MINEM 2009,

Mendoza et al 2009). The funds do not have to be spent, or even committed, in the year they were deposited in the company’s SMP bank account.

Companies have a strong say on where and how to spend the SMP resources.

Model clauses included in all agreements between MINEM and mining companies give companies large powers over the trust: they decide the geographical reach of their local and regional funds, approve the projects to be funded, take part on the select committees to contract out third parties to implement the projects and can transfer the resources to any executive unit, existing or newly created for this purpose34. Also, there is no timeframe in which these resources have to be allocated, and therefore the

33 The reference prices are set at the level of the “long term” prices of the metals, that is, prices that generate normal profits. Any price level higher than the reference price generates windfall profits and makes signatory companies subject to the PSMP. 34 Excerpts correspond to Solidarity Mining Program agreements between mining companies and MEM, all available at www.minem.gob.pe. 99 commitment pace is decided by the company. The formal controls stated in SMP regulations are complemented by informal ways in which companies can, on the ground, ultimately decide how and where to spend these funds.

From the first report, the Ministry states the private nature of the SMP and the supervisory role that MEM has through the SMP Monitoring Team:

“The Solidarity Mining Program (prioritized as a presidential goal or Governmental Action Program) is not a State program as such, but a commitment to an economic contribution voluntary, extraordinary and temporary, celebrated between mining companies, the Ministry of Economics and the Ministry of Energy and Mines *…+ and it is not implemented or carried out by this Ministry.” (MINEM 2007, 5).

Many opposed the creation of the SMP35. Some said that this was only a small proportion of what the companies would have paid up had a windfall tax been adopted.

Others, however, argued that the lengthy process of passing a tax law played against it. I the words of a civil society activist:

“It was not possible or realistic to pass that windfall tax law back then. It is a fallacy to compare the windfall tax with the Voluntary Contribution. A tax takes time, a bill has to be drafted, it is debated in commissions, it goes to the plenary, etc. Also, it wouldn’t be retroactive. And it wouldn’t have applied to most companies, because they have tax stability agreements. In conclusion, the windfall tax law was not realistic at all in our case, although it could have been applied to the next price boom…” (Interview 8, 26.05.09).

The SMP was quickly dubbed the Óbolo Minero (Mining Offering) and denounced by the presidential contenders that lost to Alan Garcia, the left-leaning nationalist

Ollanta Humala and the right-winger Lourdes Flores-Nano. Both decried that the government was settling for a small donation and relying on mining companies’ kindheartedness. Far from a statement of justice, it was a handout. Next to the bold

35 For the most devastating critique of the SMP, see Schuldt (2007). 100 moves of President Evo Morales in Bolivia to renegotiate the agreements between the

State and extractive companies during 2006, the SMP was seen by some sectors as extremely risk-averse and timid, if not plain evidence of shady deals between the government and the industry. In early 2011, as the presidential elections of April draw near and the industry worries about potential changes in the rules of the game, the

SNMPE, the industry lobby, has suggested extending the contributions to the SMP until

2016.

A statistical analysis of the SMP for the 39 signatory companies and in particular of the four case studies of this project is presented in chapter 4.

Social Funds

Social Funds are special budgets earmarked for social projects and welfare provision.

The idea of Social Funds in the extractive industries came into being under the same commodity boom that created the SMP. Even after the SMP was established, some argued, local populations remained at a disadvantage. They had to wait until the mine was making profits to enjoy the benefits of the SMP – as SMP is a percentage of companies’ profits. In the meantime, locals had to deal with all the inconveniences of the exploration and construction stages without getting any retribution, and perhaps forming a lasting image of the company as mainly a competitor for local resources such as land and water (Mendoza 2008). Social funds were introduced to bridge this time gap between the company’s arrival and the start-up of its operation, and ensure that it

101 develop a relationship with local communities and guarantee the project’s social license to operate.

Establishing social trust funds was already a possibility in the early 1990s, when new regulation was introduced as part of the structural reforms. The government considered that it could be a way to deal with the concerns put forth by civil society groups in Lima and other regions in the early 2000s36. The earliest example of these social trust funds in the mining sector was the Social Development Fund for Ancash

(FIDA, Fondo de Inversiones para el Desarrollo de Ancash), constituted in 200237 by the difference between the initial investment committed by Compañía Minera Antamina in its contract with the State and the actual investment made. This US$111.5m fund was earmarked for social investments in the Ancash region (Barrantes 2009).

In 2004, the government added the possibility of establishing social trust funds as part of any privatization process, and that such funds would be used by the state

(central or subnational offices) to finance social programs in the areas of influence of newly privatized companies. It also established that Proinversion, the State agency that promotes and manages privatization processes since the 1990s, would be representative of the State in social trust funds38. Many social trust funds have been created since, in different sectors from energy to hydrocarbons (Barrantes 2009).

Social trust funds became more popular in mining concession contracts too

(Mendoza et al 2009). In all of these cases, social trust funds are constituted by a share

36 In 2002, the “Arequipazo”, a successful social mobilization to resist the privatization of the regional electricity company in Arequipa under fears of rising energy costs, was the proximate cause by which the government decided to establish social trust funds with part of the funds of privatization processes. 37 D.S. N° 007-2002-PRES 38 Decreto de Urgencia 009-2004 and Law 28401. 102 of the resources committed by mining companies to the government in their concession contracts, although the particular conditions of these payments differ from one contract to another: they may be one-time sums paid for the concession rights, others may be a percentage of annual profits, and others may be part of a schedule of lump-sum payments at specific moments of the project (exploration, beginning of operations, once investments are recovered, etc.).

Yet, in 2008, an important government decree changed the nature of these social trust funds. There had been increasing concerns about the performance of

Proinversion as the representative of the State in social trust funds. It was seen as very bureaucratic and centralistic, something that was reflected on the low level of disbursement of the social trust funds (Mendoza et al 2009). For instance, by the end of

2007, the Las Bambas Social Trust Fund, with over three years of being established, had only carried out 13 of 76 programmed projects (Mendoza 2008). It was true that the expertise of Proinversion was not necessarily on social fund management, as its role was to promote private investments abroad and manage bids for new concessions, and that perhaps it was not the ideal state agency to be part of these social trust funds. So, in

2008, the government gave new legislation that left Proinversion (any the public sector as a whole) out of the equation and was aimed to make social fund execution more agile39.

Under the new legislation, the old social trust funds became privately managed social funds. The company, together with local and regional authorities of the area of

39 Social Fund Law DL 998, and its regulation DS 082-2008-EF. 103 influence of the social fund, has to establish a non-profit organization that would administer the funds. The supervisory role of the central State through the process of approving priorities, assigning resources and implement projects is eliminated (IIMP

2009, 90-91).

The Social Fund has to appoint an Executive Committee made up of company representatives and subnational authorities, which will choose populations benefitted, geographical reach, types of projects funded and contractors to implement them. The presence of local and regional authorities in the Social Fund’s Executive Committee somewhat balances the power of the company but in practice, as with the resources of the Solidarity Mining Program, mining companies have a strong say if not the last word on the allocation of resources of the Social Funds. Moreover, if the Executive Committee is not established within the first four months of the Social Fund being created, the company has the authority to set it up unilaterally (Mendoza et al 2009).

Six of these Social Funds have been created so far in the mining industry, but it is becoming increasingly popular arrangement and new concessions in the extractive industries are likely to be accompanied with the creation of new ones.

As can be seen from Table 3.3, Social Funds are far from insignificant. However, it is also interesting to note the wide dispersion on their size (from US$1m to over

US$200m), and on the number of beneficiaries they cover (sometimes one small district, other times multiple provinces). That raises questions about the variety of targeting strategies of extractive companies – some prefer to cover more people, even if it is only

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with a small amount per capita, others prefer to concentrate their expenditures in

smaller areas and provide more goods.

Table 3.2. Social Funds currently in operation in the Peruvian mining industry

Project Name (Company) Region Amount (US$ millions) Beneficiaries Resources per capita (US$) Las Bambas (Xstrata) Apurímac 62.5 80,552 775 Bayóvar (Vale) Piura 1 52,600 19 La Granja (Rio Tinto) Cajamarca 11 12,000 916 Toromocho (Chinalco) Junín 1 7,000 142 Michiquillay Cajamarca 201.5 23,440 8,596 (AngloAmerican) Alto Chicama (Barrick Gold) La Libertad 60 282,500 212 Source: Mendoza et al (2009). Bayóvar and Alto Chicama pay resources annually on profits, during the operation’s whole life-span. In these cases, data refers to funds that have been paid into the fund as of August 2009. Beneficiaries are the population living in the districts considered part of the Social Fund’s ‘area of influence’, which is delimited by the mining company.

Of the four cases selected for this project, only Lagunas Norte has a Social Fund. For that

reason, I have decided to leave them out of the analysis and concentrate on the

Community Relations Operating Budget and the Solidarity Mining Fund.

3.4. Emergence of New Institutional Actors: Consolidating a “Socially Responsible” Domestic Context

New notions of the public responsibilities of mining companies are reflected in laws,

resources, and companies’ internal organizational structures. Yet, skeptics could still

argue that these changes are largely cosmetic: that are derived from regulations

imposed from abroad and adopted half-heartedly by the State, that companies’

organizational changes are only superficial, that new funds are insignificant and that, in

fact, everything remains the same.

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However, skeptics would find it harder to deny a set of important institutional innovations that are also part of the rising public profile of mining companies and that suggest that new notions of public responsibility are taking root. A wide range of actors

– from law firms, research institutions and various other civil society organizations to the State itself – have changed to respond and adapt themselves to the new public roles that mining companies are now expected to fulfill. Both the state and civil society have organized around CSR issues, and if the scale of these changes is an indication, the mining boom of the late 1990s will have long-lasting consequences in Peru.

Within the state, new specialized offices have been created to deal with social and environmental aspects of extractive industries. The Conflict Prevention Unit [Unidad de Prevención de Conflictos+ at the Prime Minister’s Office is in charge of monitoring and dealing with potential social conflicts in extractive industries and other areas. The

Ombudsman’s Office for Social Conflict Prevention and Governability *Adjuntía para la

Prevención de Conflictos Sociales y Gobernabilidad+ acts as the guarantor of citizens’ rights in negotiations actors and contributes to the peaceful resolution of conflicts. This office has also developed an important initiative to monitor and report on social conflicts40. The Social Management Office [Oficina General de Gestión Social] at the

Ministry of Energy and Mines was created in 2007 to carry out an advisory, informative and mediating role: suggesting legislation and guidelines for environmental and community relations facilitating dialogue among all parties and holding decentralized

40 Monthly reports since 2004 can be found at www.defensoria.gob.pe/conflictos-sociales-reportes.php 106 workshops and preparing educational materials41. A number of new bodies regulate environmental affairs, and in 2008, a Ministry of the Environment was created. Even some governmental agencies have started marketing their field knowhow to mining companies, offering themselves as developers and managers of mining companies’ social investments, but unless it involves a very attractive agreement, mining companies are reluctant to do so, mainly because they prefer not to share the success of their projects with anyone.

Within Peruvian civil society, many NGOs and think tanks have created or strengthened their areas devoted to extractive industries. NGOs devoted to issues of participation, citizenship and community capacity building have expanded their grassroots initiatives connected to the promotion of transparency and accountability of extractive industries (Grupo Propuesta Ciudadana, CIPCA, CBC). Other NGOs with expertise on project management have become social fund managers and some of them have become managers of companies’ SMP or Social Fund. For instance, CARE and

CARITAS co-manage Compañía Minera Antamina’s large SMP fund in Ancash, and others are hoping to enter into that market as well. Environmental areas of law firms have grown considerably as regulations in this area have multiplied. The demand for social science professionals from the extractive industries has never been so high. It is said half-joking and half-seriously that, for the first time in history, there is full employment

(well-paid and plenty) among Peruvian sociologists and anthropologists. Anecdotal

41More information on the Social Management Office of the MINEM can be found at www.minem.gob.pe/sector.php?Idsector=3#. 107 evidence suggests that perhaps the best-paid agronomists in the country are those working for mining companies.

While many organizations have changed and adapted to this booming area of interest, others have emerged as a result of it. Perhaps the most important new organization created in response to the recent mining boom is CONACAMI.

CONACAMI was created in 1999 and has positioned itself as one of the most vocal national-level organization on the social and environmental impacts of mining, and a crucial actor in the construction of an ‘indigenous discourse’ in Peru (Paredes 2006).

The most important antecedent of this organization is found in the mid-1990s, among peasant communities in the Central Andes, a traditional mining area in Peru

(Padilla 2009). The grievances of these communities were historical, as was mining activities. Yet, with the mining boom of the 1990s that attracted global private companies to take over some of the mines in the area and even to expand their operations, local resistance reawakened.

The expansion of mining to areas of the country that had not seen that activity before was met in many places with alarm and opposition from the locals, and generated a critical mass for a movement at a national scale. One of the leaders involved early on in the creation of CONACAMI, argues that the conditions for its formation were ripe.

“Creating CONACAMI was in fact very easy! All the factors were there. The people wanted to vindicate themselves, know their rights, know the impacts of mining. Everything was ready for someone to come and organize the people.” (Interview 9, 10.11.09).

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The most important organizations in rural areas, CCP and CNA, had failed to respond to the social impacts of extractive industries (De Echave 2008, Vittor 2009a).

Likewise, the more political and confrontational Defense Fronts [Frentes de Defensa] were not seen as legitimate nor representative organizations through which mining affected communities could further their cause, because they “included a variety or local actors with a diverse agenda that did not prioritize the problems of communities and the negative impacts of mining” (Vittor 2009b, 13).

Lacking a referent and eager to take their concerns to the national stage,

CONACAMI was established in 1999, and at its First National Congress, it was defined as

“a coordinating body of communities affected by environmental contamination due to mining”.

A number of “domestic institutions with experience on mining, agrarian issues and to a lesser extent involved in environmental affairs” (De Echave 2008, 6) were involved in the creation of CONACAMI. In the wake of its creation, they helped articulate a movement in mining areas, organizing workshops, producing materials, promoting debate and experience exchanges and raising the profile of the issue in Lima.

International organizations were also crucial in providing resources and support in CONACAMI’s foundational moment of. They not only supported CONACAMI directly, but also provided funding to domestic NGOs that in turn supported CONACAMI. The most important of these organizations was undoubtedly Oxfam America. Daniel Moss, then Oxfam America’s Program Officer for South America based in Boston, describes the support given to CONACAMI and its domestic allies.

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“Quite deliberately, Oxfam has helped to build a sort of solar system around CONACAMI. That is, while preserving CONACAMI’s legitimacy and protagonism as a representative organization of communities affected by mining, it has fortified the support NGOs that offer them assistance. Funding support NGOs to provide direct technical services to affected communities and the CONACAMI federation has proven to be a useful tool in making the NGO support most strategic and relevant.” (Moss 2001, 16).

The success of CONACAMI in the articulation of what until then had been a number of local and isolated conflicts easily dismissed by the national government, was extraordinary. Since its creation, it became directly involved with (or indirectly influenced) some of the most important cases of company-community encounters in

Peru, such as the local mobilizations in Cajamarca against Yanacocha’s attempt to explore Cerro Quilish; the extensive and successful dialogue between local communities and BHP Billiton to assess damages and define a fair compensation at the Tintaya mine in Cusco; and the confrontation in the Tambogrande valley in Piura between smallholders and Manhattan Minerals, a Canadian mining company, which ended with the first popular consultation against mining in Peru (making use of the ILO Convention

169 on indigenous peoples) and, after the ‘NO’ vote prevailed, the departure of the company from the valley (Paredes 2006 , De Echave et al 2009a).

In 2003, CONACAMI experienced a crucial transformation in the way it framed its grievances. Until then, it had privileged an agenda of environmental concerns and promoted a debate on the best use of natural resources. In its second Congress of

October 2003, the organization changed its mission and resolved to privilege an agenda eminently indigenous (Paredes 2006).

“Delegates voted to reject dialogue and to embrace an anti-systemic politics that calls for the total rejection of mining and the neoliberal economy’s exclusionary

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practices and principles. They also voted to reconstitute CONACAMI as an indigenous confederation that would center its demands on defending indigenous rights, promoting indigenous political participation, and refounding the nation-state.” (Poole 2010, 30).

This change, according to the director of Oxfam America in Peru at the time and eyewitness to CONACAMI’s second congress, was the result of a confrontation between radicals and moderates in the wake of the success of Tambogrande.

“The radicals of Tambogrande arrived *to the Congress] with all their might, after having expelled the people from Manhattan [Minerals]. They arrived with the slogan “Agro si, mina no”. But at the same time the communities near Tintaya did want to negotiate with the mine. The ones from Tambogrande shouted at them ‘traitors’.” (Interview 10, 26.10.09).

The success of Tambogrande gave the upper hand to the radicals, and

CONACAMI embraced a more confrontational discourse against mining, which had not had until then, and stopped participating in dialogue spaces in Lima and other regions, including Tintaya’s successful dialogue table42. This turn was reinforced by the political potential of using the ILO Convention 169 to advance local interests, the mobilization of indigenous groups in Bolivia and Ecuador, and the high profile gained by native populations in the Peruvian Amazon after a bloody confrontation with the government in 2005 over concessions for infrastructure projects in the territories of indigenous communities (Bebbington 2009). The indigenous identity, until then deeply connected to native communities in the Amazon, started to be used to refer to peasant communities in the Andes, and an interesting Amazonian-Andean alliance shaped up

“under an explicitly indigenous banner” (Green 2006, 329).

42 Some interviewees claim that CONACAMI was banned from some dialogue spaces by the MINEM and some mining companies; others say that it chose to retire. In the case of Tintaya, CONACAMI decided to step down. 111

An exchange program promoted by Oxfam America across indigenous organizations in Peru, Bolivia and Ecuador offered the opportunity for CONACAMI leaders to learn more about the global indigenous discourse.

“Oxfam America funded forums, courses and seminars. Those who went from CONACAMI came back from the meetings in Ecuador and Bolivia wide-eyed. ‘This is the way. We are also indigenous, we look like the, we sound like them, we must demand our indigenous rights’.” (Interview 10, 26.10.09).

If one consults the CONACAMI website, the organization defines itself in these terms:

“The National Confederation of Communities Affected by Mining represents ancestral native communities [comunidades originarias ancestrales] who build economic social and environmental justice as peoples with collective rights against the abuses of transnational companies, extractive economic activities and national and global policies.”43

The association of CONACAMI with an indigenous identity and the use of concepts such as those of ‘ancestral communities’, ‘collective rights’ and ‘plurinational state’ has undoubtedly increased its international profile and has opened the door to important alliances abroad, especially in a global context favorable to indigenous rights.

However, the energy placed on advancing its position in national and international spaces came at a cost of neglecting its own organizational structure and grassroots support (Padilla 2009), or even alienating grassroots to take up a discourse that was perceived as too hostile.

The internal structure of CONACAMI has suffered from the emphasis placed in inserting the organization in a transnational activist network. Most of CONACAMI’s regional chapters – CORECAMIs – have not had a change in leadership in more than ten years, and their connections to local organizations is weak. In many areas, locals are still

43 CONACAMI website, www.conacami.org.pe. “Who we are”. 112 reluctant to wholeheartedly adopt an indigenous identity, even in areas in which the communal identity is robust. Embracing an indigenous identity to make claims on mining companies is coldly received in the Southern Andes, where communal identities are historical and strong but the negative connotations of being considered ‘indigenous’ run deep. In some other areas where residents may not want to reject mining altogether but hope to establish a relationship with the mining company in better terms, local groups may consider that adopting an indigenous identity and associating themselves with the discourse of CONACAMI is too confrontational. For instance,

CONACAMI tried up to four times to create a regional group based in San Marcos, the district that hosts the giant copper mine Antamina, but residents were unwilling to establish it and preferred to establish a negotiated relationship with the company. The weak institutional structures and democratic practices of CONACAMI and the uneven adoption of the indigenous identity as the main way to make claims on companies have created internal divisions in the organization and even risks of ruptures, as was pointed out by a CONACAMI activist (Interview 11, 10.05.10).

In sum, CONACAMI has been extremely successful in creating a national agenda and making the plight of populations in mining areas visible. It has led the creation of an indigenous discourse in Peru, and shaped the national understanding of mining conflicts as that of a profound conflict between different values and understandings of nature, instead of a more soluble conflict of interests. Yet, it now faces an important challenge at the local levels, where their grassroots support may be waning as some local

113 populations prefer to negotiate with companies and do not entirely embrace the indigenous profile of CONACAMI.

Another NGO that regained momentum in the 1990s, as new environmental legislation was introduced in Peru, was Labor. Established in the coastal city of Ilo in

1981, Labor is considered by many as Southern Copper Corporation’s “nemesis”, given that they share the city with SCC’s industrial facilities – its refinery, smelter and port.

According to a senior official at SCC’s Public Relations office, “Labor is a long standing enemy. It has made our lives impossible. Lopez Follegatti [one of the founding members and historical leaders of Labor] is directly responsible of many of the false stories about

Southern that are told around here” (Interview 12, 01.03.10).

As its name suggests, Labor was first conceived as an organization fostering trade unions’ political capacities. Ilo was considered as an important place to build workers capacities, as it hosted a medium sized fishing industry as well as being SCC’s industrial heart. This important mass of workers made the city an appealing space for a young couple of left-leaning university graduates from Lima to move to Ilo and start

Labor (Portocarrero et al 2007). Through workshops and legal assistance, Labor soon became an important referent for trade unions, and within two years Julio Diaz Palacio, one of the leaders of the labor movement in Ilo and also one of the oldest members of

Labor, was elected mayor to the local government representing a coalition of leftist forces. Labor became a source of technical and political support for the local government, and diversified its expertise from labor issues to urban development, citizen participation and environmental policy (Loveday and Molina 2007, 2).

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This advisory role to the local government continued through the 1980s and

1990s, during the three terms of Diaz Palacio, as well as the four terms of Ernesto

Herrera, the following mayor – also a trade union leader and associate of this NGO

(Vargas 1998). The political project of these union activists backed by Labor is until now one of the best known examples of participatory local governance – “and a decade earlier than Porto Alegre”, proudly emphasizes one of the early leaders of Labor

(Interview 13, 28.05.09).

In the early 1990s, Labor got much attention at the national level with its extraordinary success at the International Water Tribunal in The Hague, where it presented a case against SCC environmental practices in Ilo. The company was found guilty and there was an important international name-and-shame campaign that is likely to have influenced the company’s decision to clean up its industrial facilities44. This accomplishment consolidated the environment as Labor’s main concern. It would also be the source of problems with its long-term partner, the local government.

Portocarrero et al (2007) offer an interesting account of the conflict of interests that developed between Labor and the local government over the project of building a new coal-burning energy plant. While the mayor and the population backed the construction of the plant in the south of the city, convinced by the economic benefits and job opportunities it would create, Labor resisted it on the grounds that coal smoke is one of worst air pollutants known. Respecting its participatory tradition, the local government called for a popular vote.

44 A full account is presented in chapter 5. 115

“When in 1997 the local government and a good part of the population decided to approve the construction of Enersur’s *coal+ plant in the south of the city, the members of Labor were forced to opt between two fundamental priorities of the organization: participation and popular consultation, on the one hand, and the defense of the environment and sustainable development plans on the other.” (Portocarrero et al 2007, 177).

As a result of this, Labor decided to pursue its environmental concerns and extend its presence to other regions with mining presence. First it opened an office in

Moquegua, where SCC had one of its operations, and later in Arequipa and Lima45. The office in Lima would be crucial to raise Labor’s profile in relation to multilateral agencies and large NGOS in Lima, mining companies’ headquarters and government institutions such as MINEM (Vidal and Bedoya 2008).

In 2000, Labor became a founding partner of the Grupo de Dialogo Minero46, a space that brings together the industry, civil society and the State in an effort to exchange information and advance a mining agenda in the country. Jose Luis Lopez

Follegatti, one of the founders of Labor, has been one of the main architects of the group and facilitates the periodical meetings of the group, which congregate around 100 attendees and has an online community of hundreds of members.

Labor is today one of the most renowned environmental NGOs in Peru, central to many of the important debates on environmental public policy, particularly related to mining but not exclusively. Labor has developed a two-pronged strategy. Its relatively independent field offices in three different regions keeps the organization connected to the grassroots and provides opportunities to be partisan and champion the cause of

45 Further information can be found in Labor’s institutional website www.labor.org.pe 46 More information can be found in the Grupo de Dialogo Minero’s website www.grupodedialogo.org.pe 116 local communities against mining companies in some specific cases. In contrast, its presence in Lima is not confrontational but rather engages the extractive industries and the government, and has focused on a strategy of advocacy, dialogue and negotiations.

3.5. Conclusions

Normative ideas about the public responsibilities of the extractive industries have changed considerably over the last thirty years. In Peru, these fundamental transformations are reflected in new regulations, recent changes of companies’ internal structures, fresh resources for social development and overall institutional changes in the mining sector.

Before, extractive companies were not constrained by environmental or social regulations, and many took advantage of that negligence to cause profound social and environmental scars in mining areas. They considered workers and their families their rightful beneficiaries, and provided them with basic services such as education, health and housing within the mining camp. In contrast, aid provided to local communities was a collection of unstructured donations dependent on “the good will of an engineer”.

Resources provided were limited and with no developmental objective. The lack of civil society organizations that championed the plight of residents in the vicinity of mines completed a picture in which the impacts of extractive industries in the welfare of local residents did not constitute an issue in the public agenda.

Peru was swept into a new global context in the 1990s, a context in which states

117 rolled back, transnational organizations demanded the private sector to take more public duties and company managers reassessed their responsibilities toward local populations. These global changes were expressed domestically in a new set of national- level parameters in which mining companies had to operate. A social and environmental legal framework was created, and although it has gaps, problems, and its application is far from perfect, it nonetheless opened new opportunities for local populations to make direct claims on mining companies and demand some level of information and participation at different stages of the development of the mining project. Companies were also encouraged to establish large earmarked funds to be spent on social development. Workers’ welfare took a back seat in companies’ priorities and the populations near their mining operations became the central object of the industry’s interest. As a result of the new responsibilities and the large earmarked funds in companies’ hands, there was a professionalization of private welfare provision to local communities through the creation of specialized areas of Community Relations. At the same time, the types of goods and services provided shifted – in discourse and to an extent in practice – from traditional philanthropic aid to being oriented toward sustainable development. The state and civil society organizations adapted to these changes and developed institutional structures (organizations, programs, offices, research projects and other initiatives) organized around mining and development that have made visible the problems of mining affected communities.

To be sure, these national-level parameters have defined a new set of rules of the game for the mining industry. But the question that is presented in the next chapter –

118 and hopefully answered through the rest of the dissertation – is what happens within these parameters, when companies and residents stand face to face in a particular mining locality. In some matters, formal institutions, legal regulations and national organizations may be redefining the incentives of mining companies to behave in certain ways, but other matters have been left at the judgment of mining companies on their everyday commitment to socially responsible practices and/or the ability of local residents to seize new windows of opportunity to make claims on mining companies.

Indeed, if national-level parameters were the factor that merits most attention to understand the new encounters between mining companies and local residents, the data would not reveal such considerable variation in the allocation of discretionary resources across cases. To explain this variation I turn to the local exercise and concrete application of these parameters and the informal practices that are created by companies and residents within their interstices, for good and bad. In the following chapters, I contend that local spaces are the level in which mining companies and populations really shape the allocation of companies’ discretionary funds, through a process that is in some cases more interactive and in some others more one-sided, depending on the capacities of the parties.

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Chapter 4. Patterns of Allocation of Mining Companies’ Discretionary Funds

Mining companies have been placed in the role of welfare providers in the areas where they operate, have been encouraged to carry out institutional innovations to fulfill these roles and have been given an implicit mandate to spend their private resources on it.

What do we know about the way in which mining companies operating in Peru are distributing their discretionary funds in their areas of influence?

Efforts to describe and analyze mining companies’ discretionary funds systematically have been undertaken by the government (MINEM – Ministry of Energy and Mines), industry bodies (IIMP – Peruvian Institute of Mining Engineers) and some civil society organizations. Yet, most of these reports present data at an aggregate level, highlight particular examples (either ‘best practice’ or appalling cases, according to what the report wants to emphasize) and are mainly interested in the global amounts companies pledge and invest.

The question about how exactly these resources are being distributed within companies’ areas of influence has remained unanswered. Are they being allocated to projects that could improve the living standards for local populations, or are they mostly funding local festivals, buying off political support or ending up in private hands – none of which will have long-lasting effects in local welfare? How much is being devoted to the populations directly affected by the mining operation and how much to interest

120 groups with more capacities to make claims and ‘shout louder’? By looking beyond aggregate figures, intriguing patterns emerge.

In this chapter, I describe the puzzling outcomes that are at the heart of this project. The examination of discretionary funds presented here seeks to move past current analyses that have mainly focused on the level of funds pledged by companies and anecdotal evidence of particular success or failure stories. Aggregate figures hide rich information about companies’ individual performance and also about the allocation of these funds by type and their geographical distribution. To expand on previous efforts, I analyze companies’ funds for social development along three dimensions: (1) the level of discretionary funds, (2) the distribution across types of funds, in either projects or donations, and (3) the distribution across geographical areas: with funds going either to fence line villages (known as the area of direct influence) or beyond

(areas of indirect influence)47.

This chapter is organized in four sections. Section 4.1 statistically describes the large variation in the distribution of discretionary funds across a set of large-scale mining companies in Peru, focusing on the three dimensions of my outcome of interest: level, type and distribution of discretionary funds. The analysis confirms that these funds are vast, but more importantly, that they have widely different patterns of allocation. To facilitate the identification of the factors behind this variation, I propose

47 The identification of direct and indirect areas of influence is a prerogative of the company. Its origin can be traced back to the environmental and social impact assessments companies have to undertake prior to getting the license to establish a new operation, and now they have been sanctioned as part of the Solidarity Mining Program agreements. Direct areas are composed of the closest villages to the mining operation. They are mostly rural areas, with low population density and few services. Indirect areas are normally constituted by the urban center of the district where the operation is, and other districts and provinces of the region that are considered under the area of influence of the company. 121 to move from a large-n descriptive analysis to a small-n comparison of four mining operations. The characteristics of these cases, as I argue in section 4.2, make them ideal to parse out the contributing factors that shape the allocation of discretionary funds.

Having justified the cases, section 4.3 offers a detailed analysis of the three dimensions

(level, type and distribution of funds) in the four cases, and sets the stage for the explanation presented in the next two chapters. Section 4.4 summarizes and concludes.

4.1 Patterns of Allocation: A Macro Analysis of Size, Type and Distribution of Funds

In this section I analyze the ways in which a set of large and medium scale mining companies in Peru distribute their most important discretionary funds at the local level: the Solidarity Mining Fund (SMP) and the Community Relations Operating Budget

(CROB)48. I present the two funds separately but in parallel, because although I understand that they were established under different rules, I want to be able to draw joint conclusions of these two discretionary funds49.

The Community Relations Operating Budget (CROB) is set at the beginning of the financial year for each mining operation and is under the responsibility of the

Community Relations area. The Solidarity Mining Program is also set annually, but is not pre-assigned to an operation but at the company level. The Community Relations area of an operation has to request the funds once a particular investment is decided.

48 For the details of the CROB and the SMP, refer to chapter 3. 49 In fact, there is a third type of discretionary funds that is available for some companies, called Social Funds [Fondos Sociales]. Only one of the four cases under study has a Social Fund, so I have leave that out of the analysis. For details about Social Funds, see chapter 3. 122

The rules that govern these two funds are very different: while CROB is completely discretionary and companies’ only duty is to report to the Ministry of Energy and Mines what they have invested during the year, SMP has stricter rules about amounts, fund distribution and reporting. If companies face different degrees of freedom to distribute these two funds, one would expect to find that the logic of allocation of each fund is different when it comes to decide how much to spend as well as how to allocate discretionary funds in terms of type (donations vs. projects) and distribution (fence line vs. the rest). But the analysis reveals surprising similarities across funds.

Complete and disaggregated CROB data is available from the MINEM for 2007 and 200850. In addition, I have found data for 2005 and 2006, from the Reports of Social and Economic Contribution of Mining in Peru prepared by the Peruvian Institute of

Mining Engineers (IIMP 2006, IIMP 2007). This data is aggregated and incomplete, as it comes from a voluntary and anonymous survey collected among some large and medium scale mining companies. This makes a comparison across years difficult, as there is no information about which companies responded to the survey, but it can still give a sense of the average size of the contributions for every year (see Table 4.1).

50 CROB data for 2007 and 2008 belongs to the database DAC Social and was provided by the MINEM. DAC Social is the annual report on budgets and projects of social responsibility that all mining companies must hand in to the MINEM. I had access to this database before the deadline to turn in the companies’ CROB reports for 2009. 123

Table 4.1. Community Relations Operating Budget, annual average by company Year Total CROB Number of companies Average CROB Data source (US$ millions) (US$ millions) 2005 48 31 large companies 1.54 Voluntary and anonymous survey 2006 60 34 large companies 1.76 Voluntary and anonymous survey 2007 66 203 companies 0.32 Compulsory report, MINEM – DAC Social 2008 97 215 companies 0.45 Compulsory report, MINEM – DAC Social Source: IIMP (2006, 16), IIMP (2007, 95), IIMP (2010, 60).

In contrast to the difficulties faced in gathering CROB data, SMP data has been public

and available since it was launched in 2007. A comparison between annual contributions

of CROB and SMP budgets show that the latter are considerably larger, on aggregate

levels, around US$80m for 2007, US$160m for 2008 and US$120m for 2009.

It is important to highlight that throughout this project I measure the level of

SMP committed funds rather than the level of SMP deposited funds. The reason behind

this choice comes from the finding that the gap between deposited funds and

committed funds varies from company to company, and that sometimes it is quite large.

In the SMP program, the level of deposited funds that each company pledges is defined

by a rule defined by the State. But the SMP agreement is silent about the pace at which

124 these funds can be committed to social investments. Therefore, companies can choose to commit such resources as slowly or speedily as they see fit: within a year, in twenty years, or even more (Figure 4.2 reveals the deposited-committed gap across companies).

So, despite efforts of the State and companies to publicly present the SMP as a program in which the State decides how much companies spend on social investments

(closer to a pre-defined ‘tax rate’ than something under the whim of the private sector), the figures above reveal that in fact companies are granted more leeway than it is generally acknowledged: while the government sets the deposit level through a formula, nobody besides the company regulates the pace in which these funds are committed.

In sum, to see past the deceiving ‘deposit rule’ and capture the company’s decision to spend, I prefer to analyze committed funds as an outcome to be explained.

Also, committed funds can be more meaningfully connected to a direct impact in local

125 populations’ wellbeing – while deposited funds may be sitting in a bank for years.

Finally, from an accounting point of view, SMP committed funds are more comparable to CROB funds, as CROB funds measure the resources actually committed in a year.

A striking finding of plotting CROB and SMP funds together is that the amounts committed to social development vary enormously across top-tier companies: from a few thousand dollars to nearly US$130m in the case of Antamina (Figure 4.3).

But beyond the stark contrast between the size of the entirely voluntary CROB and the relatively voluntary SMP,, it is interesting to compare the distributions of discretionary funds by type, which is the second dimension of variation I explore. Figure

4.4 shows the distribution of CROB by type (projects or donations) in selected companies. While on average the split between projects and donations comes in favor

126 of projects 69% versus 31%, there are some companies that prefer to spend all their

CROB funds on projects while others allocate most of theirs in donations.

The SMP data is not classified by type of investment (project or donation), as according to its regulations it should only be directed toward funding projects. Yet, an analysis of the titles of the projects funded with the SMP show that some of them do resemble donations, for example, blackboards for schools, tractors for associations or support for cultural events. So, although traditional donations are not accepted under the SMP, this is not to say that they do not happen in practice and, ultimately, the information on the allocation of SMP relies on company self-reporting, with only some supervision from the MINEM. In an interview in Lima with an official of a global mining company considered a leader on CSR, he accepts that “anyone from any company who

127 tells you that they are only doing developmental projects and not traditional donations is simply lying to you. There is no way of doing Community Relations by only relying on projects” (Interview 14, 13.05.09).

The third dimension of variation is the geographical distribution of resources.

According to SMP regulations, signatory companies must deposit 2% of the company’s net profits in the Local Fund and 1% in the Regional Fund. If the deposit rule were relevant for the allocation process, companies would be spending around twice as much in local areas than in regional areas (given that, according to the rule, the Local Fund is twice as large as the Regional Fund).

Yet, despite the deposit rule, companies are free to decide how much of each of these funds to commit, and in this way they can prioritize investments in local areas or in regional areas, depending on their preferences. Figure 4.5 shows the large variation in the distributional choices made by selected companies, and reveal that the SMP rule, once again, does not bind companies’ decisions.

To be sure, company preferences are revealed within reason when it comes to

SMP funds – no company would dare to spend all its SMP funds in one single district, for example, because they must report their investments to the MINEM and the results are made public. But it remains true that, despite State regulation to encourage a level of

SMP funds going to the regional level and a higher level going to the local level, companies have the last word on which area to prioritize.

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In sum, this section has presented a general view of the ways in which mining companies in Peru allocate their discretionary funds. It showed that discretionary funds in the hands of mining companies are important amounts of money that have at least the potential to make a difference in the living standards of local populations. It has also shown that discretionary funds vary in terms of their type and geographical allocation.

Finally, it has revealed that the rules that supposedly govern the size and allocation of

SMP fail to establish real constraints in companies’ decision making process.

Companies’ implicit strategies on how much to give and how to allocate their social development resources open an interesting set of questions about what determines their spending levels and its distribution. Given that discretionary spending

(in this case, CROB funds and committed SMP funds) is a private and voluntary affair, its level does not depend on straightforward calculations or predetermined rules – as is the case with the mining canon, royalties or concession rights, which depend on the tax 129 regimen and the volume of concentrated mineral that is produced. Instead, the allocation of discretionary funds is decided through a complex political process that involves the company’s disposition and ability to spend, and the strategies of a number of different actors cooperating and competing for companies’ resources.

In order to understand better what is behind the patterns of allocation, I switch gears and move from the large-n descriptive analysis presented in this section to a small-n research design.

4.2 Case Selection: Two Companies, Four Operations

Up to this point, I have advanced two arguments about the new social duties of the

Peruvian mining industry. First, a set of contextual factors have encouraged companies to embrace discourses of social responsibility and develop formal institutions to carry out their new roles of welfare providers toward the populations living near the mining operations. This convergence is reflected in the establishment of social and environmental units within mining companies, the publication of information on their social investments and the rise in budgets for these purposes that can be seen across the industry (chapter 3). Second, the budgets for social responsibility do not follow a single pattern of allocation, but they vary from company to company across three dimensions: level, type and distribution (chapter 4.1).

Moving from a macro description to an attempt of explanation, I have selected two mining companies that are extremely different in many respects, but that at the

130 same time replicate the two main arguments advanced for the industry as a whole.

Minera Barrick Misquichilca (henceforth MBM) is a whole subsidiary of Barrick Gold, the world’s largest gold producer, and Southern Peru Copper Corporation (henceforth SCC) is a whole subsidiary of Grupo Mexico, which ranks on the world’s top five largest copper producers are the two companies selected. These two large mining companies stand in opposition in a number of important aspects, as Table 4.2 reveals, but nevertheless they both have formally embraced the social responsibility agenda.

Table 4.2. Contrast of companies: Minera Barrick Misquichilca and Southern Copper Corporation Minera Barrick Misquichilca Southern Copper Corporation Variable (MBM) (SCC) Date started Late 1990s 1950s Metal extracted Gold Copper Area in which located Northern Andes Southern Andes Home country Canada Mexico Listed in a Stock Yes: Toronto and Lima Yes: New York and Lima Exchange? Follows the reporting Yes (2004-2008) No guidelines of the Global Reporting Initiative? Signatory of the United Yes (since 2004) No Nation’s Global Compact? General public A modern firm An old giant perception of the company Source: Author’s own.

This convergence in corporate practices despite their very different profiles questions the view, mainly sponsored by the industry, that companies’ social concerns are embraced out of corporate choice and are grounded on an internal social and environmental awareness. The parallel timing of the adoption and the close similarity of

131 the social responsibility agendas suggest that a corporate-led principled impulse of social responsible practices would be a colossal coincidence. More plausible is the view, advanced in chapter 3, that a variety of contextual factors pushed companies to accept their new social responsibilities.

Figure 4.6 Geographical location of the case studies

Source: Author’s own.

As much as contextual factors seem to have pushed companies to adopt new social duties, corporate factors cannot be completely discarded, especially when it

132 comes to the actual implementation of the company’s new social duties in the everyday interactions between company officials and fence line populations that influence the process of allocation of the company’s discretionary funds. Companies may adhere to a relatively standard version of their new social duties and even establish relatively similar formal institutional structures to carry them out, but they have some leeway to implement them according to company’s own preferences, especially given that encounters between companies and fence line communities often take place in remote areas, with few independent witnesses. By analyzing the way in which companies interact with fence line populations in their daily encounters, I show that these two companies diverge in their practices of CSR on the ground, and contend that this is an important factor behind their different social investment patterns.

Yet, corporate explanations only seem to offer a partial explanation of the differences across cases. How to account for the part of the variation that is not explained by differences between companies? In theory, the way to isolate corporate- level factors would be to hold the company constant. By doing this, one can control for a whole set of company characteristics, observable and non-observable. Fortunately, the selection of MBM and SCC at the company-level gives me the opportunity to do exactly this in chapter 6. Each of the companies has two mining operations in Peru (SCC has

Toquepala and Cuajone; MBM has Lagunas Norte and Pierina), so I end up with two pairs of operations that share many of the same characteristics, including corporate culture, country of origin, type of metal extracted, and host country.

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Interestingly, the outcomes remain puzzling within pairs of operations: the level, type and distribution of discretionary funds in Pierina and Lagunas Norte, the two mines operated by MBM, are very different from each other – and the same holds for SCC.

Table 4.3. Variation in the distribution of mining companies’ discretionary funds High quality Low quality Projects over donations Donations over projects Fence line over the rest The rest over fence line High levels Pierina (MBM) Lagunas Norte (MBM) Larger budgets Low levels Toquepala (SCC) Cuajone (SCC) Smaller budgets

This systematic variation across all four operations confirms that company-level factors fall short in explaining the allocation of discretionary resources by mining companies in their areas of influence. By moving from the company level to the operation level, I analyze the local configurations of power that companies encounter on the ground and shape different allocation strategies in each case.

In sum, the research design enables a comparison at two levels – company and operation – and offers a controlled setup to parse out the importance of corporate factors and societal factors in the distribution of discretionary funds.

4.3 Patterns of Allocation: A Controlled Comparison across Four Mining Localities

In this section I present in more detail the variation in the level, type and distribution of discretionary funds for each the four cases under study. These four cases cover the

134 spectrum of variation on the outcomes of interest, and have been carefully selected to establish a controlled comparison and isolate two important sources of variation.

But before delving into the four cases, I present the ‘preferred outcome’ of companies and fence line populations in terms of level, type and distribution of discretionary funds. An actor’s ‘preferred outcome’ is his ideal allocation, the one he would favor if the decisions of how much to spend and on what were entirely up to him.

They are useful because they serve as a foil to the four real outcomes – to assess how far from the actors’ ideal outcomes they are and how much they have had to concede.

I propose that companies’ preferences about how to allocate their discretionary funds are as follows. First, they would choose to spend lower amounts. Even in the cases in which mining companies have genuinely embraced higher social and environmental standards and seek to develop a good relationship with neighboring populations, their profit-maximizing nature will pressure them to achieve that with the minimum budget, and so companies will always prefer to spend less discretionary funds.

Second, they will choose to have the most flexible type of funds possible.

Community Relations teams are widely known in the industry as “the company’s firefighters” (this label is mentioned by Gil 2009), because of their importance on controlling sudden ‘fires’ that break between companies and fence line population: getting an urgent social permit, appeasing specific local groups, and in general securing the continuous operation of the mine. Therefore, other things being equal, companies will rather allocate their funds as donations than projects, because they take less time and effort to plan and spend and are highly flexible to allow for quick responses.

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Third, companies would choose to spend their funds in places where their public relations’ impact is maximized. Companies have incentives to invest in indirect areas

(the small towns and cities that are further away from the mining operation and that in the industry are called ‘areas of indirect influence’) because they are relatively more urbanized areas with higher population density, which makes them more relevant for public opinion formation about the company’s social performance. Moreover, their higher awareness of potential misbehaviors of mining companies and their capacity to mobilize resources makes them more threatening to the company.

Given that CROBs are under the full discretion of the mining company, it could be argued that they will be allocated in a way that reflects closely the preferences of the company. Even relatively small divergences from the preferred outcome (a distribution favoring projects instead of donations or fence line rather than indirect areas) will point at factors external to the company affecting corporate decision-making.

SMP funds are not fully discretionary, because the level of deposits is not decided by the company but reflects a policy rule included in the SMP agreement. Still, I have shown that companies are free to choose the level of committed SMP funds and have considerable margins to decide the type of investments they prefer to fund and their distribution. Hence, the preferred outcome that was hypothesized for CROB is expected to hold for SMP as well, although perhaps to a less extent.

In sum, I argue that, it is were up to the company to decide, it would spend (1) less resources, (2) would spend them as donations and (3) would favor indirect areas at the expense of fence line populations.

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Likewise, from the perspective of the development prospects of fence line residents, a preferred outcome can be defined. First, all things being equal, high levels of discretionary funds are better than lower levels. Second, I consider projects to be more welfare-enhancing than donations. This is because projects have some of the positive characteristic of public goods, while donations are more prone to be selective in their benefits and rival in consumption. Also, longer interactions between Community

Relations teams and fence line populations to design and implement a project are likely to generate empathy and trust between the parties, and help identify and satisfy the most urgent local needs. Without stating that they are already en route to development, it could be argued that having roads, better health and education facilities, and some agricultural extension projects constitutes an improvement in local socioeconomic conditions. Projects are also positive in political and organizational terms, as local populations strengthen their ability to organize and participate. The ability to negotiate with the company and the increased political expectations to being taken into account are both self-reinforcing processes, improving as they are exercised. These economic and political assets remain with local populations long after the company is gone. They are lingering effects that could be applied in other relations, with the local government for example. Finally, from the point of view of the progress of fence line populations, resources spent in fence line villages have clearly more development potential than those spent in other areas.

Therefore, the preferred outcome for fence line populations would be one in which (1) resources are considerable, (2) are spent in projects, which have the potential

137 to be more sustainable than mere donations and (3) are focalized in fence line villages.

Yet, I am careful not to portray this as a developmental outcome. As was mentioned in previous chapters, in all four cases welfare provision has been in part de facto privatized due to a combination of State weaknesses and deliberate withdrawal, and this situation already makes all four outcomes a ‘second best’. In addition, even when large funds go to projects in poor rural areas, there may be other factors that prevent them from having real developmental impacts, such as corruption among local leaders, political opportunism, disincentives to work in agriculture (which has a lower daily pay than jobs funded by mining) and to do unpaid communal work (faenas) due to availability of paid work with company funds, among others. Despite these provisos, this outcome has the largest potential to have a positive impact on welfare and living standards.

Having explained the favored outcomes for each of the two actors, I turn now to exploring in detail the outcomes for the four cases under study.

4.3.1. Cuajone Operation – Southern Copper Corporation

As one of the two operations owned by SCC, the discretionary spending available to

Cuajone is composed of the Community Relations Operating Budget (CROB-Cuajone) and the Solidarity Mining Program Budget for Cuajone (SMP-Cuajone)51.

Cuajone’s CROB has three main characteristics. First, it is considerably lower than the one directed to Toquepala, the other SCC operation, which got almost twice as much in 2007 and three times as much in 2008.

51 I will have an appendix explaining data sources, data constraints/shortcomings, coding strategies for the discretionary funds, etc. 138

Table 4.4. SCC – CROB by operation (in US$ millions and percentages) 2007 2008 Total Cuajone 0.12 37% 0.09 25% 0.21 31% Toquepala 0.20 63% 0.27 75% 0.47 69% Total 0.32 100% 0.36 100% 0.68 100% Source: MINEM

Second, two thirds is spent in donations, as can be seen from Table 4.5.

Table 4.5. Cuajone – SCC CROB by type of investment (in US$ millions and percentages) 2007 2008 Total Projects 0.03 22% 0.03 34% 0.06 27% Donations 0.09 78% 0.06 66% 0.15 73% Total 0.12 100% 0.09 100% 0.21 100% Source: MINEM

Finally, the vast majority of the funds are spent in indirect areas – a staggering

93% in 2008 and 81% on average during the period 2007-2008 (Table 4.6).

Table 4.6. Cuajone – SCC CROB by geographical area (in US$ millions and percentages) 2007 2008 Total Indirect area 0.09 73% 0.08 93% 0.17 81% Fence line populations 0.03 27% 0.01 7% 0.04 19% Total 0.12 100% 0.09 100% 0.21 100% Source: MINEM

The second discretionary fund available in Cuajone is the Solidarity Mining

Program (SMP). In the case of SCC as a whole, although the level of its SMP funds is much higher than those in the hands of MBM’s, the pace is clearly very slow and the gap between deposits and commitments has steadily increased over the three years of the program.

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The distribution of SMP across operations shows only a slightly bias against

Cuajone (US$10.4m versus US$9.1m). The funds allocated to Tia Maria, SCC’s most recent project in Arequipa, are marginal as it is not in operation yet52.

Table 4.7. Total SCC Solidarity Mining Fund (accumulated 2007-2009) Committed funds by operation Millions of dollars Percentage Cuajone 9.1 45% Toquepala 10.4 52% Tia Maria Project 0.5 3% Total 20.0 100% Note: Tia Maria is a SCC project located in Arequipa, still on a pre-construction phase. Source: MINEM

The fact that Cuajone gets fewer SMP funds is surprising. According to Angel

Murillo, a representative of the mining industry’s main association, the National Society of Mining, Oil and Energy [Sociedad Nacional de Minería, Petróleo y Energía, SNMPE], normally, SMP funds are assigned across a company’s operations in proportion to the levels of production they achieve: a more productive operation will get higher SMP

52 I will leave Tia Maria out of the rest of the analysis, given that the operation has not started and it is a marginal case in terms of allocation of discretionary funds. 140 funds (Murillo 02.09.09). Yet, this does not seem to apply to Cuajone, an operation that has consistently produced 50% more than Toquepala. Hence, part of the funds that would naturally correspond to Cuajone is being directed to Toquepala.

In Cuajone, the allocation of committed SMP funds by type favors projects by a large margin, although there is still a 10% spent on donations to be explained. Donations include equipment for schools throughout the region; a transfer to expand the

Municipal Market in the regional capital; and a contribution to the National Program for

Literacy. It is not surprising to find that the distribution between projects and donations favors the former, in accordance to SMP lose regulations. Here companies have little leeway, if not with what they actually do in the field, at least in terms of what they report to the MINEM.

Table 4.8. Cuajone - SCC Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment Millions of dollars Percentage Projects 8.2 90% Donations 0.9 10% Total 9.1 100% Source: MINEM

The way Cuajone’s SMP funds are distributed geographically favors indirect areas over fence line villages. Indeed, the vast majority of the Cuajone’s SMP funds (92%) are assigned to districts in Moquegua other than Torata, including some in the regional capital and some funds are event spent in Lima. In contrast, the funds committed to the

141 villages within Torata are very low, and are all under one single project of US$0.7m to improve the water infrastructure of the district53.

Table 4.9. Cuajone – SCC Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location Millions of dollars Percentage Indirect area 8.4 92% Fence line populations 0.7 8% Total 9.1 100% Source: MINEM

In sum, Cuajone’s CROB outcome is one of lower budgets, more donations than projects and more on indirect areas than on fence line villages (vis-à-vis Toquepala). In turn, Cuajone’s SMP outcome follows a similar logic, slightly lower committed budgets than Toquepala, and more resources allocated to indirect areas than fence line populations (vis-à-vis Toquepala). This is a result that comes very close to the company’s preferred outcome described at the beginning of the section.

4.3.2. Pierina Operation – Minera Barrick Misquichilca

The Pierina mine, the oldest of Minera Barrick Misquichilca’s (MBM) operations, reveals a distributional outcome that is the polar opposite of Cuajone’s. First, it has a high level of discretionary resources, compared to the levels of any of Southern Copper

Corporation’s (SCC) operations. Second, in terms of the type of investment, projects are prioritized over donations. Finally, the distribution of the investments privileges the villages in the area of direct influence over the indirect area. This makes Pierina not only

53 This reflects the fact that the local civil society actor that is most vocal and capable of making claims on SCC is the district-level water management organizations. I will talk about this later, when discussing the existence and relative power of local actors. 142 different from SCC’s operations, but also sets it apart from the distributional outcome of

Lagunas Norte – the other MBM operation.

The sources of discretionary funds for Pierina are two: its own Community

Relations Operating Budget (CROB- Pierina) and the portion of MBM’s Solidarity Mining

Program (SMP) allocated to this operation (SMP-Pierina).

The first element that stands out from a look at Pierina’s CROB is its size: it is almost twice as large as the one allocated to Lagunas Norte and five times larger than the one of any of SCC’s operations.

Table 4.10. MBM – CROB by operation (US$ millions and percentages) 2007 2008 Total Lagunas Norte 0.6 31% 0.7 40% 1.2 35% Pierina 1.3 69% 1.0 60% 2.3 65% Total 1.8 100% 1.7 100% 3.5 100% Source: MINEM

In terms of the type of investment, the vast majority of the funds go to projects and very little to donations, which is counterintuitive from the point of view of the company’s preferences that would like funds to be as flexible as possible.

Table 4.11. Pierina – MBM, CROB by type of investment (US$ millions and percentages) 2007 2008 Total Projects 1.2 91% 0.8 81% 2.0 87% Donations 0.1 9% 0.2 19% 0.3 13% Total 1.3 100% 1.0 100% 2.3 100% Source: MINEM

In this case, the geographical distribution of funds favors fence line populations: on average 79% of the funds are assigned to fence line villages, counter to the company’s expected preferred outcome.

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Table 4.12. Pierina – MBM, CROB by geographical location (US$ millions and percentages) 2007 2008 Total Indirect area 0.2 18% 0.2 25% 0.5 21% Fence line populations 1.0 82% 0.8 75% 1.8 79% Total 1.3 100% 1.0 100% 2.3 100% Source: MINEM

The other discretionary fund available for this operation is SMP-Pierina. A simple contrast across companies reveals that MBM’s SMP committed funds (US$26m) are about 20% higher than SCC’s (US$20m). But this gap between companies is compounded by the fact that over the last three years, SCC overall SMP deposits have been around twice as high as MBM’s. So, despite MBM’s SMP deposits being half of

SCC’s, its SMP commitments are 20% higher.

This suggests that there are some incentives at play in the case of MBM, both internal to the company and external to it, that are making it commit its social funds more quickly and that are not present in the case of SCC.

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The distribution of SMP funds across MBM’s two operations is relatively even, although Pierina gets slightly less because it is a mine coming to the end of its productive life (Barrick Gold 2009, 13). As was previously explained, companies often distribute SMP funds across operations based on relative profitability and a mine that will soon be closing does not justify a large allocation of social funds. Given Pierina’s situation, it is actually surprising that is getting as much as 44% of all MBM’s SMP funds.

Table 4.13. Total MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by operation Millions of dollars Percentage Lagunas Norte 14.7 56% Pierina 11.3 44% Total 26.0 100% Source: MINEM

In terms of the type and distribution of the discretionary funds, 91% of Pierina’s SMP goes to projects, and 65% is allocated to fence line populations.

Table 4.14. Pierina – MBM, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment Millions of dollars Percentage Projects 10.3 91% Donations 1.1 9% Total 11.3 100% Source: MINEM

As was discussed earlier, SMP regulations on the type of funds (projects over donations) and on the geographical distribution of funds (fence line areas over indirect areas) are only partly binding, and the 9% spent on donations and the rather large 35% spent on indirect areas require an explanation.

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Table 4.15. Pierina – MBM, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location Millions of dollars Percentage Indirect area 3.9 35% Fence line populations 7.4 65% Total 11.3 100% Source: MINEM

Taken together, Pierina’s discretionary funds are considerably higher than those of any SCC operation; they are overwhelmingly spent on projects and target fence line areas. This result stands far from the company’s preferred, and resembles more what I presented as the preferred outcome from the point of view of fence line populations.

What is inhibiting a large and powerful company to allocate its discretionary outcomes according to its own preferred outcome?

4.3.3. Lagunas Norte Operation – Minera Barrick Misquichilca

Lagunas Norte is the most recent of the four operations included in this analysis, having started production in 2005. When MBM bid for this concession, the terms of the contract included the payment of mining royalties, a compensation that the State expects from non-renewable industries since 200454. According to its contract the royalties, which amounted to 2.51% of the annual profits made in Lagunas Norte for the whole mine’s life-span, were placed in a Social Fund (SF)55, an earmarked fund to be managed by the company and spent in social investments for neighboring populations.

This makes Lagunas Norte a special case, because it does not have two, but three

54 The Peruvian Congress approved the Law of Mining Royalties in 2004, and all the concessions made after that date were subject to a Royalty payment to the State. It did not affect most of mines already in operation because of their tax stability agreements. 55 See chapter 3 for details about Social Funds. 146 distinct sources of discretionary funds: CROB, SMP and SF. However, to keep the four cases comparable, I have not included Lagunas Norte’s Social Fund in the analysis. In

Lagunas Norte, then, I present the allocation of its two most important discretionary funds: CROB Lagunas Norte and SMP Lagunas Norte.

In the internal distribution of CROB across MBM operations, Lagunas Norte gets less than Pierina, as already shown in the section on Pierina. Moreover, Lagunas Norte’s fewer CROB resources are allocated in a very different way than Pierina’s.

Donations in Lagunas Norte represent a much larger share of CROB than in

Pierina. Among the largest donations are the distribution of uniforms for schoolchildren, a contribution to a mountaineer’s international expedition, support for local and religious festivals and the publication of a book. Still, projects take around two thirds of the CROB budget – more than at either of SCC’s operations – and include among others the provision of school infrastructure, potable water for a number of villages, and a comprehensive cattle raising program.

Table 4.16. Lagunas Norte – MBM, CROB by type of investment (US$ millions and percentages) 2007 2008 Total Project 0.4 67% 0.4 56% 0.8 61% Donation 0.2 33% 0.3 44% 0.5 39% Total 0.6 100% 0.7 100% 1.2 100% Source: MINEM

Lagunas Norte spends around half of its CROB funds in fence lines areas. This is comparably lower than the share that goes to fence line villages in the case of Pierina.

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Table 4.17. Lagunas Norte – MBM, CROB by geographical location (US$ millions and percentages) 2007 2008 Total Indirect area 0.2 40% 0.3 52% 0.6 46% Fence line populations 0.3 60% 0.3 48% 0.7 54% Total 0.6 100% 0.7 100% 1.2 100% Source: MINEM

Turning to Lagunas Norte’s SMP, and despite SMP regulations, 18% of the funds go toward donations. Indirect areas receive 32% of SMP funds.

Table 4.18. Lagunas Norte – MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment Millions of dollars Percentage Projects 12.1 82% Donations 2.6 18% Total 14.7 100% Source: MINEM

These two allocations are more in line with company’s preferences than those in

Pierina. Furthermore, the allocation of Lagunas Norte’s SMP closely follows the allocation of its CROB funds. This matching allocation is a feature that persists across the four cases and suggests that both funds – the totally discretionary and the not so discretionary – are influenced by the same forces.

Table 4.19. Lagunas Norte – MBM Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location Millions of dollars Percentage Indirect area 10.0 68% Fence line populations 4.7 32% Total 14.7 100% Source: MINEM

In sum, Lagunas Norte’s allocation of discretionary funds shows relatively high levels of funds, just like Pierina’s (and much higher than either of SCC’s operations). Yet,

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Lagunas Norte’s funds are comparatively more biased to donations and directed to indirect areas of influence. So, despite being operated by MBM, the same mining company in charge of Pierina’s welfare-enhancing allocation, Lagunas Norte reveals a different distributional pattern. What explains these noticeable differences across operations of the same company?

4.3.4. Toquepala Operation – Southern Copper Corporation

In Toquepala, the general level of discretionary funds is low compared to MBM’s operations, a characteristic that it shares with Cuajone56. Yet, the distribution of discretionary funds looks very different from that of Cuajone: in Toquepala funds are mostly directed to projects over donations and are geographically focused in fence line populations.

The distribution of Toquepala’s CROB differs greatly from the one seen in

Cuajone. First, the size of its budget is between 2 and 3 times that of Cuajone’s57. This being the more discretionary of the two budgets available to the company raises questions as to what is behind the large funds spent in Toquepala.

A second striking difference refers to the type of investment made. On average,

Toquepala allocates 36% of its CROB to projects, and in 2008 it was almost half, as can be seen on Table 4.20 – while in Cuajone the bulk of the investments for the two years were made in donations.

56 The level of discretionary funds is relatively higher than that of Cuajone, but still far lower than those seen in either of MBM’s operations. 57 This difference is not due to population size, as the target populations in Toquepala and Cuajone, even when including all the districts of the province of Candarave in the latter, are more or less similar. 149

Table 4.20. Toquepala – SCC CROB by type of investment (US$ millions and percentages) 2007 2008 Total Projects 0.0 19% 0.1 49% 0.2 36% Donations 0.2 81% 0.1 51% 0.3 64% Total 0.2 100% 0.3 100% 0.5 100% Source: MINEM. Figures are rounded and may not add up.

The third characteristic of Toquepala’s CROB that is very different from

Cuajone’s is that relatively more funds are spent in fence line villages: more than half in

2008 and an average of 34% throughout the period.

Table 4.21. Toquepala – SCC CROB by geographical location (US$ millions and percentages) 2007 2008 Total Indirect area 0.2 91% 0.1 47% 0.3 66% Fence line populations 0.0 9% 0.1 53% 0.2 34% Total 0.2 100% 0.3 100% 0.5 100% Source: MINEM. Figures are rounded and may not add up.

The size and allocation of the SMP in Toquepala also contrast to the case of

Cuajone. Toquepala has a higher share of the company’s SMP (52% against 45% to

Cuajone58). Also, a large part of the SMP funds go to fence line areas: more than two thirds of the investments are made in local villages (Table 4.22), as opposed to a meager

8% in the case of Cuajone. Local investments include a number of irrigation projects, literacy programs, and introduction of high-quality cattle, among others.

Table 4.22. Toquepala – SCC, Solidarity Mining Fund (accumulated 2007-2009) Committed funds by geographic location Millions of dollars Percentage Indirect area 6.0 58% Fence line populations 4.4 42% Total 10.4 100% Source: MINEM

58 For a comparison of SMP budget sizes across SCC operations, refer to Table 4.10. 150

Finally, Toquepala’s allocation of SMP funds between projects and donations is largely

favorable to the former. The split (90% versus 10%) is the same than in Cuajone. This is

the only outcome in which Toquepala and Cuajone are similar and in which the

allocation of SMP does not mirror that of CROB. Yet, this is not too puzzling, given that

the proportion of projects is very high anyway. Since the beginning of the SMP, the

donations handed by Toquepala have included tractors for several municipalities, in-

kind donations of clothes and blankets for families living in the highlands of Tacna, and

equipment for schools across the Tacna region.

Table 4.23. Toquepala – SCC Solidarity Mining Fund (accumulated 2007-2009) Committed funds by type of investment Millions of dollars Percentage Projects 9.4 90% Donations 1.0 10% Total 10.4 100% Source: MINEM

All in all, Toquepala’s discretionary funds are very different from Cuajone’s, both

in size and distribution. Toquepala’s CROB is not only larger than Cuajone’s, but it has

further increased between 2007 and 2008. Its allocation is mainly on projects and

directed to fence line residents. The characteristics of Toquepala’s CROB are replicated

for its SMP. Again, Toquepala receives larger SMP funds than Cuajone and, in relative

terms, the geographical allocation of SMP funds favors fence line areas. What could be

driving this allocation of funds in Toquepala? Why is the same company distributing its

funds in a more welfare-enhancing manner than the one seen in the other of SCC’s

operation?

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4.4. Conclusions

In this chapter, I presented some stylized facts about the way mining companies allocate their discretionary funds in their areas of influence. I also described and justified my research design and the perplexing variation across the four case studies included in it.

First, this chapter established that large-scale mining companies in Peru are spending sizeable amounts of money on social investments in the areas where they operate. All large-scale mining companies have now set up Community Relations areas

(and consequently budgets for these areas), and most of them have joined the Solidarity

Mining Program. Some have, in addition, Social Funds. The confirmation that everyone is on board of this new conception of public responsibilities of mining companies is that two wildly different companies such as Southern Copper Corporation and Minera

Barrick Misquichilca have converged in terms of their adherence to the formal principles of corporate social responsibility.

Second, I have shown in this chapter that the allocation of discretionary funds varies immensely across mining companies: they differ in level, type and distribution.

The two companies selected, MBM and SCC, are extremely different in corporate terms and it is therefore not surprising to find that their patterns of allocation are very different. Corporate cultures and companies’ preferences are an important factor behind the patterns of allocation of private social investments.

But although corporate factors are important, a closer look shows that the variation in patterns of allocation could not be reduced to them. Indeed, the third key

152 result of this chapter is that company characteristics only tell part of the story, and other factors must be considered to have a more comprehensive explanation. The comparison between SCC and MBM is a promising research design, because each company has two mining operations in Peru, so I can hold the company constant and isolate other sources of variation. This four-way comparison shows a perplexing result: discretionary funds are allocated in very different ways across and even within mining companies. Hence, while company factors explain the variation to some extent, local configurations of power matter as well. Depending on their abilities and opportunities to adopt global frames that are seen as legitimate by companies, local actors can influence company decision-making and obtain a larger share of discretionary funds.

Fourth, the analysis showed that both funds behave very similarly in terms of level, type and distribution in each of the four cases – that is, an operation’s SMP mirrors the patterns of that operation’s CROB. This is a surprising finding, given that these two funds are considered and often presented as very different. It is also a relevant finding for this project, as it supports the idea that it is the company – and not the state – the crucial actor to be studied in order to understand the distribution of these resources. If the allegedly regulated (SMP) and the not regulated (CROB) funds are actually behaving very similarly, it follows that state regulations in this regard are not very relevant – economists would call them non-binding constraints. This reinforces my decision to look at the company as the crucial decision maker over the funds.

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Having presented the puzzle, the next two chapters develop a two-stage argument to unravel the micropolitics behind the allocation of discretionary funds by mining companies.

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Chapter 5. Explaining Social Investments of Mining Companies: Corporate-Level factors

Why do some companies spend on social investments more than others? And why do some distributions favor projects over donations and privilege fence line populations over villages further removed and urban residents? In this chapter, I explore the corporate-level reasons that motivate some companies to have larger and better quality social investments than others. I argue that the variation in the allocation of discretionary funds by mining companies is in part a reflection of the different internal characteristics of the firms, in particular the level to which they have implemented practices and procedures to put their CSR verbal declarations into practice59.

This chapter has four sections. In section 5.1, I briefly recall the set of indicators used to measure companies’ CSR practices on the ground, which was developed in chapter 2. Sections 5.2 and 5.3 are parallel accounts of the two large-scale mining companies under study: Southern Copper Corporation (SCC) and Minera Barrick

Misquichilca (MBM). In each case, I describe some basic facts about the company’s history and its presence in Peru, the setting up and functioning of its Community

Relations area and, finally, I analyze how each of these companies fare on the three measures of company’s CSR practices. Section 5.4 summarizes and discusses the extent to which corporate-level explanations are useful to understand company’s allocation of

59 The second part of the explanation deals with local-level factors and will be presented in the next chapter. 155 discretionary spending but also reveals the limitations of an exclusive focus on company characteristics.

5.1. Measuring the Implementation of Company’s Corporate Social Responsibility

Practices

Chapter 3 showed that there is a high level of convergence on CSR rhetoric, institutionalization of social practices and creation of social investment funds across most large-scale mining companies in Peru. But the gap between deeds and words can be large, and formal institutions do not always translate neatly into everyday practices.

The degree of a company’s commitment to CSR principles has its acid test on the daily interactions between mining company officials and local populations at each mining operation, and I contend that a company’s actual practices of CSR influence its distribution of discretionary resources. Companies that have been successful to translate their rhetoric and formal institutions into daily CSR practices and have incorporated them in their quotidian activities will be more likely to spend higher levels of discretionary funds, will tend to favor projects over donations and will privilege fence line populations over other villages.

In my framework, the three indicators that capture a company’s CSR practices on the ground are: (1) the status of the Community Relations office within the company, (2) company’s attitude toward local accountability and participation of local populations and (3) company’s internal rules/institutions and planning process to decide the allocation of discretionary funds (see figure 5.1.).

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Figure 5.1. Corporate-level factors: Company’s implementation of CSR practices

Explanatory variable: Company's Dependent variable: Allocation of CSR practices. Indicators: companies' discretionary funds. • Internal status of the office of In particular: Community Relations •Level: Amount of resources • Company's attitude toward local allocated transparency and accountability •Type: Projects or donations •Company's mechanisms to allocate •Distribution: Fence line discretionary funds populations or the rest

In what follows, I apply these three indicators to the cases of SCC and MBM and assess to what extent they are truly committed to CSR in their daily activities.

5.2. Southern Copper Corporation

- Congratulations on your perseverance - says the Manager of Community and Public

Relations of Southern Copper Corporation (SCC), as he welcomes me into his office in the coastal town of Ilo in Southern Peru.

Securing that first interview and later the consent of the company to include it in my project was no easy task. Four months of letters, emails and phone calls were required to finally get me the approval I requested. Despite being Peru’s largest private company, largest taxpayer and an important political actor for five decades, surprisingly little research has been done about this large-scale mining company – and after

157 experiencing the difficulties getting access to SCC, I started to understand why this was the case60.

SCC has been an important political and economic actor for half a century and today it remains the largest copper producer in Peru, with 39% of all copper in the country (MINEM 2010c), and has been the most profitable mining company in the country for years. It also has the largest copper reserves in the world (Portocarrero,

Sanborn and Camacho 2007, 129) and one of the lowest cash costs in the industry.

Table 5.1. SCC – Main statistics Annual Production 349,077 tonnes of copper Ranking in Peru 1st largest (29% of domestic copper production) Net Profits US$ 835,974 Average cash cost per pound 36 cents per pound (very low cost) Workers 4,030 Notes: Production from MINEM (2009). Ranking from MINEM (2010c). Net profits from Conasev (www.conasev.gob.pe), up to 09.30.10. Workers (employees and contractors) from MINEM (2010a).

The general perception of SCC, both in the south and in Lima, is that of a traditional mining company, a large economic actor with important political connections in the central government, and not too keen on transparency, accountability, or social and environmental best practices. For instance, SCC was one of the only companies that publicly opposed the adoption of the Solidarity Mining Fund and was reluctant to sign the agreement (Vidalón 2009, Vidalón 06.05.10). In 2004, SCC’s Director of Legal Affairs became the Ministry of Energy and Mines, rising already existing suspicions of the

60 Early analyses of SCC as a powerful economic and political actor at the national level can be found in Brundenius (1972), Mikesell (1975), Taboada (1976), Sanchez Albavera (1981), Becker (1983) and Torres- Zorrilla (2000). For literature on the social impacts of SCC’s industrial facilities in the town of Ilo, in Moquegua, refer to Balvin (1995a), Balvin and Lopez Follegatti (2002), Vargas (1998), Loayza (2003), and Portocarrero, Sanborn and Camacho (2007). To my knowledge, MPRI (2002) is the only analysis of SCC’s community relations strategies around their mining operations in the highlands of Moquegua and Tacna. 158 coziness of the relationship between the central government and the large-scale mining industry (Osorno 2007). Even today, when SCC is no longer the only transnational mining company in Peru nor the largest, more than one resident of Peru’s southern regions would agree with Sanchez Albavera’s portrayal of SCC as “the symbol of transnational domination in Peru” (Sanchez Albavera 1981, 116).

Although there are grounds to accept this characterization, it should also be highlighted that in contrast to the other large smelter in country (La Oroya, located in the central Andes and owned by the US-based mining company Doe Run61) the Ilo smelter was in fact modernized, the technology to dispose of the tailings was improved, and Ilo was considerably cleaned-up, at a cost of over US$350m. And, a fact that is crucial in this research project, in 1998 SCC became the first mining company in Peru to establish a Community Relations area. But before analyzing the process of creation of this area, I offer a brief account of SCC’s presence in Peru.

5.2.1 SCC: The basics

The southern headquarters of SCC are located in Ilo, a medium-sized port in Southern

Peru. SCC has operated its copper extraction industry in that area for over fifty years.

While the two open-pits mines they possess, Cuajone and Toquepala, are in the highlands of the Moquegua and Tacna regions, respectively, the downstream facilities – refinery, smelter and port – are located in Ilo and connected by a 200km cargo-only

61 For a parallel account of La Oroya smelter, see Orihuela (2010). 159 railway. SCC’s has its administrative offices in Lima, but most of the day-to-day decision making process takes place in the South.

The presence of the company in the south of the country goes back to the 1950s, and it is so intertwined to the history of the region that most locals say that SCC has been there ‘forever’. Ilo was born as a city due to the industrial development promoted by SCC. With the arrival of SCC in the 1950s, the town grew in size and economic importance. Ciudad Nueva, SCC’s company town, was built from scratch 15 minutes to the north of the city center. From being a small fishermen town of 3,000 people (MPRI

2003), it became a district in 1970 and the latest census (INEI 2007) indicates it has around 70,000 inhabitants. Likewise, the districts of Torata (Moquegua region) and

Ilabaya (Tacna region) where the two mines are located, although already existed administratively before, grew in importance as a result of SCC’s mining operations.

When first established, four US companies made up SCC: ASARCO, through its subsidiary Northern Peru Mining Co., was the majority shareholder (57.75 per cent),

Cerro de Pasco Copper Corp. Phelps Dodge and Newmont. The first project was

Toquepala, a large-scale open pit operation in Tacna, 870 km South of Lima. Toquepala’s contract was signed in 1954 and involved a US$250m investment on mine facilities, a smelter to produce blister copper in the coastal town of Ilo and a railroad to link the mine to the smelter. Finally, Toquepala started operations in 1959, and at the time, it became the world’s largest open-pit copper mine (Brundenius 1972, 6).

When the military government of General Velasco seized power in the late

1960s, with a left-leaning nationalistic agenda, most foreign-owned companies were

160 concerned about potential nationalizations. The extractive sector, which was at the time one of the main sources of state revenue and largely controlled by US firms, was a particularly juicy target for nationalization, as it would make a political statement about the nature and aims of the regime, and offer some financial base to the ‘Revolutionary

Government of the Armed Forces’ (Thorp and Bertram 1978).

While other US companies – such as the International Petroleum Company assets in Northern Peru, and the mines operated by the Cerro de Pasco Copper

Corporation in the Central Andes – Toquepala, the large mine operated by Southern

Copper, was left in private hands62. There is no consensus on why this was the case.

Some argue that working conditions at SCC were considerably better than at Cerro de

Pasco Copper Corporation, that it had not earned a reputation for depriving local businesses of capital or opportunities, and that in general it stood out as a relatively

“good neighbor” in the South (Cottam 1989, 469-472). Its good corporate behavior and better relations with local and regional actors was, in this line of reasoning, what saved the company from being expropriated (Becker 1983).

Although this may be true, it does not seem to be a strong enough reason for an anti-imperialistic military regime like Velasco’s to leave such important national assets in the hands of a large transnational company. A more convincing explanation suggests that SCC in fact cut a deal with the government to prevent expropriation. SCC was about to make a large investment on a second copper deposit in the Southern region of

62 The government was not that lenient on SCC’s unexploited mining concession Quellaveco. As all the other concessions that had not been put into operation by private companies at the time, it reverted to the government in 1974. 161

Moquegua. Cuajone was a very high-grade deposit and a great investment opportunity for the country, and SCC argued that it would be foolish on the side of the government to nationalize the company. Such measure would put the government at odds with the international community and probably put off new foreign funds in the country for some time, given the feeling of insecurity that a military coup provokes among potential investors. If the government would leave the company in private hands, however, SCC would pledge to develop a new copper mine in Cuajone, which would generate tax revenues and counteract the image of political instability of the country (Sanchez

Albavera 1981, Thorpe and Bertram 1978). Once the contract between the government and Southern Copper to start Cuajone was signed in 1969, the government was eager to showcase it.

“The Velasco government hailed the project in a paid New York Times ad as ‘one of the greatest investments ever made in the world by a single corporation’. The ad copy also said ‘to invest in Peru does not mean taking a risk. The Cuajone contract… is a great proof that between the foreign capital and the nationalist way of the Peruvian revolution, an understanding is possible’.” (Goodwill 1974, 159).

Sanchez Albavera (1981) suggests that SCC was saved from expropriation not once but twice. After the frustrated expropriation of 1969 and years of unsuccessfully trying to convince SCC to enter a partnership with the State, government officials were growing desperate with the company and talks of expropriation rekindled.

“Progressive sectors acted naively. They thought it would be possible to let Southern invest [in Cuajone] and later pressure it into accepting, at least, a partnership with the State. Southern was very firm. It did not accept any type of partnership with the State.” (Sanchez Albavera 1981, 114).

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However, in 1975, when some argue that the expropriation of SCC was imminent

(the large iron ore deposit of Marcona had just been nationalized), there was a leadership change within the military regime that ended up with the replacement of

General Velasco with General Morales-Bermudez. The new regime had much moderate economic and political goals and SCC was spared: the company was saved by the bell

(Sanchez Albavera 1981, 98-110).

Whatever the reason for this decision (or lack of decision), by 1975 Southern

Copper had become the only large-scale mining company in private hands in the country. Almost a decade after opening Toquepala, in 1976, the company started operations in Cuajone, an even bigger copper deposit, only 30 air km North of

Toquepala, in the neighboring Moquegua region. The company also built a system of roads and extended the railway line to connect the two operations with the industrial facilities in the port of Ilo. The total investment bordered the US$727m.

For decades, Southern was the largest taxpayer in the country and on its own accounted for 20% of Peru’s export earnings in 1973 (Taboada 1976, 73). It was also a powerful economic and social actor in the South, not only because the company changed the landscape with the construction of mining towns in areas that were previously only sparsely settled, but also because it unleashed migration flows and attracted considerable amounts of workers for the setup of the mines (some quote that the company hired 10,000 workers to build Toquepala) and later on, for the normal

163 operation of its two mines (Goodwill 197463). On the coast, the small town of Ilo grew quickly too, as people from other Southern regions such as Puno, Arequipa and Cuzco relocated to work directly for Southern at the industrial plants, or indirectly on the provision of goods and services for the ever-expanding population.

Local fights for a clean environment: two clashes between SCC and local populations in Ilo

At least since early 1960s, locals raised concerns about the effects of the toxic fumes from the Ilo smelter in the valleys of Tambo e Ilo, located at each side of the smelter.

“Our crops were failing and our families were having health problems due to the emissions of SCC’s smelter (Valencia 23.03.10).

During the second term of President Fernando Belaunde (1980-1985), the government passed legislation to make SCC compensate those landholders able to prove that, in fact, their crops were being affected (Ossio et al 2003, 21). While the

Tambo valley could not make a strong case about their contamination, the landowners of the small and narrow valley of Ilo presented enough evidence to establish a connection between their failing crops and the smelter’s fumes (Goodsell 1974, 48-52,

MPRI 2003). Since 1968, SCC has paid an annual monetary compensation (Interview 5,

30.04.10). Although these payments were very circumscribed to the few dozen families of that valley and paid on an individual basis, it is probably the earliest account of a

63 “As of 1966, 30.4% percent of *Toquepala’s workers+ were born in Puno, 25.8 percent in Arequipa, 20.9 percent in Moquegua, and 14 percent in Tacna” Goodwill (2007, 207). This shows the amazing economic dynamism that Toquepala unleashed in the South.

164 social compensation by a mining company, one of the few to this date64 and the longest lived one (it lasted until 2007). One of the beneficiaries of this compensation explains:

“A high-level commission was formed by congress people and representatives of ministries to supervise the compensation program. On our side, the Irrigation Group [ND: the association of water users of a valley] was in charge of organizing the recipients and channeling the compensations. Every year, SCC had to pay around US$500,000 to the recipients.” (Interview 15, 23.03.10).

Despite the success on their demands, the company did not make any efforts to move from a compensation policy to a no contamination policy – that is, a commitment to reduce emissions in the first place rather than to pay for the damages. Years later, in

1991, an opportunity opened to expand the scope of SCC’s environmental responsibility.

The International Water Tribunal65, a global platform promoted by civil society organizations, called for ten cases from all over the world to be presented at the Second

Water Tribunal, including two slots for Latin America. Labor had already gained the reputation of a solid and vocal institution against SCC through its advisory role to the local government and its direct work on mobilizing the city under environmental issues, and decided to spearhead a social campaign that raised the issue of environmental impacts of the industrial facilities in the city of Ilo. With the financial help of the IDRC

(the Canadian cooperation), Labor was successful in taking the case to the International

Water Tribunal (Loayza 2003, 22).

The company was found guilty and sentenced to remedy the environmental damage caused. Although this ruling was not binding, it received considerable media

64 The other that comes to mind is the case of Tintaya (De Echave et al 2005). 65 The International Water Tribunal is a space promoted by a group of international organizations concerned with the future of global water resources. 165 attention in Europe and Peru66 and was a powerful tool to name and shame the company. It is said that even the US Department of State (under Clinton-Gore) called

ASARCO’s headquarters to express concern about the bad reputation that such embarrassing headline was creating for US investments abroad.

At the end of 1991, right after the Tribunal accepted to see the case but before even Tribunal’s session, SCC signed an agreement with the government to undertake a large investment to modernize its industrial complex, for US$300m. The Environmental

Remediation Plan (known by its Spanish acronym, PRA – Programa de Remediación

Ambiental) that SCC agreed on was the first of its kind in Peru, and became the basis of the Environmental Compliance and Management Program (PAMA – Programa de

Adecuación y Manejo Ambiental) that all mines already in operation had to file with the

Ministry of Energy and Mines67.

Although the bulk of this environmental upgrade was made in Ilo, not in the mines proper, it is important to understand this process as it shows the local dynamics and level of organization of Ilo, a very urban, industrial and modern area, and it is a foil in which to consider the roles that Labor and SCC would play in the very different context of the highlands of Moquegua and Tacna.

There is some ground to sustain that the timing of this modernization program responds to the fact that the case presented by Labor was solid, had excellent witnesses and evidence, and that the in the end the International Water Tribunal ruled against the

66 It made it to the cover of Volkskrant, the most read paper in The Netherlands; in London, Metal Bulletin – one of the top publications of the metals and mining industry – reported the ruling; most newspapers in Peru commented on it (Loveday and Molina 2007). 67 Since the new environmental legislation came into force, new mines have to present Environmental Impact Assessments (EIA) before they start operating. 166 company. At their headquarters in Lima, SCC flatly denies these allegations. A staff member high in the company’s hierarchy plainly said:

“Honestly, the ruling of the Water Tribunal didn’t mean a thing to us *“nos importó un pepino”+. It was not a binding resolution and Aurea Sáenz [ND: one of the key witnesses in the case against SCC] was at the time former General Inspector of the Republic, she was not representative of the Peruvian Government any longer” (Interview 5, 30.04.10).

Company staff argues that the company agreed on the modernization because of their rising concerns on becoming a greener company, but civil society organizations in

Ilo saw it as a patent consequence of their success.

After years of negotiations, in 1997 SCC finally decided to start the modernization project and signed an agreement with the government to have it ready in ten years, with a mid-term review. However, internal reorganizations delayed the beginning of the project (Grupo Mexico bought the stake of ASARCO and became the majority shareholder) and by 2002 SCC had yet to start the PRA. It is fair to say that without the permanent engagement of Labor, other civil society organizations, the Local

Government of Ilo and the Regional Government of Moquegua, the smelter modernization would not have been achieved.

Since its arrival, the relationship between the populations of Southern Peru and their most powerful resident, SCC, has been complex. The company is a source of well- paid direct jobs for professionals, and its presence in Ilo has multiplying effects on the economic dynamism of the region (Torres-Zorrilla 2000). Yet, it is also a source of contamination, affecting the health of the neighbors and the productivity of their crops.

The willingness to exchange environmental worries for economic progress is an

167 important issue that pervades the extractive industries (Gil 2009). Some people may refuse to compromise and in some cases, like this one, they might succeeded. Still, the incentives to free-ride are high in this situation, given that the economic benefits of dealing with SCC are private and short-term, while the environmental impacts are social and long-term. A high-ranking Community and Public Relations official at SCC casts this personal temptation simply: “Many criticize the company publicly but, deep down, there are two types of people in Ilo: those who work for Southern and those who would like to work for Southern.” (Interview 16, 11.01.10)

SCC’s Public Relations senior official in Lima, also suggested that in the end, for the average person, the presence of SCC is positive:

“I’m not going to deny that there are emissions in Ilo, but at the same time life expectancy has increased and respiratory diseases have decreased compared to other valleys. Yes, there is some smoke, but people eat better, they can pay for a doctor when their children are ill, and their quality of life is much higher than before. We cannot say that people are stupid, and the net immigration to Ilo has been positive for decades. If people don’t think they are going to be better off in Ilo, why would they keep migrating?” (Interview 17, 06.05.10).

The balance between the negative impacts of extractive industries and the potential benefits that it could bring to local populations is replicated, with variations, at the four mining operations selected for this project, as I will present in chapter 6.

5.2.2. The Creation of Community Relations at SCC and Current Social Development

Institutions

SCC has a long history of relating to authorities, civil organizations and the general populations in its areas of influence. Almost since its creation, SCC established a number

168 of outreach initiatives and social programs in the region. One of SCC’s most important projects was the creation of the Contisuyo Association [Asociación Contisuyo], which provided important financial and institutional help to advance the study of Moquegua’s archaeological patrimony. Most of the donations made by SCC were channeled through the Goodwill Network [La Liga del Bien]:

“The activities of community outreach were carried out by ‘La Liga del Bien’. It was formed by company officials’ wives, it was pure donations, and they would make collections [among company officials]. Yes, there was this sort of connection with local populations, but locals didn’t ask for much back then.” (Interview 17, 06.05.10).

Even during the early 2000s, the social interventions of SCC were presented as tokens of its generosity rather than actual development opportunities for local residents. Past issues of SCC’s magazine “Ties of friendship and development” *Lazos de

Amistad y Desarrollo], produced by the Public Relations Office, have many references to donations, of money or in-kind, made to different social organizations that were applauded at the time but their impacts had little follow-up.

This philanthropic aid was very different from the discretionary budgets I analyze here, not only in terms of their size but especially in terms of their quality: rather than philanthropic donations, companies claim that now they are engaging in developmental efforts; and instead of being informal initiatives, now they are designed and carried out by a specialized area of Community Relations.

As was previously mentioned, SCC was the first large scale mining company in

Peru to establish a Community Relations office back in 1998 with a clear mandate, an institutional structure, personnel and budget.

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First established as a jefatura, the area grew in importance over a short time period, and the head of this office moved from being a Jefe, to a Superintendent and later a Manager (MPRI 2003). The area also grew in terms of personnel and financial resources. Currently, Community Relations, together with Public Relations, are under the Manager of Public Relations and Community Relations. The area seems more stable in the organizational chart for now, although there is still a high turnover in its leadership: the area has had six heads in ten years.

Several stories are told about the process of creation and rising profile of the area of Community Relations in SCC. Rather than contradictory, I find that these accounts highlight different aspects of the process and, taken together, show the way in which context, actors and opportunity intersected and created the conditions to establish Community Relations.

The official storyline, provided by company managers in Lima and printed in annual reports, is that the company saw the need for strengthening and institutionalizing its relations with the community and took the initiative to create the area. The creation of Community Relations was then a way to develop a better understanding of each other’s needs and create a fruitful partnership. The leadership of

Guillermo Manrique, the first jefe of the Community Relations team, is presented as a crucial asset to develop this area (Interview 5, 30.04.10).

In more informal settings, staff members in Lima and Cuajone confided that the office of Community Relations was in fact a personal project of Guillermo Manrique

(Interview 17, 06.05.10; Interview 18, 19.03.10). Manrique had been a teacher at the

170 secondary school for the staff residential area in Cuajone, and later on was transferred to the Public Relations team in the same mine due to his extraordinary ‘people’s skills’.

At some point, he was promoted to be the Head of the Public Relations office in

Toquepala and moved there. Because in Toquepala the mining town is three times farther away from the nearest town than in Cuajone, the opportunities for Manrique to develop a Public Relations agenda were reduced. The mining town itself (workers and their families) is much larger than in Cuajone, but the mandate of Public Relations is to connect with the ‘external public’ and strictly speaking workers and their families are the ‘internal public’ and therefore the realm of the Welfare Office. Finding himself in charge of an office but without a clear area of action, entrepreneurial Manrique started honing the idea of a Community Relations office (Interview 18, 19.03.10).

In 1998, Manrique saw an opportunity to present his project of creating a

Community Relations area to the President of Grupo Mexico, Oscar Gonzales Rocha. SCC was planning an expansion of the open pit in Cuajone, which involved the deviation of the Torata River along 9km. This diversion aimed to free the old riverbed and provide additional space for tailings disposal from the expanded operation (MPRI 2002). Under the new environmental legislation of the 1990s, all mining expansions and new operations had to carry out an EIA (Environmental Impact Assessment) to be approved by the MINEM before starting the construction phase68. The main objective of the EIA was to assess the environmental impacts of the mine expansion and define an action plan to minimize them. Additionally, the EIA included a final section in which the

68 For details about the introduction of environmental and social regulations in Peru, see chapter 3. 171 company was required to inform locals about the project and its potential social and economic impacts. The company had to offer guarantees that the dam would not affect the population of the district of Torata, or that at least that they would be appropriately compensated.

Manrique offered to take care of the social aspect of this project and, having secured the approval of SCC’s President Gonzales Rocha, he put together a team, which was placed under SCC’s Legal Department and called Jefatura of Negotiations and

Community Development [Jefatura de Negociación y Desarrollo Comunitario]. A member of that first Community Relations team, who still works for SCC, remembers how he was recruited:

“I had been hired temporarily as a construction worker in Cuajone, and one day I heard that they were looking for local people for a new position. I was born and raised in Torata, so I went to talk to Manrique. Manrique said that he’d hire me because I knew all the families in Torata, and that I would be able to gain their trust and convince them easier. We developed agriculture extension projects to promote local products: oregano, avocado and damson plums. It was a means to get local acceptance and guarantee that people would not complain about the construction of the dam and the canalization of the river. This is how local projects started in SCC, to get local support.” (Interview 19, 17.02.10).

The success of Manrique’s work of getting the EIA for the Cuajone expansion approved and keeping local populations in good terms with the company helped him justify larger budgets and additional hires in the Community Relations team. The internal clout of the area increased, and during the following years, Manrique’s team took charge of ensuring that the company would get local approval for additional water permits, access to land for new explorations, and the like.

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After being under SCC’s Legal Department the first years, the Jefatura of

Community Relations became Superintendence and was moved under SCC’s Water

Management Department. This only lasted a few months, however. At this point, Mr.

Manrique left the company and there was a redesign of the area. Manuel Sierra, who was superintendent of Public Relations, was promoted to the newly created position of

Manager of Community and Public Relations and the superintendence of Community

Relations was placed under his conduction, where it currently is.

Over the last ten years the area of Community Relations has grown considerably in terms of its position in SCC’s organizational chart, autonomy from other areas, and the size of its budgets and personnel.

Now, Cuajone has become the headquarters to the Superintendent of

Community Relations, and both the Toquepala and Cuajone teams are managed from

Cuajone. SCC’s Superintendent of Community Relations commands a team of 18 people, including nutritionists, veterinarians, agricultural engineers, hydrologic engineers, and social promoters. On paper, each employee is assigned to a specific geographical area, but in practice few of them are permanently monitoring the villages they have been assigned to. It is more common for employees to ‘float’ to where there is a particular assignment or a problem to address. For example, Community Relations had an office in

Locumba, downstream from the district of Ilabaya (the district where Toquepala is located). However, the Locumba office was closed back in 2007. A Community Relations’ official tells me that “the superintendent decided to close it because he said that

173 nothing was going on in Locumba, and that it was better to focus in Candarave”

(Interview 20, 23.02.10).

Likewise, during my fieldwork, SCC was in the process of approving its EIA for Tia

Maria, a new copper project in Arequipa, north of Moquegua. As they were having trouble getting the approval of the people that is required to get the green light from the Ministry of Energy and Mines, the superintendent decided to send some ‘backup’ to the team working in Arequipa: 9 extra members of the Community Relations team abandoned the projects they were working on, mostly in Candarave (the previous ‘red- code’ area where the opposition to SCC was the strongest) and relocated to Arequipa to get the social approval for the new project69.

This continuous movement and relocations suggests a short-term logic in which the presence of Community Relations employees is connected to a particular situation that the company has to control or a permit it has to get. Little effort is made to develop and build stable relationships with locals, and some of the Community Relations officers complain that the management relocates them to different geographical areas as the need arises, and demand they get the local populations’ endorsement and consent within very short time frames.

For instance, at the moment Cuajone is considered a low priority area, due to a combination of low opposition to the company and no need of permits on this area.

69 This ended badly, with a massive demonstration and a three-day road blockade outside Arequipa, as the population refused to give SCC the approval to start building the mine. Tia Maria is currently paralyzed. 174

Torata is considered an easy area to deal with, and neither important or relevant, and it is jokingly called “Disneyland”. A Community Relations at SCC complains:

“It should not be called Disneyland; I want to see them in a few years when they want to expand Cuajone (which is planned). It will not be easy to get people to agree to give us an additional water license. People will not just say, here it is! Take it! And that is because we are not engaged in long-term grassroots relationships, although they know the expansion will happen. And at the last minute, the boss is going to come ask me to get the social license anyway!” (Interview 21, 05.03.10).

In general, hierarchy seems to be an important characteristic of the relation between areas in SCC. During my first meeting with Manuel Sierra, he rang Juan Ojeda, the Superintendent of Community Relations, to tell him that the company had agreed to let me shadow the Community Relations teams for two months. After exchanging greetings, Sierra told him about me, and unsurprisingly Ojeda did not sound too excited about the idea of having a stranger in his team. Sierra answered some questions (“No, she is not an anthropologist”) and then said “Look, she already has OGR’s O.K. *OGR is

Oscar Gonzales Rocha, SCC’s Executive President+, so you’ll just have to help her” (Sierra

11.01.10). Very little could be done without the approval of the President, as I would find out later: as an example of his tight control, I was told that all checks for over

US$10,000 have to be approved and signed by OGR himself (Ojeda 04.03.10).

And although some may find the verticality frustrating, most people seem to think it is a positive thing. The first person I spoke to when I arrived in Cuajone, the official of the Office of Public Relations in charge of showing me around the operation, summarized it:

“Being here in SCC is like being in military school. Orders are to be followed with discipline, and only if people under your command are at risk of being hurt you

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change your plans or suspend activities. It’s a military discipline and it works well.” (Interview 22, 16.02.10).

It is also important to mention that SCC’s Manager of Public Relations and

Community Relations has 35 years in the company, briging with him perhaps old ways to engage and interact with local populations and his own team, and that although the

Superintendent of Community Relations is well qualified (with a PhD in Chemical

Engineering) he may not have the social expertise required for the position.

Overall, the company may have been the first to institutionalize an area of

Community Relations, but its purpose is completely subordinated to the mine’s operation and the company’s extrative goals. In SCC’s Superintendent of Community

Relations own words:

“Community Relations is not about altruism, about being ‘nice’ or wanting social development for itself. Community Relations is a means to achieve an end: that the company gets licenses, agreements, permits to operate *…+ we are not an NGO working for social development, we are a mining company.” (Interview 23, 16.02.10).

In sum, SCC’s Community Relations has one clear mission, according to a high ranking official of the team: “to guarantee private property and our access to water” (Interview

16, 11.01.10).

Community Relations in SCC emerged in a particular set of circumstances, very different from MBM’s. Two distinct points of departure set off two very different trajectories for both teams, as it will be clear at the end of this chapter.

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5.2.3. SCC: Company’s CSR Practices on the Ground

The first indicator of a company’s CSR practices is the internal status of the area, both its place in the firm’s organizational structure and its internal image.

In SCC, the head of Community Relations is a superintendent in charge of a team of 18 people, who responds to the Manager of Community and Public Relations. He, in turn, responds directly to the Company’s Executive President. Anecdotal evidence of other mining companies suggests that this is a team of a reasonable size, and its place in the internal hierarchy is far from low: only three steps removed from the Company’s

Executive President (Interview 4, 21.08.09). Also, SCC is perhaps one of the few mining companies in which the line manager in charge of Community Relations is not based in

Lima, but in the South, closer to where the company engages local populations.

Although it is not likely for the manager himself to engage directly with local populations, having his office in Ilo has the advantage of keeping him in close contact with the Community Relations teams in the field.

As was mentioned above, the Superintendent of Community Relations at SCC is in charge of both operations – Toquepala and Cuajone, and most team members may be called to support colleagues in villages in Moquegua or Tacna at any time. When asked about their titles and specific roles in the area, members of the team look puzzled:

“What do you mean? I do not have a specific title, I am a member of the team and that’s it. We don’t have business cards, and I sign my emails with my name and below I write ‘Area of Community Relations’.” (Interview 24, 23.02.10).

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The low degree of responsibility for specific geographical areas, combined with the lack of internal structure and precise roles suggests that the level of institutionalization of the area is rather low.

A closer look at the internal status of Community Relations in SCC reveals deeper weaknesses. It seems that other areas either do not understand or are suspicious of the role of Community Relations, and this internal lack of trust leaves the team in a precarious position to successfully perform its external mandate.

Higher SCC officials in Lima feel there is a lack of communication of the problems and achievements of the Community Relations team:

“We do not know what they are doing, we have told them many times to come here and present what the situation is over there, but they haven’t done it.” (Interview 4, 30.04.10).

During a lunch break in Cuajone, mingling with engineers and employees from other areas, I hear repeatedly: “Community Relations only spends money, the rest of us produce money for the company”.

One of the most recent members of the Community Relations team says “on my second week here in Cuajone, the Operation General Manager calls me to his office and asks me to introduce myself and tell him what I do. I try to explain, but he tells me that he ignores what Community Relations does exactly. That he sees people coming and going from the office but has no idea what they are there for. There is a real disconnect between Community Relations and the rest of the areas in Cuajone” (Interview 21,

05.03.10).

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Another employee at Community Relations suggested that it is not unfamiliarity with the activities of Community Relations or a problem of miscommunication, but that other areas are actively trying to boycott the work of Community Relations.

“Community Relations has become a very attractive target for other areas that want to absorb it: it has money, it has a rising profile, and under the new environmental and social legislation it is crucial to facilitating new expansions and projects. Everyone wants to have a say on what we do… Even within our own team we have many risks, some people do not make our life easy… we have to watch our backs because people want to see us fail and then take over Community Relations.” (Interview 25, 17.02.10).

During the three weeks I spent shadowing the Community Relations team in

Cuajone, I saw their difficulties to secure vehicles to do their rounds or attend meetings in villages. More than one person in the area perceived this as an indication that others in the company were preventing them from performing their duties “How are we expected to do our job if we do not have the resources we need? Sometimes I feel everyone is against us *Community Relations+” (Interview 21, 05.03.10).

At best, there is some evidence to suggest that SCC’s Community Relations is not an area recognized as useful or important for the company, and at worst, there is a sense of threat over the autonomy of Community Relations as such. Overall, the internal position of the Community Relations area in SCC is unstable and rather isolated from other departments, and that perceptions of the importance of their work within the company are low. Under these circumstances, the team constantly needs to justify its role to other areas; and the time and effort destined to deal with internal problems and

‘threats’ distracts them from their central mission of dealing with local populations.

“It is the internal bullets that kill. Nobody has been sacked from Community Relations because of external bullets, for problems with communities; it is

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always internal bullets. That is why we need to wear ‘bulletproof vests’ – have a system to measure the impact of our work with locals, constantly write reports and documents that show that we are useful, etc. It is true that because of that we’ve been a bit careless with the external front and the relationship with communities, but that is the sacrifice.” (Interview 25, 21.04.10).

The ‘identity issues’ experienced by the Community Relations at SCC are not exclusive to this case but rather an extended problem in the extractive industries, given that this is an area still in formation and finding its place in the corporation (Interview 12,

23.06.10).

Turning to the second indicator, the company’s general attitude toward local accountability and participation, SCC does not score high on either. Despite the controversies around water availability in the localities where it operates, SCC has refused to establish Participative Committees for Water Monitoring in its operations, while many other mining companies have agreed to do so, even some in the same areas where SCC operates, and there is a standard procedure for its creation and functioning that would facilitate the process. This has confirmed the common sense that SCC is very resistant to transparency and openness, especially when it comes to information about water use and management, and the impacts on local farmers. The President of

CORECAMI Moquegua complains “…it is easier to get into Chile than to Cuajone. They

[the company] refuse us permission to come in and look at the damn when we want to control the level and quality of the water in the Torata River” (Interview 26, 09.03.10).

And a member of one of the Water Management Group in Torata confirms:

“SCC does not allow the people to go check the water level in the dam. Every time they want to go, they have to ask permission to Southern and have to be taken by Community Relations. But when I am having people over at my house, I clean it, I put it nice, isn’t it normal? So we don’t know if Southern prepares

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everything for the day we are coming. They should open a path for anyone to go see the water and quality of the water at any time.” (Interview 27, 26.02.10).

Something that adds to this image of opaqueness and secrecy is that SCC does not have outreach offices to interact with the public in the regional capitals of districts of their areas of influence – except for a one-person administrative office to receive documents [mesa de partes] in Moquegua. In contrast, there is municipal presence within the mining operation: the district municipality of Ilabaya has a municipal office inside the mining complex of Toquepala, with personnel working there and in charge of coordinating their activities with the company. For an employee at the Municipality of

Ilabaya, “the municipality is the most interested party to maintain a close relationship with the company – not the other way around!” (Interview 28, 08.01.10).

A point that for many locals reflects the indifference of SCC’s and its disregard for behaving as a ‘good neighbor’ is the fact that SCC’s medical facilities – the best hospitals in Moquegua and Tacna – are for the exclusive use of SCC personnel. This is deeply resented by locals, especially since the number of company workers has declined steadily over the last two decades and the hospitals have considerable idle capacity.

Finally, I turn now to the assessment of the third indicator: the internal institutions established to allocate SCC’s discretionary funds. On this point, SCC’s performance is no different from the previous two, and the rules and planning process to decide the allocation of discretionary funds is not the most institutionalized or participatory. First, SCC does not have an independent institution to administer SMP in practice. Although Copper Aid [Ayuda del Cobre], a civil association, was formed to manage SMP funds – to comply with SMP regulations – its existence is merely formal.

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Oscar Gonzales Rocha, the Executive President of SCC and Manuel Sierra, the Manager of Community and Public Relations, are at the same time the President and General

Manager of Copper Aid, and in practice, this civil association does not have a separate office, personnel or administrative procedures (Copper Aid annual report 2007). As was openly accepted by the Manager of Community and Public Relations:

“The SMP is implemented from this very office and with the same team. We do everything from within the company... this way we cut costs.” (Interview 16, 11.01.10).

At the same time, SCC has favored a way to disburse the SMP funds that gives them maximum discretion over the funds. While other companies may contract out small firms to implement their social projects, SCC prefers to use a formula called ‘direct administration’ for most of theirs. This means that Copper Aid (in practice the office of

Community Relations) manages most of the project funds directly – it selects, hires and pays the workers, sets up the temporary camp where workers will sleep during the project and hires a cook, supervises the progress of the works, etc. Crucially, the decisions of which person to hire, how many, and how much they are paid are completely under the control of Community Relations.

Although this way the overhead cost is minimized, the opportunities for political use of these resources are maximized. This emphasizes the preference for flexibility that companies show whenever they have the possibility to choose. A member of the

Community Relations team seems satisfied with this arrangement:

“I find this is a much better way to use the SMP funds. I can make sure all the workers are local hires, we can stretch the budget to hire more people as we pay a little less than private contractors, and most importantly: we have the

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advantage of choosing exactly who gets to be hired and who does not get hired.” (Interview 19, 24.02.10).

Participation does not seem to be a priority for the company. As was presented earlier,

SMP regulations are not really binding constraints over company’s decisions on how to spend their SMP. This is especially true for the clauses that cover issues of civil society participation. According to SMP’s regulations, resources must be allocated through

Technical Coordinating Commissions [CTC – Comisiones de Coordinación Técnica], which are pompously defined as “a democratic space of deliberation and approval of the projects to be implemented” (MINEM 2007). However, companies can choose how many CTCs they form and where.

For example, in the case of Cuajone, there are only two CTCs, one regional for

Moquegua and one local for Torata. The mayor of the district of Pacocha asked to have one as well, but SCC officials refused. This decision was, according to the mayor, not a technical one.

“They haven’t formed a CTC in Pacocha *…+ it is purely for political reasons. The problem goes back several years, when I had just taken office. Manuel Sierra wanted to force me to hire someone to work for the municipality. He did it in the worst possible way, with a very high-handed attitude. I did not accept and Sierra got very upset. You can’t imagine how arrogantly they approached me, it was very unpleasant.” (Interview 29, 24.03.10).

The law says that CTCs are conformed by members of the company (who leads the CTC), the local/regional government and a representative of civil society organizations. Yet, there is a lack of procedures to appoint the members of this CTC, something that is especially crucial to guarantee the legitimacy of the civil society

183 representatives, and instead, the regulation states that the CTC can function only with company representatives, and that “the rest will be incorporated as they are elected”70.

Sometimes the company takes to the CTCs predefined projects, only requesting an ex-post approval of the rest of the members of the CTC that are asked to sign the minutes. The superintendent of Community Relations accepts that:

“…ideally, projects should be prioritized by CTCs. But sometimes this is not the case. For instance, if SCC’s President decides that we should build a road to Ilabaya, it will be done! We have to rush, form a CTC in Ilabaya, type up the act and get the signatures. Everything for that road, which was decided already, to be built.” (Interview 23, 04.03.10).

Although the CTC is supposed to meet periodically according to SMP regulations, the manager of the Municipality of Torata claims that “there is no schedule for the meetings of the CTCs. They meet when they can” (Interview 30, 09.03.10).

Many residents in the areas of influence of Toquepala and Cuajone have the feeling that SCC is reluctant to spend the resources from the SMP, despite having large amounts available. For instance, the head of the Local Water Administration in

Moquegua is concerned that, without timely investments on infrastructure by SCC, water is going to become a bigger issue in the future:

“At some point this situation is going to explode. And then, they *SCC+ will have to do something to guarantee their water supply… They should do like Cerro Verde [another large-scale mining company]: build a large reservoir, invest good money, take the water they need and leave the rest for the farmers in the valley. Everyone is happy and there is no conflict. But here in Moquegua SCC does not want to spend, and that is why it has so many problems.” (Interview 31, 03.03.10).

70 Regulations of the Solidarity Mining Fund, DS 071-2006. 184

Table 5.2 SCC: Company’s CSR practices on the ground Indicator Level  Status of the Community Relations office Low. “Threatened” from inside, not within the company. recognized by other areas, low internal relevance.  Company’s attitude toward local Low. Company is opaque and participation is accountability and participation of local not seen as a priority. populations.  Company’s internal rules/institutions and Low. Same responsible for SMP and CROB, planning process to decide the allocation of fund disbursement to maximize opportunities discretionary funds. for strategic use of funds.

In sum, SCC scores low on each of the three indicators of CSR practices on the ground. It presents a combination of low esteem and high mistrust within the company that distracts Community Relations from its task, a reticence to establish participatory practices and be accountable to people, and partial disregard for rules and established procedures to distribute discretionary funds. This makes SCC disconnected from local populations (who could provide an impetus for spending), reduces the funds available for their operating budget (as seen on the considerably lower levels of SCC’s CROB over

MBM’s CROB) and slows down the pace of committing SMP funds (as reflected on the lower ‘deposited to committed’ ratio of SMP funds in comparison to MBM).

Yet, differences across companies only takes us so far, as they do not explain why the outcome in Cuajone looks so different from the one in Toquepala, being both operations under the same company. Why are discretionary funds in Cuajone spent non-locally (rather than in fence line populations) and in donations (over projects)? To explain those differences, the chapter 6 turns to another set of variables that focus on local populations’ ability to ‘extract from the extractors’.

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5.3. Minera Barrick Misquichilca

“Why don’t you study Barrick? They are very big, have very little social troubles and nobody is talking about them”. A conversation with the former Director of Mining

Affairs at the Ministry of Energy and Mines sparked my curiosity about a company that was apparently the polar opposite of SCC.

Table 5.3. MBM – Main statistics Annual Production 1’575,000 fine ounces of gold Ranking 2nd largest (12% of domestic gold production) Net Profits US$ 539,983 Average total cash cost per ounce US$ 185 for MBM (US$466 for Barrick Gold as a whole) Workers 3,831 Notes: Production from MINEM (2009). Ranking from MINEM (2010c). Net profits from CONASEV (www.conasev.gob.pe) up to 09.30.10. Cash costs for Barrick Gold for 2009 from Barrick Gold (2010a) and MBM cash costs for 2010Q1, from Barrick Gold (2010b). Workers (employees plus contractors) from MINEM (2010a).

Minera Barrick Misquichilca arrived in Peru in the early 1990s, one of the many global extractive companies that were looking to expand their operations into South

America. Fifteen years later and with two mines in operation, the company had become the second most important gold producer in the country. It presented itself as a modern, socially responsible extractive company but seemed to maintain a low profile, and apart from a few incidents it did not appear to galvanize the rage of local populations. Yet, as was pointed by the former ministerial official, public interest on

MBM was limited and, as I would discover later, academic research on MBM was almost

186 non-existent. It was interesting that being so important and large, it was not getting enough attention71.

Today MBM, with very low production costs and important levels of production is a very profitable company in Peru, and an important subsidiary for Barrick Gold.

At the local level, the presence of the company has created some economic dynamism and some jobs, mainly indirect (CEDEP 2005, 4). Its economic impact is not as large as SCC’s, however, for reasons that are inherent to the political economy of gold mining as opposed to copper mining. First, in contrast to SCC’s, MBM does not have industrial facilities to further process its ore. Once it is mined and concentrated, the doré bars are sent to Switzerland to be processed. Second, gold production is not as bulky as copper, and the production does not require the company to have a transportation system in place: every month, the few hundreds of kilos of gold produced at each mine can be transported to Lima by plane, helicopter or a few bulletproof trucks under strict security. Therefore, the economic dynamism generated through transport is absent in this case72. Finally, MBM uses top of the range capital-intensive technology, so it its ability to create direct jobs is minimal and very few locals have the technical knowledge to perform them. This is a pervasive grudge that locals raise to extractive industries around the world, but in the high-tech gold industry it seems to be especially problematic.

71 Research on the social and environmental impacts of Minera Barrick Misquichilca is circumscribed to reports prepared by local and international NGO and external evaluations and policy recommendation papers commissioned by the company (which are often of restricted circulation). Himley (2010a, 2010b) Ramirez (2008) and Lopez Mas (2006) are the only pieces of academic research found about Pierina. Roca Servat (2009) has an analysis of Lagunas Norte’s social impacts. 72 This means that the opportunities to block roads and bring MBM operations to a halt are much fewer than in the case of SCC. 187

In Lima, MBM raises other type of criticisms. Some argue that MBM prefers to keep a low profile and has left other global mining companies to take the lead on promoting the CSR agenda in Peru – a task left to Antamina, Yanacocha and a few others. MBM executives acknowledge this but spin it in a positive light:

“It is true that we do not appear in the media too much, for good and for bad. Yes we are not considered leaders in CSR, but on the other hand, in a country like Peru, it is an achievement not to be in the media, and not to be ‘newsworthy’ amidst the governance problems that other mining companies suffer” (Interview 32, 03.08.09, original emphasis).

Others say that MBM does not participate actively in industry activities or in dialogues with civil society or the State, a behavior that has been labeled “a bit autistic” by some industry experts (Interview 33, 04.06.09).

Still, these seem to be minor sins and the general perception of MBM is far better than that of most other extractive companies in Peru. They are considered to have very good environmental controls, have extensive social programs and in relative terms are seen as modern and responsible (World Bank 2005, 81-82).

5.3.1. MBM: The basics

Minera Barrick Misquichilca73 (henceforth MBM) is a 100% Peruvian subsidiary of

Barrick Gold Corporation, a Canadian gold mining company and the world’s largest producer of this precious metal (Barrick Gold 2010b). Although Barrick Gold was established as a global company in the 1980s and currently has operations in four continents, its presence in South America is relatively recent. Now, Barrick Gold has

73 Misquichilca is a quechua word meaning sweet (misqui) water (chilca). 188 projects in Chile as well and has established a regional office in Santiago de Chile that oversees all its South American operations. Still, MBM has independence to run its two mines from a central office in Lima.

The company’s presence in Peru dates back to 1994, first as an exploration company wholly owned by Barrick Gold. In 1996, the company absorbed “Acuarios

Minera y Exploradora”, an exploration company that had the concession rights of the soon-to-be-discovered Pierina mine, and became Minera Barrick Misquichilca. Later on, in 2005, the company stroke gold again in Lagunas Norte (MBM 2003) and it is currently the second largest producer of gold in Peru (MINEM 2010c, 4).

Setting up a private large-scale mining company in Peru in the 1990s was very different from operating one in previous decades. One of the main differences was that, in the 1990s, the country was going through the first tough years of a structural adjustment program after the ‘lost decade’ of the 1980s. After years of being essentially disconnected from international markets, Peru was trying to make itself attractive to foreign direct investment. This gave foreign companies interested in bringing their business to Peru the upper hand in the negotiations with the government

(Campodónico 1999, Ruiz Caro 2007). MBM, as many other similar ventures during the

1990s, was able to negotiate a very beneficial extraction contract: tax stability for 15 years as of 1998, no restrictions on the repatriation of profits or foreign exchange convertibility, income tax stability and a depreciation rate of up to 20% regardless of the asset type (CEDEP 2007). The second main difference – and somewhat limiting the attractive deal the government was offering them – global companies were more

189 attuned to the corporate social responsibility agenda, and the adoption of higher social and environmental standards was becoming inevitable, particularly in the extractive industries (Jones Luong unpublished)74.

These global pressures, which in the case of SCC are extremely low, have incited

Barrick Gold to sign a number of codes of conduct and international standards that have to be respected across all areas of the company and its subsidiaries, including MBM75.

But apart from signing voluntary agreements, Barrick is bound by commitments made to its lending institutions. It is well known that projects that get funding from the

International Financial Corporation (IFC), the financial arm of the World Bank, must comply with a set of guidelines to mitigate the social and environmental impacts of large projects – to at least not undo with the financial arm what is done with the project arm.

Private financial institutions have now also adopted CSR guidelines, most of them based on the IFC and WB standards, of which the best known is the Equator

Principles. Because Citigroup has signed the Equator Principles and is one of Barrick

Gold’s main lenders, MBM is indirectly required to comply with the Equator Principles.

“Equator Principles Financial Institutions (EPFIs) commit to not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement the EPs.”76

The principles include sound environmental and social risk management, and commitments to periodical reporting and disclosure. By tying the CSR agenda to project

74 For a more detailed description and analysis of the changes in the international and domestic context of the 1970s-2000s, refer to chapter 3. 75 Just to mention a few, Barrick Gold is signatory of the ICMM, an industry initiative of the 18 largest mining companies in the world to promote CSR standards; the Cyanide Management Code, promoted by the United Nations Environmental Program (Pierina was certified in 2007); and the ISO14001 certification, an independently audited standard of environmental management (Pierina received it in 2006). 76 http://www.equator-principles.com/documents/About_the_Equator_Principles.pdf 190 funding, they seek to make social and environmental compliance “good for business”.

Finally, the fact that Barrick Gold is listed in the Toronto, New York and London Stock

Exchanges exposes it to pressure from CSR-minded shareholders and gives activists access to the public reports they must file.

Early on in my fieldwork, I felt the importance given by the new wave of global companies to their public image. Just like in the case of SCC, I had no previous connection with anyone in MBM – I literally got the contact details of the Corporate

Affairs Manager from MBM’s website77. Only three days after my first phone call, I was granted a 15-minute interview to explain my project to the Corporate Affairs Manager and convince him to let me shadow MBM’s Community Relations teams for one month each. This interview was no guarantee of approval, but it was already a better sign of transparency and an effort to openness than the four months of difficulties I would encounter later on when trying to get SCC’s consent to involve them in my project.

However, the domestic context inevitably influences company decisions and some of Barrick Gold’s high standards may be more ‘flexible’ in some regions than others. For example, South America is the only place in the world where Barrick Gold has more subcontracted workers than employees: a consistent 60%. It is not outlandish to suggest that this has to do with the extreme flexibility of Latin American labor markets.

77 An additional surprise came later, when I tried to get the details of a SCC official from its website and learned that this is simply impossible. 191

Despite having pledged to behave as a good corporate citizen, Barrick Gold has not been safe from public scandals. In Latin America, it is most infamous for the problems of the Pascua Lama project, which straddles the Chilean-Argentinean border and sits in an environmentally delicate area of glaciers (Urkidi 2010). In Peru, MBM has not been away from the political spotlight either, as I describe below, although its problems have not been as critical as SCC’s.

Taxes, explorations and labor mobilizations: subnational confrontations against MBM

In 2005, MBM was subject of a controversy about a tax matter that still today affects its reputations in the country. Back in 1996, when MBM absorbed “Acuario Minera y

Exploraciones”, it applied a law78 that gave companies that merged the possibility of revaluation of assets followed by a double depreciation79. As a result of that operation,

MBM was able to revalorize its gold reserves according to the current prices and then

78 The law used was the decree D.S. 120-94-EF, which has been repealed since. 79 It is called double depreciation because assets are depreciated once as part of old company and again when they are transferred to the new company. A faster rate of depreciation is attractive for companies because it reduces the value of the company and therefore the level of taxes it has to pay. 192 depreciate them – and ended up with US$140m of tax credits for 1996. In 2002, the

Peruvian tax authority, SUNAT, started an administrative process to enquire on what was considered an irregular use of the law: one can only depreciate an investment, and non-mined gold reserves could not be considered as such (CEDEP 2005).

The case went to court and was resolved in favor of MBM. Immediately, SUNAT appealed and asked to move the case to the Fiscal Tribunal, the highest court for tax matters. Yet, at that point, Congress passed a law stating that the Ministry of Economics had the ultimate word in deciding whether a case can be appealed by SUNAT. And in the

MBM case, the Ministry of Economics decided against SUNAT’s right to appeal (PLADES

2007, 5).

Some considered this a heavy-handed resolution from the national government

(Plades 2007, CEDEP 2007) that was seen as ruling in favor of the company; nevertheless, it could have marked the culmination of a controversial matter. But in the meantime, at the subnational level, the mayor of Huaráz took up the issue and led a local street protest against MBM. To be sure, he had vested interests in the matter. A resolution against MBM would mean that it would have to pay US$140m on taxes it did not pay in 1996, and according to the mining canon law, half of those taxes would be transferred to regional and local authorities. In dollars and cents, it meant about

US$18m extra on government transfers for the municipality of Huaráz80. In March 2005, after a few days of street protests and negotiations, the company agreed to fund two

80 For the distribution rule for the mining canon, see chapter 3. 193 projects (for a fraction of the money it would have had to pay) and the situation calmed down.

The curious thing about this incident was that the participation of people from

Pierina’s neighboring villages was minimal, and the clear protagonist was the mayor of

Huaráz and demonstrators from other districts, as it is plain from the reports of newspapers during the protests81. Moreover, when I prompted leaders from villages near the mine to mention the main social problems they had had with the company, this one was not on the list. The urban bias of this mobilization was also reflected on the demands that were made to the company – mostly urban development projects such as a roofed market, a new hospital and a stadium and the paving of all the streets in the capital city, Huaráz82.

Perceiving that the center of the protest was Huaráz and its mayor, MBM chose to involve its Public Relations team – which deals with urban affairs – instead of its

Community Relations team. Soon after MBM agreed to fund two of the projects requested (the market and a health center), the protests were stifled due to an important change in the context: the first large transfer from Antamina’s mining canon was received by the municipality of Huaráz. For an analyst of the extractive industries in

Huaráz, Barrick’s location played in its favor:

“The problem *for MBM+ could have been much larger, but at that very moment the mining canon from Antamina kicked in, and that saved Barrick’s skin from

81 La Republica 08.03.05, Seguridad IDL http://www.seguridadidl.org.pe/noticias/op/2005/03marzo/08- 03b.htm 82 http://www.larepublica.pe/archive/all/larepublica/20050308/pasadas/15/102981

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further demands. Antamina’s mining canon was so extraordinarily large that everyone forgot about Barrick.” (Interview 34, 25.09.09).

Apart from this incident that cannot properly be described as local in nature,

MBM has had to significant clashes with neighboring villages. The first disagreement dates back to 2006, when villagers from settlements and peasant communities who were hired to work for MBM in low-skilled positions, demanded an increase in wages.

On May 4, 2006, around 300 comuneros that were part of a corporate program to promote temporary jobs for local populations blocked the two main access roads to the operation with stones and tree trunks, “impeding the free transit of vehicles and workers from the mining company”, as the Office of the Ombudsman reported

(Defensoria del Pueblo 2006, 6). The protest became hostile and after a clash with two casualties and 19 injured, the parties sat down to negotiate. A satisfactory pay rise was granted, but the union formed by temporary workers for the settlements near Pierina was never recognized as legitimate by the company and soon dissolved (PLADES 2007).

The second disagreement occurred in 2007 when MBM was granted the concession rights to explore for ore at the Condorhuain hill, 3km south of Jangas, the district where Pierina is located. When prospective works started in January 2007, a local problem arose. Villagers from the lands where the exploration was taking place welcomed the presence of the company, while villagers from lower lands complained that it would distress their water sources. Reports from the MINEM and the Local Water

Authority stated that no water sources were going to be affected, but still there was a small public protest on July 2007 to demand the immediate stop of the prospective activities (Defensoria del Pueblo 2007). A few days after the protest, the company said

195 at a public conference that it was retreating because they found no evidence of gold and its exploration permit had expired. Yet, the timing of MBM’s retreat suggested to locals that they had made the company desist and is, even today, claimed as an important victory for them.

The implications of these incidents between the company and the neighboring villages will be further developed in the next section. The important point for now is that although Barrick Gold’s and MBM’s social image are not free from trouble, the international and domestic stains in the company’s reputation are considered nowhere near as dark as those of SCC’s and most other large scale mining companies in Peru, and its disposition to sit down to negotiate is recognized83.

5.3.2. The Creation of Community Relations at MBM and Current Social Development

Institutions

The area of Community Relations has been a part of MBM since the early days of its presence in Peru, as MBM prides itself of being a mining company of the nueva minería.

However, it has undergone some transformations along the way and, just like in the case of SCC, its profile within and outside the company has risen as the area increased its resources, personnel and responsibilities.

The first head of Community Relations at MBM had the title of Director of

Community Relations. He was based in Huaráz and reported to the Manager of

83 This good image that MBM enjoys in the country may be relative of course, and could be more telling of the appalling social performance of the rest of the companies than of MBM’s good behavior per se, as was pointed out to me by Rosemary Thorp (personal interview, 17.03.10). 196

Corporate Affairs at MBM’s headquarters in Lima (Cano 21.09.09). The team was small, about nine people, but included professionals with different backgrounds, where social promoters and nurses worked together with engineers and veterinarians.

This organizational structure was maintained until 2002, when MBM’s social interventions became more complex in preparation to the construction of Lagunas

Norte, the second of MBM’s operations. At this point, each of the operations – Pierina and Lagunas Norte – got their own head of Community Relations. The head of the

Pierina team moved to become the first head of the team at Lagunas Norte, and a new hire came to lead Community Relations at Pierina. Each of these heads was given the title of superintendent and the position of Manager of Community Relations was created to coordinate the two teams from Lima. With this change, the area gained in complexity and a few team members were added.

An interesting connection between SCC and MBM is that the person hired to lead the Community Relations team at Pierina, Guillermo Manrique, was the same who formed the first Community Relations office at SCC. Apart from him, at least two other community relations’ professionals moved from SCC to MBM. Like them, many other professionals formed in Community Relations at SCC have moved on to other mining companies, giving ground for the industry saying that SCC is “the school of Community

Relations in Peru” (Interview 18, 19.03.10).

Between 2000 and 2010, there have been five different heads of Community

Relations at Pierina, and a similar number of changes at Lagunas Norte – the superintendent who was in charge during my fieldwork in August 2009 had already been

197 replaced by early 2010. This high rotation of Community Relations professionals and the change in its organizational structure is not uncommon across companies. At Compañía

Minera Antamina, Damonte (2005) traces six different teams in eight years. On the one hand, this reveals this area is still in formation, in the process of finding its goal and the best structure to achieve it. On the other hand, however, the institutional instability and high rotation of personnel also feeds the feeling that community relations’ professionals perform a very high-risk task and are highly unstable positions: if they do it wrong they are instantly replaced ‘like a blown fuse’.

Currently, the Pierina Community Relations office has a team of 14 people managed by a superintendent. In Lagunas Norte, the Community Relations team is larger, with 19 people. Both teams are monitored by a Community Relations Manager who sits in Lima but constantly flies to both operations.

Although both companies have hired Community Relations’ officials with the same range of disciplinary backgrounds (nutritionists, agricultural engineers, veterinarians, nurses, among others) the profiles of the leaders of MBM’s Community

Relations area are very different from the ones at SCC. The superintendent at Pierina is an economist with social development experience, previously founder and director of an NGO; the superintendent at Lagunas Norte is an agronomist; and the Manager is a young anthropologist with previous experience in the social dimensions of extractive industries, all of them more likely to be acquainted with new notions of development and current standards of company-community relations.

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5.3.3. MBM: Company’s CSR Practices on the Ground

The first indicator of CSR practices is the status of the Community Relations office within the company. In terms of its place in the organizational chart, the area of Community

Relations at MBM is not very different from that of SCC’s. The head of Community

Relations at Pierina has the title of Superintendent and reports to the Community

Relations Manager, who in turn reports to the Manager of Corporate Affairs and him to the General Manager of MBM Peru (MBM 2005, 5). Hence, all in all, the head of

Community Relations at the operation is three steps removed from the Regional

President. This is not too different from the two steps that separate the Superintendent of Community Relations at SCC’s operations from the Executive President.

Apart from a small team of Community Relations (the Manager and an assistant) located in Lima, the daily management of the Community Relations team is decentralized to each operation (Interview 32, 03.08.09). In contrast to SCC, the

Community Relations teams for Pierina and Lagunas Norte work independently and respond to different Superintendents. The two teams have periodical coordination and exchange of information when they meet in Lima for some activity, but they are autonomous – and there is even some competition between them84.

The Superintendent at each operation is in charge of a substantial team

(between 14 and 19 people), including civil engineers, nurses, veterinarians, social

84 The competition between teams seems to boil down to the fact that the budget for social development at Lagunas Norte is higher than that available to Pierina, and the Pierina team demands more funds. 199 promoters and a geologist. Each of them is ranked as ‘senior’, ‘junior’, or ‘administrative support’, depending on their qualifications and responsibilities and most are assigned to a specific area – health, education, planning, agriculture projects or infrastructure.

There is also a periodic contact and information-sharing procedures across the two operations, as a community relations’ official explains:

“Alfredo Anderson, the new manager, has instituted that every Tuesday there should be a meeting [at each operation] to report the most important issues of the week. And every Wednesday at 8.30am there is a teleconference with Lima and Lagunas so we can discuss what has happened in each place.”(Interview 35, 22.07.09).

The clear hierarchy and structure of the team stands in contrast with that of SCC.

In MBM, the Community Relations office as an institution seems to be stronger, with a clear distinction of functions, ranks and reporting lines.

But the most important difference between the internal position of Community

Relations at SCC and MBM is not readily apparent from the organizational chart. The radical difference across companies is reflected on the institutional status of this area within each company.

The office is respected internally and the team feels that the work they carry out is appreciated by their managers and considered important in Lima. “Last year we were praised by everyone; we even got a congratulatory note from Carlos Cabanillas [the

Manager of Corporate Affairs+ last year”, says a community relations official at Pierina

(Interview 36, 16.09.09). They picture their role as agents bridging corporate and local domains: “We are the company in the community and the community in the company”

(Interview 35, 22.07.09).

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The international recognition of the work of the Community Relations team also strengthens their sense of worth within the company. One of MBM’s most recognized social initiatives is the Cuncashca Business Development Project, in Pierina (Barrick Gold

2007), a model farm supported by MBM for the Cuncashca peasant community that seeks to integrate farming and dairy production for local markets. In 2006, the Canadian

International Development Agency (CIDA) and the Canadian Manufacturers and

Exporters Association selected the farm as a successful social intervention and recognized it with the prize on Excellence on Corporate and Social Responsibility (MBM

2007, 18). Since then, it has been showcased as an example of best practice in workshops and conferences on CSR.

Of course there are some problems that are natural to an area that is relatively new. For instance there was some contention back in 2007 over the roles of Community

Relations and the recently constituted NeoAndina, the civil association that manages the funds from the Solidarity Mining Program. Also, there are moments of frustration in the team, when they feel that they are not taken seriously enough by other areas of the company. One of Lagunas Norte’s community relations experts and MBM employee since the period of explorations complains:

“Sometimes here we say that we would like everything to blow up to really show them *the rest of the company+ how valuable our job is.” (Interview 37, 23.07.09).

Yet, in general, at MBM the members of the team do not feel threatened by other areas and consider their work relevant and valued.

“We are the first contact that people have with the company. If they want to make a request or present a complaint, they come to us. We are the face of the

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company and we take that responsibility of representing Barrick very seriously.” (Interview 38, 15.09.09).

The internal standing of MBM’s teams and their high level of institutionalization contrasts with the precarious situation experienced by members of the Community

Relations team at SCC.

The second indicator of corporate CSR practices is the company’s attitude toward local accountability and participation of local populations. MBM performance on this is rather uneven, especially in Pierina, where there are some instances of openness and participation and others in which there seem to make little effort to encourage interaction with local organizations and citizens.

In Pierina, Community Relations’ headquarters are located inside the mining complex, and its only liaison office is located in Taricá, inside the residential housing complex of La Alborada. The extra effort to make itself available in more neutral ground and closer to the locals, like in the town of Jangas or Huaráz, is absent. When asked why their presence is so reduced outside the operation, they reply that they “don’t want to be in the eye of the storm” (Interview 36, 16.09.09).

CEDEP, a regional NGO that has a program to monitor the social impacts of extractive industries in Ancash, notes in its reports that Pierina’s Community Relations area is not too keen on answering information requests, although in at least in one occasion they were able to get an interview with the Superintendent of Community

Relations (CEDEP 2005, CEDEP 2007). The two incidents of social demonstrations against

Pierina reported in the previous section confirm that the company’s local reputation is not pristine.

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In other spheres, however, the Community Relations team at Pierina has shown interest in engaging local organizations and being accountable to them, even when it comes to what may be a sensitive issue for the company. For example, MBM funds and supports the Jangas Water Monitoring Committee, an independent committee under the leadership of the mayor of Jangas, with the participation of local Water

Management Groups and the coordination of CODISPAS, which periodically evaluates the quality and quantity of the water sources that may be affected by the operation of the mine (Himley 2010b). The company respects the independence of the procedures of water collection and testing, and its behavior has not raised strong suspicions or complaints among the participants.

The performance of Lagunas Norte, the other MBM operation, is far better in terms of accountability and local participation. There are two outreach offices in the area of influence of the operation (one in downtown Quiruvilca and another one in

Santiago de Chuco). These offices serve as spaces for people to come in, ask questions, get information about the mine’s social and environmental programs, and often put forth concerns or demands to the company. There is a regional NGO that has been examining the performance of the extractive industries in la Libertad, where Lagunas

Norte is located, since 2006. CEDEPAS reports that MBM-Lagunas Norte is also involved in participatory processes of water monitoring with civil society organizations and local authorities (CEDEPAS 2006), which speaks of the company’s concern for transparency.

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Social conflicts are few and far between in the areas near Lagunas Norte. Since it started reporting on social conflicts, the office of the Ombudsman has not registered any open conflicts that have happened directly between MBM and local populations.

Overall, at a company level, MBM has put in place some mechanisms to open itself to public scrutiny and invite participation of civil society organizations and the general public. And in the cases in which it has been less transparent or participatory, it has also been smart enough to navigate social demands and minimize open confrontations.

I now turn to discuss the third and final indicator of company’s CSR practices: the institutions and planning process to decide the allocation of the company’s discretionary funds. As a signatory of SMP, MBM has to comply with a number of rules and regulations governing the planning process to decide the allocation of discretionary funds. MBM created a civil association to manage the Solidarity Mining Program:

NeoAndina. This institution was established in 2006 but took the best part of a year to be fully functional. During this delay, Community Relations was given the task to manage the SMP funds. It was a bumpy start, but now NeoAndina has a separate office, a team of eight full-time members and a few additional contractors, and monitoring systems that are different from Community Relations. They have become an institutionally distinct office that focuses on the large projects of the SMP while

Community Relations deals with smaller, short-term demands.

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At Lagunas Norte, the Community Relations official in charge of infrastructure projects portrays the relationship between NeoAndina and Community Relations as cooperative:

“Since we got the Voluntary Contribution *as the Solidarity Mining is sometimes known], because there are more resources there, Community Relations often prefers to focus on the [social] diagnostic and prepare the technical dossier for the project. We then send it to NeoAndina and they carry out the project.” (Interview 39, 02.08.09).

Still, MBM does now show too much effort on following SMP regulations when it comes to civil society participation in the allocation of SMP funds. As far as the regulation that establishes that a representative of a civil society organization has to participate on the Technical Coordinating Committee [Comité Técnico de Coordinación,

CTC] in charge of allocating the SMP funds, the manager of NeoAndina acknowledges that they do not have any representatives in their CTC’s because “civil society organizations participate making the demands” (Interview 40, 17.09.09). This is a very weak conception of participation, and clearly contravenes SMP regulations.

In Pierina, NeoAndina has a small office in Taricá while Community Relations in located up in the operation, but the coordination between teams is strong. They lead workshops together, manage their projects in consonance and the communication is constant85. Both Community Relations and NeoAndina organize workshops and assemblies to plan the distribution of discretionary funds. One of the oldest members of the Community Relations team tells me:

85 The downside of this is that for locals, it is hard to tell what the difference between the two offices is. Some are confused about NeoAndina being part of MBM, of the government or a different NGO. 205

“We used to organize workshops annually with each village; we’d meet and discuss which projects would benefit all. People made some effort: they would come with pieces of paper in which they had a list of consensus projects” (Interview 41, 21.09.09).

When I asked about the use of the past tense to refer to these participatory processes and whether they do not hold workshops anymore, she accepted that for the last two years fewer workshops have been organized. The assemblies are now less regular than before, as the Community Relations team, like the rest of areas, is gradually scaling down in anticipation for the closure in 2013.

“Pierina is closing down. We still organize workshops in the villages, but do not have the kind of money we used to. Now we must privilege the maintenance of the infrastructure we’ve built in the past years and build capacities in the population to make projects sustainable.” (Interview 41, 21.09.09).

In Lagunas Norte, I witnessed a day-long workshop in which Community

Relations representatives discussed with local residents of the Chuyugual Valley their investment priorities for the coming year. It was a respectful and inclusive exercise. A schoolteacher was appointed facilitator of the meeting, residents gave their suggestions

(over fifteen projects) and then there was a moment of deliberation among locals for which company officials left the meeting “to avoid influencing the priorities”. The whole process resembled an NGO workshop or a participatory budgeting meeting, more than one sponsored by a mining company.

Two other programs structure the discretionary spending at MBM: a program of rotating and temporary unskilled labor directed to local villagers86, and a program that

86 The rotating labor program offers villagers the opportunity to work for 3 or 4 months in MBM through one of the company’s subcontractors (Adecco, Translay, Sodexo, etc.). Most of the positions offered do 206 promotes the formation of communal enterprises to provide some goods and services to the mine87. In the mid-1990s, the provision of temporary work for unskilled labor and the creation of communal enterprises in local villages were two very popular strategies used by modern companies with ‘new mining’ standards, and were considered the cutting-edge of social responsibility. They were seen as a short-term strategy to keep local relations in peace through offering jobs people were qualified to do good, and a way to encourage self-employment and new businesses. The three big mines at the time, Yanacocha, Antamina and Pierina all promoted them.

These two programs exist in both MBM’s operations, but are more important and larger in Pierina than in Lagunas Norte – and they are barely existent in SCC’s operations. Pierina served as a laboratory for these new social strategies, and the programs were implemented with a high level of institutionalization. Proudly, the responsible of the program of rotating workers tells me that it is managed through a computer software that contains the names and skills of the more than 600 potential workers from local villages, and at the beginning of each month, the supervisor responsible for this program matches the company’s requirements for low-skilled workers with individual experience and abilities, and allocates a quota of workers from each village (Interview 42, 15.09.09).

not require any instruction, like cleaning, clearing roads, gardening, surveillance or light carpentry; others demand more skills (driving, minor jobs in operations, metal carpentry or construction). 87 These communal enterprises normally spring from workshops that the company offers, and then are encouraged to become an enterprise by offering them a contract to supply something to the mine: working gloves, reflective vests, cleaning services to the mine facilities, services as wielders or carpenters, etc. More than 40 communal enterprises were formed around Pierina, but only 8 in the Lagunas Norte area (Pretell 25.07.09, Mostacero 16.09.09). 207

In Lagunas Norte, the Community Relations official in charge of the temporary workers program explains that once the mine construction stage finished, back in 2005, the number of unskilled positions dropped dramatically. This program was instituted as an alternative way for the company to create jobs that could be performed by fence line villagers.

“Everything is well organized. The temporary positions last for four months, and we pay S/.900 [US$300] per month. We are currently hiring between 80 and 100 people on each turn. When the different areas of the company request workers, I have a criterion to decide which villages I am going to demand them from. The idea is to always have the same proportion of people from each village, to make it fair. Then, we make the requests through the village authorities, who have a register of all potential workers, by village, and know whose turn it is to work for the mine. The workers have to be cleared by security, pass the medical examination and the general induction as any other worker in Lagunas Norte.” (Interview 43, 30.07.09).

These highly structured programs help organize and rationalize the relationship between company and local villages by providing some predictability and creating a sense of fairness in the allocation of jobs across villages. Yet, they have also generated some adverse unintended consequences for the company and in recent years MBM decided to downscale them in Pierina and keep them small in Lagunas Norte. A member of the Community Relations team in Lagunas Norte explains:

“There are eight communal enterprises *in Lagunas Norte+, many of which were formed due to the interest created after a workshop or a course offered by the mine. We have decided not to form nor encourage more people to create these enterprises, because we don’t want to create more expectations and also because we need to assess the results of the existing enterprises. This is in contrast to Antamina, which has 52 enterprises and Pierina, which is always pressured to form more because of the pressure that Antamina is creating lots. It is spiraling out of their control.” (Interview 44, 25.07.09).

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The main ‘adverse’ effect of these programs from the point of view of the company was that their high degree of institutionalization reduced the flexibility of the company’s interventions and blurred the voluntary character of its involvement.

Unwittingly, by establishing patterns, structure and regulations, the company was setting precedents that locals would later use to make claims. As I present in chapter 6,

MBM established through these programs a pattern of company-community interactions that would give locals the traction to adopt certain global frames.

In sum, it is fair to say that MBM has established some stable internal structures to distribute its discretionary funds: not only the local committees for the SMP (required by law), but also regular meetings with villagers to define priorities and allocate funds.

NeoAndina, the civil association in charge of managing the SMP funds is independent from Community Relations but they maintain permanent coordination. The rotating and temporary labor program and the funds to support communal enterprises with technical advice, direct funds and occasionally a small contract to supply goods and services to

MBM give further structure to MBM’s social investments. These parameters, albeit most of them self-imposed, are now institutionalized before local populations and as such moderate the voluntary character of the company’s social programs. This is a very different story from the one presented in the case of SCC, where the company’s command over resource distribution is treasured and Community Relations’ officials avoid setting any precedent.

Taken together, the internal recognition and status of the community relations area, the relatively better disposition of MBM to make itself accountable to local

209 populations and the institutionalization of the mechanisms of discretionary spending are the main company-level factors behind MBM’s distribution of discretionary funds. First, it explains the high level of funds MBM allocates through CROB, which are completely under the control of the company and yet are five times higher than SCC’s. Second, it explains MBM’s high commitment pace of SMP funds, an almost perfect score in contrast to in relation to SCC’s that, for 2009, has fallen below 50%. Finally, it partly explains MBM’s stronger inclination for attending to fence line populations and for funding projects rather than merely distributing donations.

Table 5.4. MBM: Company’s CSR practices on the ground Indicator Level  Status of the Community Relations High. Recognized as a valuable area, relevant office within the company. and praised.  Company’s attitude toward local Moderate. Company has a mixed record. accountability and participation of local Restricted participation and accountability at populations. Pierina but good outreach and engagement at Lagunas Norte.  Company’s internal rules/institutions High. Independent teams to manage SMP and and planning process to decide the CROB funds. High degree of allocation of discretionary funds. institutionalization of procedures to allocate funds.

The analysis of corporate level factors may have been fruitful to set MBM apart from SCC. Yet, the contrast across companies only tells part of the story. It fails to explain the relatively higher allocation in fence line communities in Pierina in contrast to

Lagunas Norte. Neither does it account for the relative importance of projects over donations in Pierina. To fully explain the different distribution of discretionary funds across Pierina and Lagunas Norte the analysis must move to the local social configurations that each of these operations faces in its area of influence, and the ability

210 of local villagers to successfully frame their claims in ways that resonate with the company. This is the task I take on in the next chapter.

5.4. Conclusions

In this chapter, I advanced an explanation to the puzzling variation in the distribution of discretionary funds across four mining operations. To some extent, I argued here, they are the result of corporate-level factors, in particular, the extent to which a mining company implemented CSR practices on the ground.

I have argued that CSR practices can be captured by three indicators: the status of the community relations office within the company, the company’s general attitude toward local accountability and participation of local populations and the company’s internal rules/institutions and planning process to decide the allocation of discretionary fund. The formal and informal institutions that underpin a company’s CSR practices – including the allocation of social investments – are crucial in shaping the way in which those resources are spent.

Companies with low levels of institutionalized CSR practices spend less and at a slower pace. This result holds true for both discretionary funds analyzed: the

Community Relations Operational Budget (CROB) and the Solidarity Mining Fund (SMF).

They also tend to privilege short term peace-keeping than development, and that is why there is a tendency to favor donations and direct resources to areas with greater public

211 relations impact (i.e. not the rural and isolated fence line villages, but larger and more urban areas).

But even taking company characteristics into account, the marked within- company differences in terms of the type and distribution of the funds remain unexplained. Why would the same global company established in the same country deploy two very different distributive strategies in its two operations? Why would it have relatively more donations in one mine or allocate relatively more to neighboring villages in another?

Within SCC, for instance, the allocation of Cuajone may not be surprising once corporate-level factors are taken into account, as SCC is a company with low levels of

CSR practices. But why is this company allocating five times more CROB funds, spending relatively more in projects and focusing on fence line populations in Toquepala, relative to Cuajone? These are all counterintuitive results, given corporate factors. Likewise,

Pierina’s results are not striking if the explanation given in this chapter has been persuasive: one would predict that a company in which CSR rhetoric is supported by a set of formal and informal institutions would have a distribution of funds like the one

Pierina reveals. But how could we fit Lagunas Norte in this context? Again, another set of factors beyond corporate characteristics seem to be at play in this case.

In the next chapter, I develop the second stage of my explanation. There, I argue that the rest of the variation across cases is the result of the different local capacities and opportunities to adopt global frames to present social demands in ways that resonate with the company’s interests.

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Chapter 6. Explaining Social Investments of Mining Companies: Local-Level Factors

“Things aren’t as they used to be. Even in the most isolated village there is now always someone who has gone to school, who knows how to use internet, who knows how to read a newspaper. Now people are more aware, they do not believe everything one tells them.” (MBM Community Relations Official)

“Before it was possible, with one candy bar, with one pen that said ‘Southern’, they were happy. Now they want water reservoirs that cost millions, and many have become much smarter…” (SCC Community Relations Official)

As argued in the previous chapter, the variation in the patterns of discretionary funds can be traced back to corporate-level factors, specifically the extent to which companies have established procedures and instituted mechanisms to mainstream the CSR agenda into daily practices. However, this explanation is insufficient to account for the different ways in which the companies included in this study distribute their funds across their own operations.

The quotes of Community Relations’ officials presented above suggest that companies are well aware of the importance of adapting their strategies to local conditions. They also understand that negotiations with local residents are not what they used to be, as villagers tend to be more educated, more connected and more informed of their possibilities to make claims on companies. I focus my attention on fence line populations88, that is, the next-door neighbors to mining operations and the strategies and behaviors available to them to influence company’s allocation. These

88 Throughout this chapter and the dissertation, I refer to these populations as “fence line populations” or “local populations” indistinctively. 213 populations are often the most affected by the presence of the mine and because of their precarious livelihoods, are traditionally seen as the ones that are less able to respond to the challenge of cohabiting with a large multinational company.

Nevertheless, in some cases, these fence line villagers have shown to have enough leverage to influence company’s allocation and ‘extract’ more and better quality funds from the extractors. This is evident in the variation across operations of the same company, where corporate factors are constant and yet company’s social investments look very different. How can we account for this intra-company variation?

This chapter seeks to complement the corporate-level factors presented in the previous chapter with local-level factors. I scale down from the corporate level to the local level and compare four localities with mining presence: two where SCC operates and two where MBM operates. I show that when local residents are more able to adopt global frames that are considered legitimate ways of claims-making by mining companies, the former have more leverage in the distribution of social funds. But when local villagers have no access to the negotiating strategies that pay off in the current context – namely the environmental and the indigenous frame – they have less bargaining power vis-à-vis the company.

The chapter has six parts. In section 6.1, I recap the three conditions to evaluate the level of local success in the adoption of global frames that I proposed in chapter 2.

Then, in sections 6.2, 6.3, 6.4 and 6.5, I follow the same structure to present each of my four cases. First, I describe the setting of each operation, then I present the socioeconomic and organizational characteristics of the locality where the mine

214 operates, finally, I apply the conditions presented in section 6.1 to assess the extent to which each of the four cases is successful in adopting global frames to make claims on mining companies. Section 6.6 summarizes and draws general conclusions about the relative importance of the local use of global frames to explain the level, type and distribution of discretionary funds.

6.1. Measuring Success in the Local Adoption of Global Frames

Under what conditions do fence line populations get more and better quality discretionary funds from mining companies? How to explain that, even when controlling for corporate-level factors, the level and distribution of discretionary funds varies across mining operations of the same company? Moreover, how to account for any level of local leverage among fence line populations, which tend to be remote, relatively disconnected and show low levels of organizational density and social mobilization?

At the local level, I argue that the crucial factor to account for the distribution of companies’ discretionary funds is the extent to which local populations are successful in adopting global frames that attract international attention and therefore resonate with the company. In particular, I contend that when local populations are able to present their claims to the company within an environmental or an indigenous frame – the two global frames to which companies are most sensitive – their bargaining power increases and they can influence company’s allocation strategies.

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To examine the success of the adoption of a global frame, I consider three conditions: whether the frame is available (if local residents have a minimum level of information about it), grounded (if it resonates with the local context of fence line villages) and articulated (if it resonates with the history of company-community relations in the locality).

Figure 6.1 Local-level factors: Successful local adoption of globally relevant frames

Explanatory variable: Successful Dependent variable: Allocation of local adoption of global frame. companies' discretionary funds. Conditions: In particular: •Frame availability •Level: Amount of resources •Frame groundedness allocated •Frame articulation •Type: Projects or donations •Distribution: Fence line populations or the rest

While availability is a necessary condition without which the adoption of an environmental or indigenous frame is unthinkable, groundedness and articulation can be considered audience conditions, as they refer to the extent to which a frame resonates with the local residents and the company, respectively. Having restated the three conditions to be assessed, I turn to present the cases of Pierina, Cuajone, Lagunas

Norte and Toquepala and evaluate whether frames are available, grounded and articulated in each of the cases under study.

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6.2. Pierina Operation – Minera Barrick Misquichilca

The Pierina mine became Barrick Gold’s foothold in South America in the late 1990s.

Located in the district of Jangas, in the Ancash region, Pierina was discovered in 1996 and in 1998 became the first operation owned by Minera Barrick Misquichilca (MBM) a subsidiary of Barrick Gold created to manage its operations in Peru.

Pierina, together with the Yanacocha operation in Cajamarca, was one of the earliest mines opened in Peru under the most recent wave of foreign investment in the extractive industries. Although these two ventures are considered to belong to the “new mining”89, it is also acknowledged that they were some of the earliest experiences of social responsibility and community relations, finding their way in unchartered waters and, as such, learning by doing (McMahon and Remy 2001). In the words of an academic and private consultant for the mining industry, “Yanacocha and Pierina are the Adam and Eve of new mining in Peru” (Interview 45, 19.06.09).

Soon after Pierina started operations, Compañía Minera Antamina opened the vast Antamina mine in Ancash. Although Antamina is much farther away from Huaráz, the capital city, and less connected to it, it is many times larger than MBM’s operation.

With a production value six times larger than Pierina’s and a social investment budget at

89 As previously mentioned, “new mining” *la nueva minería] is a concept created to describe the companies that arrived in Peru after the process of economic liberalization of the 1990s, and that are considered having operations with higher environmental and social standards. It is opposed to “old mining” *la vieja minería], which existed in the country before and was socially and environmentally irresponsible. 217 least three times Pierina’s90, Antamina quickly became a much more high profile company in the region.

Being one of the earliest examples of new mining and having such sizeable neighbor has had consequences for Pierina, some of which have been mentioned in the previous chapter and others will be explored in the following sections.

6.2.1. The Pierina Complex

Pierina is a gold deposit located in the district of Jangas, at 4,100m, on the Black

Mountain Range of the Central Andes. This mountain range was named in contrast to the snow-covered peaks of the White Mountain Range situated along the opposite shore of the Santa River. The Black Mountain Range is characterized for being a dry area, with little snowfall and few accessible water sources.

To reach Pierina, one has to take a half-hour minibus-ride from Huaráz, the capital of the Ancash region, to the district of Jangas. After this, things get more complicated, because there is no regular public transportation from Jangas’ urban center to its highlands, so one could either hire a shared taxi or get a ride with one of the company pick-up trucks that eventually drives pass. It takes another hour along a winding dirt road up the mountain to get from Jangas’ center to Pierina’s manned gates.

MBM owns 2,286 ha of surface property rights in this area, although Pierina itself only covers an area of 474 ha. The mining complex includes an open pit mine, the mills to crush the ore, various mineral processing plants, an electric substation,

90 For 2009, Antamina’s SMP deposited funds were US$40m while MBM’s were US$12m, and this has to be split between its two operations (MINEM 2009). 218 warehouses and a limited number of administrative buildings with all essential services

– water, electricity, sanitation and heating (MBM 1997, ch3). The project required an investment of US$250m (MINEM 1995).

Pierina is an open-pit mine, where the gold is obtained through a process of lixiviation. Once the ore is extracted and crushed, it is transported through a conveyor to the leach pad. In the leach pad area, a cyanide solution is used to free the gold from the ore (MBM 1997). In turn, the gold is transported, sometimes by road but mostly by helicopter or plane, to Lima and then to Switzerland, where it is processed. Pierina, as most other large-scale mining operations, works round the clock in shifts of 12 hours.

Of the four mines covered in this study, this one is the only one that lacks a residential area within the operation. The company decided not to build accommodation within the operation complex considering that the mine was relatively close to an urban center (Alpaca 16.09.09). Instead of a built-in mining town, MBM constructed La Alborada, a residential complex in the urban center of Taricá, a district adjacent to Jangas and also on the shores of the Santa River (Costa and Scobble 2006).

Here, the company offered houses and apartments to its staff to rent or buy, at reduced prices. Apart from residential accommodation, La Alborada also hosts the company’s school, the company store, a health center and some recreational facilities. Some of the administrative offices, mainly the ones that are peripheral to the operation and more connected to the workers, such as the Welfare Office and the Public Relations Office are also located in this residential complex.

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Although 25% of Pierina’s employees took the company’s offer and live in La

Alborada (Costa and Scobble 2006, 20), a considerable number of staff members preferred to live in Huaraz and commute to work. Next to La Alborada and part of the same complex, one finds El Remanso, a company-owned hotel for short-term visits of staff from Lima and abroad – where I stayed during my time in Pierina. At five in the morning, company buses pick up the employees from Huaraz, later stop at La Alborada to collect the rest, and start their way up the mountain to the mining operation. Starting at 6pm, buses take back the employees to La Alborada and Huaráz. Despite the long hours and the odd week when they have to do the Saturday shift, the job experience of mining employees at Pierina, including those in Community Relations, is much closer to a job in any other industry and lacks the intensity of the live-in experience of the other three cases.

6.2.2. Pierina’s Area of Direct Influence: The District of Jangas

On the solid wooden doors of the Municipality of Jangas, local artisans were commissioned to carve the district’s coat of arms and under it, written in golden letters, a motto that reads “Jangas: Agricultural and Mining City”.

The doors, and in fact the whole municipal building, were funded by MBM as part of the package of good-will projects that the company offered its new hosts when it arrived in town. To return the gesture, the mayor decided to modify the city’s motto to add the new source of the district’s wealth. An ex-council member at the time MBM arrived in town explains:

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“Now the colors of Jangas are green and gold. Green because Jangas is, and has always been, a large producer of alfalfa – it sells its crops in Huaráz and even stocks some farms in the coast. When Barrick got here, the flag was changed to include the golden. Sure, in Cahuish there was artisanal gold mining before Barrick, but in very small scale, at the family level almost.” (Interview 46, 19.09.09).

The district of Jangas, formed by the urban center of Jangas, at the foothills of the Black

Mountain Range, and a handful of villages scattered over the mountain, would become the center of attention of Pierina’s Community Relations team since then.

The district of Jangas has a total population of 4,403 (INEI 2007) living in three ecologically differentiated areas. The lower area, a thin strip of land by the Santa River, hosts Jangas’ urban center. Jangas’ urban center includes the mayor’s office, a church, a roofed market and a few shops, and around 200 residential houses. A mild climate and water availability year-round is favorable for growing alfalfa and corn. There are some orchards, especially peaches, and some flowers. Residents keep chickens and pigs, and the wealthier ones a cow or two (INEI 1994).

The middle area is less densely populated, although there are a number of villages and settlements. Before the Agrarian Reform, this was the area where the hacienda workers use to live, in small plots of less of 0.5 ha (INEI 1994). Potatoes, beans, wheat, barley and some corn are the main crops, but as water is scarce, they are only cultivated during the wet season and produce only one crop a year (MBM 1997). Locals keep guinea pigs and to a less extent, pigs and sheep.

In the highest part of Jangas, water is extremely scarce, except for the eventual water spring. Little agriculture takes place, and families live off herding sheep. Almost nobody live there permanently, and villagers use the land, which is mostly communal, as

221 pastureland for their animals. For Pierina, the area of direct influence proper is located in the middle and higher parts of Jangas and comprises 11 communities with an estimated population of 2,000 (INEI 2007)91.

Before MBM arrived – and the new doors of the municipal building were fitted – the main economic activities in Jangas were farming, herding and small-scale commerce with the city of Huaráz and other towns of the Callejon de Huaylas (INEI 1994).

“Before 1996, the life of the peasants of the highlands of Jangas was very basic. There were no services of any kind, no running water, no electricity, nothing. The majority lived from the land, and of course would do other odd jobs here and there.” (Interview 46, 19.09.09).

Some villagers had had experience of mining before, working in the Santo

Toribio mine, located in the neighboring district of Independencia; but the scale of this mine was rather small and it had closed years before Pierina started (Himley 2010).

Until the late 1960s most of Jangas belonged to the hacienda Vizcarra. As in other parts of the country, under the Land Reform Laws of 1968, land was expropriated from the Vizcarra family and given to the workers, provided they formed collective organizations to hold the land in common:

“With the Agrarian Reform, former hacienda workers were encouraged to associate in order to get some land allocated. They formed peasant cooperatives and the government assigned them land as communal property. These peasant cooperatives started calling themselves peasant communities, but they are not ancient like the ones in the Southern Andes, they were formed in the 1970s.” (Interview 2, 18.09.09).

91 The 11 communities in the direct area of influence are: four peasant communities (Cuncashca, San Isidro, Shecta, Ramon Castilla), five settlements (Atupa, Chaquecyaco, Mareniyoc, Tinyash, Antahurán) and two villages (Huanja y Mataquita). There are 7 additional communities in the indirect area of influence. 222

Four of these post-reform peasant communities were formed in Jangas:

Cuncashca, Shecta, Ramon Castilla y Pacollon, and received land.

Aside from these peasant communities, the organizations in the highlands of

Jangas are few and far between and are either sustained by their connection to government programs or the need to manage a scarce resource, such as water. I found some subsistence organizations connected to government programs on food security for children and nursing mothers and on conditional cash transfers. Yet, given that the local government organizes them, their ability to act as a group is limited to activities around the government program itself. There are also a number of Water Management

Groups around the three small rivers that run down the Black Mountains slopes in the

Jangas highlands, and are perhaps the largest associations in this area in terms of membership. Peasant patrols are weak in Jangas and in the valley in general, and in many villages near Pierina are not even formed.

It seems that this picture of relatively low organizational density has been fairly stable for the last years. The latest agricultural census collected, already 15 years old

(INEI 1994), captured a similar situation: very few producers and commercial organizations, a handful of peasant patrol groups, some peasant communities and some water management groups.

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6.2.3 Pierina: Local Success in the Use of Global Frames

If indigenous and environmental issues have proven to be the Achilles heel of mining companies, how successful have Pierina’s closest neighbors been in using them to frame their claims?

First, availability does not seem to be a problem for villagers in the highlands of

Jangas. Although there is no permanent presence of any NGO, indigenous and environmental frames are made available to the villages around Pierina mainly through two organizations.

Elements to germinate an indigenous frame are offered by CORECAMI Ancash.

Like in other regions, CONACAMI established a regional branch here. It was formed in

Ancash in 2005, as part of the mobilizations around MBM’s tax controversy. As in other regions, CORECAMI functions as a network rather than a formal organization, and besides its president and a few other members that meet every other month and are considered ‘contact points’ of CONACAMI in the region, the group does not have an office or any stable personnel, and its budget is minimum. Yet, MBM officials acknowledge that CORECAMI is the most troublesome organization in the region

(Interview 47, 16.09.09).

CORECAMI Ancash, as its President explains, is an organization that defends peasant communities’ ways of life and their territories: “We want to recover the Andean world vision [cosmovisión]. Our ancestors used the moon to plan their agricultural cycle, they used the guinea pig and medicinal plants *…+ we need to recover that wisdom. That

224 identity should not be lost. CONACAMI helps recover those rituals, the symbols of our ancestors” (Interview 48, 21.09.09)

The president of CORECAMI Ancash presents a rather radical position against mining, portraying it as a predatory force with which compromise or cohabitation is impossible. He is not alone in this position, and many other CORECAMIs have decided to step down from negotiation processes and dialogue tables with companies, arguing that the values of companies and communities are irreconcilable “we do not negotiate with mining companies because you cannot negotiate with peoples’ lives” (Interview 48,

21.09.09). In this situation, members of the peasant community of Cuncashca, and especially their leaders, have no other alternative but to confront MBM:

“Many times comuneros from Cuncashca [one of the peasant communities near Pierina+ have come to see me. I told them ‘you have to rise against Barrick, without fear of dying, defend your territory and your community. If you are afraid of dying, you should not be a community leader’.” (Interview 48, 21.09.09).

The way in which CORECAMI spreads these ideas is through a ‘long arms’ strategy. They are not present in the highlands of Jangas, but Rodriguez’s office as clerk of the Vice-presidency of the Regional Government of Ancash doubles up as his

CORECAMI office (“My boss doesn’t mind”), and from there he performs his pollinating role. During our two-hour long meeting, four people from different villages came to pay him visits, to get CORECAMI documents and leaflets, or update him about some issue.

Through word-of-mouth and a few events, CORECAMI has been able to extend the use of notions and ideas about indigenous identity, and how it can be strategically deployed against mining companies. A doctoral student working on the highlands of

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Jangas before I arrived, between 2006 and 2009, offers some evidence of the increasing use of this frame.

“They never referred to themselves as indigenous, but as peasants or land workers [campesinos, gente del campo]. But the interesting thing is that on my last visit people started asking me to explain what the Convention 169 was. They seem to be more informed; they want to know what it is and how they can use it.” (Interview 49, 25.08.09).

There are many environmental and conservationist NGOs with offices in Huaráz and presence in the region that provide some building blocks for an environmental frame. They focus mostly on the impact of extractive industries on the Huascarán

National Park, where the highest snowed-peaks of the Andes are located. The company most targeted by environmentalists is Antamina, given its size, wealth and geographical closeness to the White Mountain Range, and in general, Pierina attracts less interest.

Although the impact of some region-wide environmental NGOs reach Jangas, information to build an environmental frame in the highlands of Jangas comes more directly from CODISPAS, which is not precisely an NGO, but a Catholic organization that depends on the Bishop of Huaráz. “CODISPAS is mainly a conflict mediator”, says one of its officials (Interview 50, 17.09.09). Yet, circumstances have made this organization become involved in an environmental initiative in the area of influence of Pierina.

“The first time we got involved with Pierina was due to a complaint of some local residents from Jangas about a skin condition. People said it was due to the mine. CODISPAS helped mediate the conflict and later became the leader of the technical group that was formed and the administrator of some resources given by Pierina for periodical environmental monitoring activities with local groups from Jangas.” (Interview 50, 17.09.09).

The Jangas Environmental Committee, under the leadership of CODISPAS, was established in 2003 and to date has made six participatory environmental evaluations

226 involving residents of some of the villages near Pierina. For the most part, results have come back below the maximum limits allowed by law (Interview 49, 25.08.09), but these periodical evaluations have raised awareness of locals of the environmental dangers associated with gold mining such as mercury and cyanide poisoning.

The second condition for a successful frame is to be grounded in the local context and to be recognized by the local audience as valid. An indigenous identity is not alien to villagers in the highlands of Jangas, at least in a latent way. For a start, they have the most widely recognized marker of an indigenous group: they are mainly Quechua speaking communities – most people speak Spanish now, but prefer to speak Quechua among themselves. Four peasant communities were formed in the early 1970s in this area (Cuncashca, Shecta, Ramon Castilla and Pacollon). Established after the Agrarian

Reform, these peasant communities soon became strong and respected organizations – not just an empty label as in other areas where post-reform peasant communities were established (CEDEP 1990). They were well organized and influenced by leftist movements in the 1980s. The organizational strength and institutionalization of the peasant community of Cuncashca was evident after visiting its communal meeting room, where the walls are full of the pictures of their late leaders.

Environmental frames are also grounded in this region in which water has been a long-term grievance. The Santa is a big river but it can only be used by people living in the lower part of the valley. For those living in the highlands, springs and seasonal creeks are the only source of water for agricultural purposes and domestic use, as they

227 do not have the resources to build water wells or construct pumps to extract underground water (MBM 1997).

But even if frames are available and grounded in a context in which they are meaningful for local residents, they will not be successful if they fail to resonate with the audience to which the claims are directed: the company. Articulation, the situation in which the frame resonates with the company and captures its attention is then the third condition of a successful frame. Only if locals are able to connect the frame to a particular grievance that can be traced back to the company’s behavior will the latter be compelled to compensate locals.

In the highlands of Jangas, a sequence of early encounters between company and local villagers produced precisely this situation in the case of the indigenous frame.

In different negotiations, the company – probably unintentionally – reinforced the identities of peasant communities as such, and therefore helped create the conditions in which the indigenous frame made available through CORECAMI became a legitimate way to make claims. Although there is a conceptual gap between an indigenous identity and a communal identity, and so strictly speaking an indigenous frame would not correspond neatly to the reality of peasant communities, the interesting situation that arose in this case and in other mining regions in Peru is that all sorts of collective bodies started to claim the label of “community” to make demands on extractive companies.

From peasant communities to neighborhoods associations and even the most urban and

228 least indigenous groups one could imagine, like the residents of Callao92, Peru’s main port, many groups of residents have adopted the indigenous frame to highlight their condition of natives, that is, living in the area prior to the arrival of a mining company, and have sought to vindicate their collective rights in this way.

In the case of Pierina, one of the most defining encounters was perhaps the first negotiation with the peasant community of Cuncashca. For any mining company in Peru, one of the crucial moments of the venture is to secure the property of the land under which the ore body is located. This comes early on in the community-company relationship and is a moment that sets the stage for future interactions. In the case of

Pierina, more than 60% of the land for the operation was bought from the peasant community of Cuncashca.

Table 6.1. Pierina: Land surface rights bought for the operation Previous land owner Area (ha) Cuncashca Peasant Community 1,540 Shecta Peasant Community 330 Association Tinyash 210 Association Antahuran 135 Total 2,215 Source: MBM (1997) ch1, pg 4 Table 1.3-3.

When MBM arrived, there was an unresolved legal controversy about property rights between the Vizcarra family and the peasant community of Cuncashca. With a gold mine at stake, the company acted to secure the ownership of the land as fast as possible and to avoid going to court, which could have delayed the purchase for years.

92 Residents of Callao have created a CORECAMI – Callao [Coordinadora Regional de Defensa del Medio Ambiente y la Vida del Callao] associated to CONACAMI. 229

Legally and formally, MBM got Cuncashca out of the picture, by paying almost

US$2.4m for their land, which was divided among the 64 members of the peasant community (MBM nd). Not only did MBM buy the land from the community, it also bought 241 ha of additional land that were instantly donated back to the community to develop the Cuncashca Business Development Project, a model cattle farm fully equipped by the company (see chapter 5).

Yet, in practice, the community remained very much in the picture and became a permanent neighbor to Pierina. The importance of Cuncashca as a seller of land to the company has given the community, to this date, the strongest claim on MBM, and has become by far the most favored peasant community in the district.

Communal-based claims are also articulated through another episode of the history of company-community relations. Once the company had secured the land for their new development and was building its facilities, one of the first interventions was to build a road that would connect the operation to the paved road that links Huaráz city center with all the towns in the Callejón de Huaylas (the deep valley that runs between the Black and White Mountain ranges). In order to do this, they had to relocate some of the villages in the highlands of Jangas – the locals were compensated and, in addition, the company funded a program through which the residents were hired to build their own new houses, under the supervision and direction of professional builders and bricklayers. This displacement, although sometimes it was a matter of no more than a few hundred meters, was a catalyst that strengthened community-based claims on the company. As 42 families of the community of Quitapampa – to mention just one case –

230 were displaced and felt affected as a community, in return they started engaging the company as a community too. Likewise, demands for work, for example, are often framed in terms of a communal claim. A comunero who was hired to work in

Community Relations explains:

“I was hired years ago, I have some time here in Community Relations. But they have tried to sack me a few times. In the end I always stay, because I tell them I am from here. They have to hire us, comuneros [people who are part of the peasant community+ because they moved us from our land.” (Interview 51, 18.09.09).

The rotating and temporary unskilled workers program that the company instituted in Pierina strengthen even more the legitimacy of making indigenous-based claims on MBM. One of the commitments of the company is to fulfill all their demands for low skilled labor from the villages nearby, as the Superintendent of Community

Relations at Pierina explains.

“At the moment, Pierina hires about 100 such workers for periods of up to 3 months, but this is only a fraction of what we used to. We’ve had up to 450 workers in the program.” (Interview 52, 15.09.09).

This means that even today, almost every family in the area of direct influence has at any moment someone working in the mine. From a purely strategic point of view, this program is attractive to the company as it provides some leverage over locals – nobody would want to jeopardize an important source of monetary income for the family.

And so the company sought to institutionalize the program by defining criteria to determine the target population, establishing standard hiring procedures, reviewing annually the database of all potential workers by village, and the like. The company even encouraged the formation of a Central Committee of Communities [CCCIEMBM], with

231 representatives of each of the villages and peasant communities, to organize the allocation of employment quotas by village (Interview 42, 15.09.09).

This high level of institutionalization created an interesting situation: people took the program as seriously as the company did. In 2006, the CCCIEMBM changed from an innocuous structure encouraged by MBM into a political actor that aggregated interests and made claims on the company. The committee went on strike and blocked the access roads to the mine. They demanded an increase in the daily wage from S/.20 (US$7) to

S/.58 (US$20), the elimination of subcontractors and outsourcing and the direct employment of all CCCIEMBM workers by MBM, a greater social investment budget to generate more local jobs, among other things (Ombudsman Office, 2006). After two days of negotiations, the company agreed to increase their salary to S/.30 (U$10.50).

A social promoter from PLADES [Programa Laboral de Desarrollo], an NGO based in Lima but that was already advising the employee’s union at Pierina, “saw the strength, the potential of this mobilization” (Interview 53, 12.11.09). In 2007, with the help of PLADES, the committee took an important step and formed a trade union of subcontractors: the STECAMBM. The promoter from PLADES wanted to convince them to work side by side with Pierina’s employee union:

“I told them that what they had done *the mobilization to demand for a pay rise] was good, but that there were legal forms to do the same, and perhaps get even more. They could put together a list of claims and negotiate a collective agreement.” (Interview 53, 12.11.09).

The STECAMBM found an important legal obstacle to its formation, however. In

Peruvian law, after the deregulation of the labor markets in the early 1990s, unions of subcontractors not only need to have ‘the will to establish the union’, but require to be

232 recognized by the company to exist formally. Naturally, MBM never recognized the workers union and the possibilities to negotiate with the company were thwarted. For the population near Pierina, it became clear that in that context a labor identity would get very little accomplished.

But this legal problem has not prevented the committee to find another way to advance their interests. It has become clear to them that labor identity has lost the relevance it used to have thirty years ago, and that new frames must be used to make their claims. As some of the workers are comuneros, this has opened the option to try to apply the ILO’s Convention 169 on indigenous peoples, which explicitly holds the right of indigenous peoples to organize and associate in the ways they see fit (ILO 2009b). More recently, demands for work from these villages have come wrapped in this ‘communal unionism’, according to a Community Relations team member.

“People now want to use their status of comuneros to ask for a special treatment from the company: they want to work less, charge more, and still want to be hired due to their status of locals.” (Interview 36, 16.09.09).

In all these interactions between MBM and local villagers, a voluntary practice that is presented as a responsibility toward local populations (the land compensations, the resettlement to build the road, the temporary labor program), ends up being used by locals to demand better conditions and call the company to account, despite the fact that the initiative was voluntary in the first place.

By recognizing the peasant community as a valid instance to be dealt with through their CSR programs, and even referring to all villages and settlements around

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Pierina as ‘communities’, the company socialized the local population into using the communal identity and reinforced the public legitimacy of an indigenous frame.

“The firm’s CSR programs have opened up an arena of struggle for area residents – a new socio-political sphere in which they might pursue their interests and claim support from what may be considered the most powerful development agent in the area.” (Himley 2010, 3284).

Paradoxically, it seems that MBM became, after the Military Government of the

1970s, the strongest promoter of the peasant community in this area. A comunero reflects on the rising importance of the peasant community:

“Now everyone wants to be part of the peasant community of Cuncashca. Before we had to chase the comuneros to come participate in the assemblies and vote, but now everyone is here. Even if they live in Huaráz, they come back often because they don’t want to miss any community meetings.” (Interview 54, 19.09.09).

Turning to the environmental frame, the particular context of the interactions at

Pierina shows that it is also articulated in company-community relations. Water is extremely scarce in this area, and has been so since long before the company arrived in the area. This in itself would not be enough to make successful claims to the company with an environmental frame. Yet, the fact that MBM has settled upstream from most villages and that MBM’s property rights over the land include some water sources makes issues of water availability and quality a very important part of their relationship.

“Pierina’s position upstream from communities implies a relationship of power, as the quality and quantity of water available to these communities is dependent to a large degree on MBM/s environmental management practices.” (Himley 2010, 110).

Although the company has pledged not to affect the water levels, locals are worried about potential contamination that are unable to monitor firsthand – as the

234 water sources are inside the operation. The lack of control over this critical resource can be easily traced back to the presence of the company, and this enables locals to direct their frustration to the company and make claims as ‘environmentally affected populations’. This situation is very different from the one at Cuajone, where the reduction in water levels of the Torata River cannot be indisputably traced back to the company’s building of the Torata dam.

As was mentioned earlier, local water management groups, with the help of

CODISPAS and the mayor of Jangas, have been successful in demanding periodical controls of the quality of the water. So far, the water analyses made by independent laboratories have revealed that potentially dangerous substances remain mostly below the legal limits, but this has not reduced the validity of the environmental frame as a successful way to make claims to the company. Even when the claims are anecdotal or difficult to document – like the water suddenly has a bad smell, or that it changed color during the night, or that a sheep died after drinking it – it is difficult for the Community

Relations team to completely ignore demands that are framed in such way.

A member of the Community Relations team described to me the latest problem they had with the community of Tinyash, which is immediately under the operation, and therefore the first to receive the water that comes from within the mine’s property.

“Since last week, people have been complaining about the water quality. They say that the water is leaving sediment that is not normal, and that it must be something that the mine is dumping in the river. We have promised we’ll clean all the canals and the wells (and hire people from Tinyash to do this). But in order to clean, we need to stop the water flow for a few days, and people don’t accept that! So, because of this problem, we have agreed to some new social commitments with the people from Tinyash, some projects that we are going to do there.” (Interview 36, 16.09.09, emphasis added).

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Community Relations seems to be compelled to compensate when confronted with an environmental demand from the people of Tinyash, and this shows that the environmental frame is articulated.

Table 6.2. Pierina: Local success in adopting global frames Conditions Indigenous Environmental Available? Strong Strong Grounded? Strong Strong Articulated? Strong Strong

6.3. Cuajone Operation – Southern Copper Corporation

In 1976, the Cuajone mine started operations and became the second investment made by SCC in Peru. Cuajone, located in the Moquegua region, was an even richer and larger copper deposit than SCC’s Toquepala mine and around 60 km north of it. As part of the new development, the company built the mine itself, residential housing for the employees, and a road connecting their two operations across the highlands of

Moquegua and Tacna. It also, extended the railway line to link Cuajone to the circuit that already connected Toquepala with SCC’s industrial facilities (smelter and port, and later the copper refinery) in the coastal city of Ilo. The total investment bordered the

US$727m. Cuajone would be remembered as the only private investment in large-scale mining undertaken in Peru under military rule. Currently, Cuajone is still an important operation in terms of volume, and its influence in the economy of Moquegua and the

Peruvian south as a whole remains substantial.

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6.3.1. The Cuajone Complex

The mining complex of Cuajone, located in the district of Torata, is relatively well connected to the regional capital of Moquegua and Ilo (“well connected” only when compared to some of the other cases, which are really far away from urban centers). To get to the mining town and operation complex, one can take a shared taxi from the center of Moquegua. It takes 40 minutes to reach the detour to go to the urban center of the district of Torata and then another 20 minutes to get to the control post of

Cuajone. As one leaves Moquegua, the landscape quickly becomes one of dry hills, as water has historically been a scarce resource in this area.

Along the way, one feels the altitude kicking in – it is a steep hike from sea level to 2,500 m. high in an hour. The dry hills along the way are covered in slogans made out of painted pebbles: “Cuajone is progress”, “Long live SCC’s mining canon”, “Canon is development93” and such phrases. At the gate, security is extremely high, and only permanent residents with ID cards or those with specific appointments may come in.

Once all the fellow taxi passengers have cleared security and the taxi is inside the mining camp, it resumes its way up to the different parts of the complex. The complex includes both the mining facilities and two areas of permanent residences for employees and workers, respectively, with all their services.

The first big building on the right is the imposing Cuajone Hospital, which is perhaps the best-staffed and equipped hospital in the region (New York Times

93 Mining canon is a budget transfer from the central government to the subnational governments that host a mining company. It amounts to 50% of the income tax paid by the company established in the area, and constitute the largest source of funds for these local governments. 237

28.04.1992). Further up, after clearing another security gate, is Villa Cuajone, the urbanization for staff (managers and directors) and their families. Styled after the

American suburbs to keep US expats feeling at home, Villa Cuajone has family houses with front and back gardens, porches and car parks, lined up in wide and leafy streets.

The urbanization is equipped with a large company store for all basic foodstuffs, a health center, a fire station and a gas station. It has fully equipped schools – from kindergarten to secondary – a recreational center with a library and a small cinema, a

Country Club with a large golf court, tennis courts and restaurants. There are additional recreational facilities such as a tempered pool, areas to play football and other sports.

Further up, at around 3,500m high, is Villa Botiflaca, the urbanization for company workers and subcontractors (there is no security gate this time). Most of the buildings are modest low-rise tower blocks for workers and their families. Gardens and green areas are less common, although there are still recreational facilities – football fields and a gymnasium. Along Villa Botiflaca’s main road, there are food stools, and higher up there is a plaza with a bakery, a bank, a post office, and other shops. Villa

Botiflaca has separate schools for the workers’ children, and three large canteens that open at breakfast, lunch and dinnertime. Some of the company’s administrative offices, especially those dealing with workers welfare, are located in Villa Botiflaca.

A few kilometers further, bordering the 3,800 m. of altitude, one can find

Cuajone’s administrative offices. After clearing another security checkpoint, one can get into the main building. Here are the offices of the Operation General Manager, the ultimate responsible for the workings of the mine and campsite, and the rest of the line

238 managers. The Community Relations Superintendence and the Public Relations

Superintendence, which respond functionally to the Manager of Community Relations and Public Relations in Ilo but geographically to Cuajone’s Operation General Manager, are also here.

Beyond the administrative offices, one can see the mine as such. From a safe observation point, one can see the open pit, which spreads 3km across and more than

1km deep. Not far from there is the industrial complex, which includes three consecutive mills to crush and grind the ore extracted from the pit. Then the mineral is taken to another plant, where the copper is separated from the waste through a chemical process. The ore with high content copper is loaded onto the train to be taken to the smelter in Ilo. The waste or tailings flow to meet the tailings from the Toquepala mine.

6.3.2. Cuajone’s Area of Direct Influence: The District of Torata

In the case of Cuajone, SCC defined the district of Torata as its area of direct influence

(that is, the area delimited by the company and composed by the villages closest to the operation). It is important to note that almost all Community Relations offices would agree that their target populations are mainly rural – hence populations in Moquegua, and in some instances even residents in the urban center of Torata itself, fall in the realm of the Office of Public Relations.

According to the latest census (INEI 2007), Torata has a population of 6,591, including 1,332 residents living in the mining camp (workers and their families). One in

239 two inhabitants lives in rural areas. The district has an urban center with a municipality, the church, a market, a few restaurants and shops and other services. Torata is composed of three villages and many small settlements, where people own or rent small land plots and keep animals, some for their own consumption and some for the market (mostly oregano, alfalfa, some cash crops, fruits and avocados).

In the last few years, the municipality has become the most important economic force in the district due to the massive transfers it received as a result of the mining canon during the commodity boom. In 2009, the municipal government of Torata received around US$35m from mining canon (out of a total budget of US$40m)94, which is almost 10 times the budget it had in 2000, and this allowed it to develop a number of local infrastructure projects and become the largest employer in the district. Official data on hires was not available from the local government, but the estimated number of people working for the municipality, both permanent employees and those hired for specific projects was around 2,50095. Thus, although Torata’s economic vocation has traditionally being agriculturalist, up to one third of the district’s population may be currently combining farming with temporary work for the municipality, mainly in construction. The expansion of local bureaucracy has increased the demand for transportation, food and other services in the district (Patron 2009). In some cases, residents from neighboring districts, like Samegua or Moquegua, have been attracted to

Torata in search of jobs.

94 MEF (2011) Peru’s budgetary data since 1999 is available at http://ofi.mef.gob.pe/transparencia/mensual/ 95 The source of this estimate is Kelly Coayla, who carried out a six-month internship at the Municipality of Torata to gather the information required for her undergraduate thesis on sociology (Catholic University of Arequipa) on the impacts of the mining canon on the municipality. 240

There is some organizational density in urban Torata – some neighborhood groups, street vendors’ associations that sell Torata’s famous bread and small-scale producers’ organizations. There are no NGOs with permanent offices or sustained presence in Torata, either for technical agricultural assistance or citizenship and social development. As was mentioned in the previous chapter, Labor has a strong presence in

Ilo, but it only opened an office in Moquegua in 1998 – and Moquegua is still an hour away from Torata. Its presence in the district is limited to occasional visits, and this is truer for the highlands of Torata. CORECAMI – Moquegua, the regional chapter of

CONACAMI, is another organization with some presence in urban Torata, although its official representative lives outside the district, in the area of Tumilaca.

In terms of access to public services, there are wide differences between the small urban area that makes downtown Torata and the rural villages of its hinterland.

While the center has paved roads, electricity and piped water, rural villages are connected to each other by dust roads, and only 16% of houses have basic services in their houses. Yet, the possession of cell phones is surprisingly high, even in rural areas:

50% of the urban and rural population has them (Patron 2009, 30).

The organizations in rural Torata are as sparse as its basic services. Besides the political authorities that can be found in villages, social organizations found in rural areas of Torata are few. The most salient organizations in rural areas are the Water

Management Groups [Juntas de Usuarios de Riego], which constitute the most basic units of the National Water Management Authority [Autoridad Nacional del Agua], an office of the Ministry of Agriculture. Water Management Groups organize water users

241 from the bottom up to make a rational use of water and collect the annual water fees that every water user must pay. All users must belong to a group and elect representatives on an annual basis96. Water Management Groups are strategically important in Torata – as they are in Moquegua and Tacna as a whole – because water is a scarce resource, rainfall is reduced, and most rivers are seasonal. Organization for and supervision of the use of this resource is thus crucial for agriculture, as the head of the

Local Water Authority Moquegua stressed (Interview 31, 03.03.10), and this necessity has made Water Management Groups the strongest and best-structured organization in the area. Company’s Community Relations officers recognize the importance of these groups: “Water Management groups have a lot of legitimacy and power, in some cases more than the mayor himself” (Interview 24, 23.02.10).

Social organizations that may be important in other mining areas, such as peasant communities and peasant patrol groups [Rondas Campesinas], are extremely weak or plainly do not exist in the areas of direct influence of Cuajone. Also, subsistence organizations such as those organized by municipalities in other areas to receive transfers from Juntos, a national program of conditional social transfers for poverty- stricken families, are not to be found in rural Torata, given that Torata – as was explained to me by locals, “has a little problem: it is not poor”. In fact, according to its

Human Development Index (UNDP 2010), the Moquegua region and Sanchez Cerro, the province to which Torata belongs, have been consistently above the country’s HDI since

1993. Torata’s latest HDI (2008) places it in the 75th position of ‘most developed’

96 The National Water Management Authority [Autoridad Nacional del Agua] offers more information in its website www.ana.gob.pe. 242 districts (out of a total of 1900 districts) in the country. There are certainly some wealthy landowners in Torata, but the district-level HDI data conceals that the resources are mostly concentrated in urban areas and the distortion of having 15% of all the district’s residents living in a mining town that is largely disconnected from the rest of

Torata.

To sum, rural Torata, which makes up the area of direct influence of Cuajone, is made up of households dedicated to small-scale agriculture and herding, mostly for their own consumption. They have access to very limited material resources and reveal low levels of organizational density, except for the presence of Water Management

Groups. In theory, it would be expected to find out that the strongest challenges and claims making in Torata are led by them, and that their importance would make them effective extractors of discretionary spending in favor of the highlands of Torata. Yet, we will see why this is not the case.

6.3.3. Cuajone: Local Success in the Use of Global Frames

The local villages of Torata’s highlands are under the loose ‘sphere of influence’ of two

NGOs, which guarantee the availability of information to (and occasionally directly build capacities of) local leaders to use and adopt global frames. The first of these NGOs is

Labor. Labor opened an office in Moquegua in 1998, with a small team under the leadership of a social worker with a long experience of working in Labor at the Ilo office.

The team arrived in Moquegua at the time SCC was planning the expansion of Cuajone and the diversion of the Torata River, keen to expand Labor’s environmental agenda

243 that had been so successful in Ilo. The Labor team offered technical and legal assistance to the farmers of the valley and spread information on the potential risks of water contamination and the reduction in the availability of water for agricultural purposes.

Although Labor rarely contacted people living in Torata’s highlands directly, the environmental awareness the NGO generated in the area reached them indirectly.

The second NGO in this area is CORECAMI [Regional Coordinator of Communities

Affected by Mining], the regional chapter of the national level organization CONACAMI.

CORECAMI was constituted in the Moquegua region in 2003, but at first it only had presence in Ilo. The first organizations from Torata to join CORECAMI Moquegua did so in 2005 (Interview 26, 09.03.10). In contrast to Labor’s, CORECAMI’s presence is not institutionalized: it does not have an office, permanent employees or a set budget. It works more like a network – this is true not only for Moquegua, but for CORECAMIs throughout the country, as was described in chapter 3. The current regional coordinator or ‘president’97 of CORECAMI Moquegua is a small-scale farmer who lives in Tumilaca, half way along the road connecting Moquegua with Torata. As the regional coordinator, he serves as a point of reference and information for groups or individuals, and in turn has occasional interactions with the central team of CONACAMI in Lima. Through his activities, CORECAMI has established some presence in Torata, and he helps recruit leaders from urban Torata and also some leaders from villages, for CORECAMI’s network.

97 I put it in inverted commas because this is the way everyone refers to him, despite de fact that one of the foundational decisions on the First National Congress of CONACAMI was to refuse to be a vertical organization and be a coordinated network instead. The title of CONACAMI’s maximum leader is coordinator, not president. It seems that this commitment for horizontality was quickly ditched. Everyone considers that being ‘president’ of something is better than mere ‘coordinator’. 244

Although urban and rural Torata are under the influence of Labor and

CORECAMI, and therefore the availability of ethnic and environmental frames is guaranteed, it cannot be said that these frames are equally grounded. In this area, water scarcity has been the critical problem that has defined the public agenda for decades (MINAG 1979). This makes the environmental frame closer to home than the indigenous one. Even though CORECAMI has already had a few years in the area, the importance of environmental issues is much deeply felt than indigenous allegiances.

The manager of the Municipality of Torata accepts that there are some anti- mining sentiments in the district, but not of an ethnic nature: “Yes, there are some anti- mining groups in Torata, but they are not really part of CORECAMI because they do not belong to peasant communities. They are farmers. And these anti-mining groups are not that strong anyway; they lack someone to advise them” (Interview 30, 09.03.10).

Indeed, CORECAMI’s president defines himself “first and foremost a farmer, not a politician”, and his account of how he got involved on the struggles against SCC reveals the importance of the background work of Labor as provider of skills to local leaders.

“I was already taking notice from the newspaper and television about other struggles against mining in the country and abroad. Also the importance of the environment is very recent, less than ten years old. One day, Romy from Labor arrived to one of my Water Management Group meetings; she introduced herself, and told us what Labor was doing. It was then when I decided to join Labor’s Leadership school *escuela de líderes]. I belong to the first class, back in 2002. Labor has trained me and I am still in touch with them from time to time.” (Interview 26, 09.03.10).

The detailed explanations that CORECAMI’s president provides of the construction of the Torata dam by SCC and its environmental impacts on the Torata

River as well as the demands he makes about more transparency and participation on

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SCC’s water use and management, reveal that his worries and claims are mostly environmental. Not a single word about ethnic belonging or indigenous affirmation.

Moreover, the strongest of the eleven associations that are part of CORECAMI

Moquegua is called “Association of Farmers Affected by Mining” *Asociación de

Agricultores Afectados por la Minería], mirroring the Association of Communities

Affected by Mining formed in other mining regions of the county, but making a conscious decision to highlight their identity as farmers over any indigenous identity98.

The coordinator of Labor’s office in Moquegua argues that indigenous frames “do not stick” because the indigenous identity is not salient in the region:

“I think that people from CORECAMI Moquegua force too much the indigenous issue. I have worked a lot in Moquegua and I know firsthand. People in the highlands of Moquegua do not recognize themselves as indigenous. Once, at a village party in San Cristóbal [a district in Moquegua] almost on the border with Puno, there was a band playing. I asked where the band came from, and the people told me that “they came from the sierra *highlands+ they come from Puno”. I asked, “So what are you then?” “Us?, we are from the costa *seaside+, we are from Moquegua. There are no indigenous peoples here”. People in Moquegua do not speak aymara [local language], or if they do, they do not want their children to speak it so they can have better opportunities to get a good job in the city” (Interview 55, 03.03.10).

Its inability to resonate with local circumstances renders the indigenous frame unattractive as a way to catalyze local demands toward SCC. However, it seems that the environmental frame is strongly grounded and could be a good way to make claims on the company. But how does the environmental frame fare in terms of articulation? Does it resonate with the history of community-company relations?

98 Intervention of Alfonso Nina Cruz, President of the Association of Farmers Affected by Mining, during Moquegua’s Regional Public Audience promoted by the newspaper El Comercio. Auditorium of the University Jose Carlos Mariategui, 27.02.10. 246

It is clear that environmental grievances are much more relevant to farmers in

Torata than any indigenous identity, and they have consistently employed them as a legitimate frame to make claims on the company. In the words of Ricardo Juarez, a member of the Water Management Group of Yacango, one of the smaller associations that form the Torata Water Management Group:

“Years ago they deviated the Torata River so that Cuajone would not get inundated. We gave in and allowed the company to build the dam. Likewise, they should also give in and agree to help us, sharing the water.” (Interview 27, 26.02.10).

Locals not only use an environmental frame to present their claims to the company, but cast it in a relationship of reciprocity. Because of past favors of Torata to

SCC, local residents see themselves as entitled to the company’s development aid. To strengthen their plea and their character of ‘deserving population’, residents of Torata also claim that in fact SCC takes water from the Torata River through some underground pipes they placed when they built the dam (Interview 56, 26.02.10). They also say that

SCC has built illegal wells to extract water beyond the volume they are licensed to take.

By claiming that SCC is guilty of misappropriating water, they hope to gain leverage and attract more discretionary resources to their district

Yet, despite their efforts, locals have been unable to associate the company’s building of the Torata dam with the reduction in water levels of the Torata River in terms of cause and effect, and therefore have failed to attract the attention of SCC. It may well be that this is the case, and that SCC’s intervention in the Torata river as well as its use of underground water sources upstream affects the water levels downstream.

But the lack of a tight connection between the company’s actions and the negative

247 outcome prevents residents to make a solid case and be considered populations that deserve to be compensated. This results in an environmental frame that is not articulated, unable to attract the company’s attention or influence their actions.

In sum, populations in Cuajone’s area of direct influence are not successful in their use of global frames to extract from the extractors. Elements of indigenous frames are available in Torata’s highlands through CORECAMI, but local populations do not consider themselves indigenous. The lack of resonance of this frame with the local audience renders this frame not grounded. And although the environmental frame is available through the NGO Labor and it is deeply grounded among local residents that have historically suffered from water scarcity, it is not articulated, as locals have been unable to successfully link their water grievances with SCC’ intervention in the Torata

River. Therefore, neither the indigenous nor the environmental frames meet the three conditions required for their successful adoption in Cuajone.

Table 6.3. Cuajone: Local success in adopting global frames Conditions Indigenous Environmental Available? Strong Strong Grounded? Weak Strong Articulated? Weak Weak

6.4. Lagunas Norte – Minera Barrick Misquichilca

Lagunas Norte became the second gold operation developed by MBM in Peru. It is located in the North of Peru, at 175km north of MBM’s Pierina mine (MBM 2005). In fact, on a clear day, one could devise Pierina in the distance from Lagunas Norte’s top

248 hill. The operation sits on the district of Quiruvilca, province of Santiago de Chuco, in La

Libertad region.

In 2001 the Peruvian Government tendered Lagunas Norte at an international bid, as part of the Alto Chicama mining project, which included three mining concessions – Lagunas Norte, Lagunas Sur and Tres Cruces. The Alto Chicama concession extends to 18,550ha and has three potential ore deposits, although at this point,

Lagunas Norte is the only area of the three that MBM is exploiting. Barrick Gold acquired the mining rights of the project in 200299 and started explorations in 2003.

Once a satisfactory level of gold reserves was proven and the MINEM had approved its environmental and social permits, including the EIA, MBM started construction of

Lagunas Norte in 2004. According to the contract signed between MBM and the

MINEM, the project was estimated to cost around US$261m (MINEM 2004); in the end, the total investment was actually close to US$340m (MBM 2004, slide 8) and involved

100 over 4,100 people working on the construction of the facilities (MBM 2005, 2).

This is one of the most recent open pit mines developed in Peru, and it has become one of the largest gold mines in the country, second only to Yanacocha. With total cash costs of US$131 per ounce of gold in 2010Q1 (Barrick Gold 2010b), which are the lowest production costs in the industry, and gold prices hovering around US$1,000 per ounce over the last few years, Lagunas Norte generates a tidy profit margin for

MBM.

99 Contract between Minera Barrick Misquichilca and CENTROMIN PERU S.A. December 12, 2002. 100 After the construction stage, Lagunas Norte labor requirements fell to an average of 1,000 workers, between employees and contractors. The latest figure available from MBM’s report to MINEM in 2008 was 1,021 workers. 249

6.4.1. The Lagunas Norte Complex

To reach Lagunas Norte’s front gate one must take a bus from the city of Trujillo, the region’s capital, and travel east. It is a 6-hour trip (though only 140km) on a partly paved road that takes one from the city of Trujillo, at sea level, to 4,260m, up the Northern

Andes.

In order to develop the Lagunas Norte project, MBM purchased 2,550 ha of surface rights (MBM 2003, A4-6). In that area, the company located the open pit, built the mills and other facilities, and set up a mining camp for the workers and staff. Being located in a remote area with few facilities for a gold operation of this scale, the project also involved constructing 71 km of access road and widening the road in various parts of the road to Trujillo to be able to transport the machinery and equipment required at the operation and the extension of an electricity line from Trujillo as an exclusive power source (MBM 2004).

The mine operates with a technology similar to that in Pierina. The ore is extracted from an open-pit mine and crushed several times until it is converted into a fine powder. The powder is then mixed with water and other substances, including cyanide, that help separate the ore from the rest. The ‘pregnant substance’ (that is, the mix with gold and silver) is then further processed and converted in doré bars that are transported out of the operation and the country.

Lagunas Norte has two residential areas: ‘El Sauco’, which hosts workers and subcontractors, and ‘Las Terrazas’ for staff. The structure of the residential areas follows the same pattern found in other mining camps. The staff area has many more amenities

250 and services than the workers area, including a canteen with more choices of food, better recreational facilities, a gym and tempered pool, and a big gymnasium for sports.

Something that differentiates Lagunas Norte from the rest of the mining camps studied is that here most buildings seem temporary and are made of pre-fabricated materials. This is not to say that the constructions are of poor quality, on the contrary, they are in great condition and are very comfortable, warm and clean, but there is a sense that they are provisional, like a caravan camp. There are few brick constructions in the residential area, and housing is mostly made of modular blocks, easy to assemble, transport and take apart. Housing blocks resemble large containers, and can accommodate up to 30 people. Employees get a bedroom and there are communal toilets and shower rooms. The accommodation is run like a hotel by the multinational

Sodexo: every Monday employees get fresh towels, bed linen and soap; their blocks are kept clean and tidy, and even their laundry is taken care of by Sodexo. The change from the all-inclusive purposely-built company town of the 1950s to the minimalistic workers- only camp of the beginning of this century is in line with global transformations of what is considered appropriate in terms of mining site accommodation (Costa and Scobble

2006, Maxwell 2001). But perhaps the biggest difference between Lagunas Norte and the other mining camps visited is that housing facilities are exclusively for employees and no family members are allowed inside the mining camp. This reduces the number of services required for employees – for one, there are no schools and there is no self- catering accommodation – and simplifies the running of the camp. There are few green areas; no restaurants or shops, as everyone eats at one of the two canteens of the

251 complex; and there are no sidewalks within the complex, because everyone either drives to work or is taken by internal minibuses. In fact, it is not permitted to walk between the different areas of the camp, so the areas of operations, ‘Las Terrazas’ and

‘El Sauco’ and disconnected from each other unless one has access to a car.

When the employee is at the mining complex, the company structures his life even when he is not at work. Decisions are taken for him in terms of what he eats, where he goes and what he does. Activities are regulated due to the geographical isolation of their workplace and the restrictions established by the company. For example, after their 12-hour shift, workers are taken back to their respective residential area by company minibuses and stay there until the following day. Political and religious gatherings are not allowed in the premises of Lagunas Norte, as was made extremely clear on the video that all new workers are shown at the beginning of their induction.

Given that Lagunas Norte remoteness, employees’ schedules normally involve long working shifts of ‘15 x 8’ – that is, fifteen days at the mine and eight at home – and some workers on support areas even work ‘20 x 10’. Only a few of the most senior staff work ‘5 x 2’ and are able to go home (to Cajamarca or Trujillo) every weekend.

6.4.2. Lagunas Norte’s Area of Direct Influence: The Districts of Quiruvilca and Sanagorán.

Lagunas Norte is administratively situated in the district of Quiruvilca, province of

Sanchez Carrion, in the region of la Libertad. While the actual mine is in this district, the principal area of impact is the Chuyugual Valley, which belongs to the neighboring

252 district of Sanagorán. Chuyugual is the watershed that is immediately below the operation, and as such has been identified as the area of direct influence of Lagunas

Norte101. Being on the border between two districts (which, to complicate matters further, belong to two different provinces) creates a particular situation for MBM: while the mining canon flows down to Quiruvilca, the Community Relations team has made

Chuyugual its main focus.

The district of Quiruvilca has a long tradition of mining and in fact owes its creation to the presence of a mining company. At the beginning of the 20th century, the

Northern Peru Mining Company, a subsidiary of ASARCO, arrived to this site to start a medium-sized polymetallic venture. A makeshift mining camp made up of workers who had come to work for the company was established next to the operations, and around a hundred families settled in the area (USAID 2005, 11-17). What started as a mining camp in the 1910s with little urban planning or supervision grew large enough to become the district of Quiruvilca.

In 1994, the mining operation was bought by Pan American Silver, a Canadian company, and remains the largest employer in town. Today, the district and the mining town are still hard to disentangle: the district has a large and chaotic urban center of

6,575 residents (INEI 2007), most of them working in mining or commerce, the water service is provided free of charge by the company (although households only have an average of three hours a day of service), there are large speakers in different parts of

101 MBM also considers the watersheds of Caballo Moro, Moche and Perejil as areas of direct influence, but the bulk of the investment is made in Chuyugual. 253 town through which Panamerican Silver makes announcements to its workers, and most shops, restaurants and public monuments are dedicated to mining or miners.

Quiruvilca’s urban center may be disordered, dirty and lack some basic public services, such as reliable access to water and sewage, yet, its residents have incomes that are above the country’s average. According to a recent survey carried out by the

Regional Directorate of Health of La Libertad (DIRES La Libertad 2008), the average household income per month is S/.960 (US$320).

In contrast to the mining origins of Quiruvilca, the Chuyugual valley, about 40km northeast of Quiruvilca, had little experience of large-scale mining before the arrival of

MBM. Some charcoal was mined privately at a small scale, mainly for household consumption and CENTROMIN, the state-owned mining company explored some large coal deposits in the 1970s (MBM 2003), but no large company had ventured in the area, and there was certainly no previous experience of gold mining or contact with a transnational company of the scale of MBM.

The residents of the valley, around 1,000 families (DIRES La Libertad 2008), are dedicated to agriculture, cattle rearing and petty trade and some of them migrate seasonally to Huamachuco or Trujillo to engage in other economic activities (MBM

2003). The valley is connected to the main highway by a badly maintained dirt road, and public transport is reduced to a few minibuses one day a week on Wednesdays (the day of the weekly open market). The minibuses only reach the valley to the village of

Chuyugual, and to reach other settlements further ahead one must walk. Most villages are connected to the grid and some have piped water, and there is a community phone

254 in the village of Corral Grande, but the lack of sewage remains a big public problem and a health risk. Public services are as limited as public infrastructure, and many lack access to health, education and agricultural extension services.

Income levels in Chuyugual are around S/.372 (US$124) per household per month, and most of it is generated from selling goods and services, and an animal once in a while. Apart from this monetary income, residents in the valley rely in farming for their own consumption: around 95% of families considered agriculture their main economic activity (DIRES la Libertad 2008). Sanagorán is one of the poorest districts in

La Libertad, and apart from what families can grow, the daily budget destined for food for a whole family is on average S/.2.5 (US$0.8), which has to account for all the items that the family does not produce, including firewood or charcoal, salt, cooking oil and others.

The valley is not only poor, but extremely disconnected from the urban center of the district of Sanagorán, to which it belongs, and in many occasions residents mentioned that the mayor does not consider his duty to provide them with basic goods and services, and instead encourages them to ask MBM for these investments.

There are not a lot of social organizations in Chuyugual. During the 1980s and

1990s Shining Path had a strong presence in the area, killing authorities, raiding households and terrorizing villagers. The effects on the local capacity to get organized are still felt in the valley. Locals organize themselves mainly as recipients of state- sponsored social programs like the Vaso de Leche or Juntos. Some villages have organized peasant patrols to address security concerns, but they are new, have few

255 members and are relatively weak. There is a committee for the weekly market organized in Cushuro, one of the largest villages of the valley, and the catholic and evangelical churches are present in the area too.

In sum, Chuyugual is an extremely rural area, with little access to public goods and services, few transport and communications infrastructure and low levels of organizational density. Although it is fairly close to Quiruvilca, a traditional mining district, the valley is economically disconnected from mining activities and did not have any experience of interaction with large scale mining before the arrival of MBM.

6.4.3. Lagunas Norte: Local Success in the Use of Global Frames

Considering that Lagunas Norte is the second largest gold mine in the country established in a valley with a clear agricultural vocation and near populations with fragile livelihoods, it was extremely surprising to find an almost total absence of NGOs and other civil associations in the area. CONACAMI does not have a regional chapter in

La Libertad or grassroots presence in this area, and therefore locals are not supplied with the elements of an indigenous frame. In terms of the environmental frame, the

Marianist Association for Social Action (AMAS, Asociación Marianista de Acción Social), a religious organization based in Otuzco, has become the only important source of information on the impacts of mining on natural resources, especially water. There are no other NGOs active in the locality: during my fieldwork I did not come across any organization working on social development, capacity building or citizenship directly in the Chuyugual valley.

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The utter lack of civil society in the area, which is a vital supplier of information and capacities to local populations and in particular a key transmission mechanism of environmental and indigenous frames, reduces the leverage of residents of Chuyugual vis-à-vis MBM. But how can we explain this dearth of non-profit organizations with an interest in mining and development (or in fact in any other issue)?

There is some evidence to suggest that in this case economic benefits are keeping social concerns on the back seat. Lagunas Norte’s closest urban and political centers are in one way or another dependent economically on mining and this makes organizations hesitant to take an open stand against it. Quiruvilca, as I described in the previous section, is a traditional mining town, populated by migrants with no emotional attachment to this land and where most of the population works for Panamerican Silver and to a lesser extent for MBM.

Moreover, the municipal revenues depend to a large extent on mining canon.

The complaints about MBM raised Quiruvilca’s mayor were about employment opportunities and limited economic presence in town, and there was no reference to environmental contamination or cultural disruptions. Ironically, it seems that rather than complaining for the impacts of mining, as many other mining localities, the mayor complains for not being impacted enough.

“What I would ask Barrick most of all is that they should hire more people from Quiruvilca. We have much experience in mining and could do many jobs. And if they think we are not well prepared, then I would ask them to train us with courses on mining. But later they should hire us; they should take us to work at the mine ... also Barrick has a separate mining camp, they could have settled here in Quiruvilca instead; they could consume and spend their money over here. But they prefer to be over there and seldom come to Quiruvilca.” (Interview 57, 31.07.09).

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The city of Huamachuco, the 150,000 people provincial capital, is a two-hour drive east from Lagunas Norte. Huamachuco is located at the foothills of El Toro, a nearby hill that is full of small-scale illegal gold miners. Eva Herrera, the head of the area of environmental affairs of the municipality of Huamachuco estimates there are around

6,000 illegal miners working in El Toro, including children. Miners work in precarious conditions, the use of cyanide to extract gold is unsupervised, police and political authorities have been banned from entering the area and it is considered a “no man’s land”. Despite the environmental, social and political problems that it creates, El Toro is one of the main sources of commercial dynamism of the city and an important source of income for thousands of families.

Many local leaders in Huamachuco pointed to El Toro as the main obstacle to the development of any social movement at odds with mining in the city. The coordinator of the Provincial Dialogue Table of Huamachuco [Mesa de Concertación de Huamachuco], a space in which state and civil society discuss public issues, concurs.

“We haven’t been able to establish the committee of environmental affairs of the Dialogue Table. Nobody wants to participate. Nobody wants to sign anything. It’s that the interests of El Toro are very strong, and now there are other companies like San Simón and others that also influence the decision of people to complain about the environment.” (Interview 58, 10.07.09).

A lawyer from Cajamarca who specializes in cases of land compensations and other demands against mining companies, relocated to Huamachuco in 2006, attracted by the prospects of the presence of MBM.

“I thought I was going to find lots of cases, but I have no work! Lawyers do not have much work in this region. Here people are different from Cajamarca. There they are very clear in that the mine takes stuff away from them, and want

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compensation, but here is not like that. Here people do not complain.” (Interview 59, 02.07.09).

Huamachuco temporarily hosted some civil society organizations that could have been local referents for residents of Chuyugual and a potential source of information on global frames. In 2004, a group of young professionals with environmental concerns from Trujillo formed Hoja Verde, a small association with presence in Huamachuco

(Roca Servat 2004). However, it did not last more than a few months, and when I did my fieldwork in 2009, only a few people remembered it.

Likewise, CEDEPAS, an NGO with long presence in Cajamarca and Trujillo, established an office in Huamachuco for a while. CEDEPAS is a well-known NGO in

Northern Peru, working in the areas of rural development, citizenship and democracy, and natural resource management. It is also member of Grupo Propuesta Ciudadana

(GPC), a consortium of developmental NGOs that is prominent for raising awareness, monitoring behavior and disseminating information on the impacts of extractive industries in other parts of the country. Its credentials would have made it an ideal source of global frames, but the presence of CEDEPAS in Huamachuco was short-lived, and closed its office in 2009. From its office in Trujillo, it still participates in GPC’s project of analyzing the use of mining canon in La Libertad and publishes reports twice a year

(CEDEPAS 2006, 2007, 2008, 2009), but has no direct presence in the area and its direct work with grassroots communities in this area is extremely limited.

In this situation of dependence on the economic dynamism of mining activities, it is not surprising that any social movements that could be perceived as jeopardizing a mining-based income stream of households was bound to find resistance in Quiruvilca

259 and Huamachuco, the two closest urban centers to Chuyugual. It is further away, in the city of Otuzco, where I found AMAS, a faith-based organization connected to the network of Marianist groups, which has become the most important source of information on the environmental impacts of mining in the highlands of La Libertad.

AMAS became interested on issues of mining and development as a result of the presence of MBM in La Libertad. Early on in 2003, the company organized a series of workshops and audiences to present its new project, and some of the villages that

AMAS worked with in Otuzco were in the area of influence of Lagunas Norte. With this new actor in the locality, AMAS decided to get involved on the impacts of mining in rural development (CEDEPAS 2006, 45). The association set up a small laboratory where they can test water samples and monitor the metal content in them, and devoted more time to report on environmental issues at their radio station, Radio Chami, also based in

Otuzco but followed by residents of Chuyugual as well, through portable radios that people like to take with them when they work in the fields102. Its news coverage and internet presence, as well as its ability to monitor water quality (and therefore to produce news and not only report them) have made AMAS the most important transmission mechanism of environmental awareness. In a special report prepared for the NGO Labor in the area of influence of Lagunas Norte, Roca Servat (2004) notes that the sources of information on the local impacts of mining were not in Quiruvilca or

Huamachuco, but indeed in Otuzco. She also finds evidence of the high levels of legitimacy and the scope of influence of this organization.

102 Radio Chami’s live site is available at http://www.chamiradio.org.pe/. 260

“The interviewees in the city of Huamachuco responded that ‘there is no strong and real organization that looks after the rights of the people and the environment’ *...+ In contrast almost all the interviewees in Otuzco highlighted the ‘extraordinary role’ of the congregation of Marianists in defense of the communities and the environment.” (Roca Servat 2004, 10).

Overall, Chuyugual is not in the sphere of influence of civil society associations that could provide elements to build indigenous frames. Interaction with AMAS provides some information on the environmental impacts of mining, although the extreme reliance of Quiruvilca and Huamachuco on the economic dynamism of mining seems to have placed environmental concerns lower down in the public agenda.

Turning to the second condition, I assess to what extent the environmental awareness raised by AMAS is grounded in Chuyugual. Agriculture is the main activity of the vast majority of the population of Chuyugual, and therefore their dependence on the quality and quantity of water and land are essential to their survival. This explains why residents have a tendency to frame claims to the company in terms of a compensation for the impacts of mining on their resources for agriculture.

A resident of Corral Grande, considers that the legitimate way to frame her claims to the company is as a compensation for environmental degradation and presents her demands to the company in these terms.

“Now the wheat, the barley, the yam do not grow like they use to. The crops have shrunk. And the trout in the river have disappeared, they are all gone. Before, we could fish with simple fishhooks, or even with our bare hands, when there were breeding. Now, even the little frogs are gone… This is unfair, we can’t get enough to eat, and Barrick is not compensating. Only two or three are working at the mine from our village, we want things to be like before when it was us and our land, or at least they should give us jobs.” (Interview 60, 25.07.09).

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In November 2009, MBM convoked a public audience in Chuyugual to discuss a study to expand production in Lagunas Norte. According to the new legal framework on public consultations for mining projects, mining companies must carry out local workshops, inform about their plans and solve any doubts or concerns from locals. The aim of this study, called the “Modification to the Environmental Impact Assessment”

[Modificación del EIA] is that the company gets some level of local acceptance to develop its activities and locals are reassured that the project would not affect their livelihoods. In many mining affected localities, these legally-sanctioned encounters between company officials and residents provide leverage to local demands and have become one of the privileged moments in which locals make claims on companies. In the case of Chuyugual, it was revealing that local demands were all made in terms of the environmental impacts of the mine in their livelihoods, especially in their water sources.

Residents came to the audience provided with signs that demanded MBM to fulfill old promises made in the first EIA of 2003, and reflected an environmental foundation of their demands.

“Chuyugual: No to the modification of the EIA, first honor the promises you made in the EIA”; “Corral Grande: No to the expansion of the mine because they have not kept their promises. No more lies. No to the contamination of the air, fauna and humanity. Barrick must replace the trout from the River Chuyugual”; “Village of Totoras: Barrick keep your promises”; “Ministry of Energy and Mines: Stop mining concessions because Barrick contaminates the peasant population of the Chuyugual valley.”103

In their daily interactions with the company as well as in the moments of formal negotiation with community relations officials, residents seem to resort to ideas of

103 This information comes from a video taken in Chuyugual on the day of the audience. November 13, 2009. I am grateful to Maria Fe Celi for sharing her video with me. 262 water contamination, loss of animal diversity in the river, reduction in their production levels and deterioration of the quality of their crops to justify their requests and make claims on MBM.

In sum, there is some evidence to say that the environmental frame is relatively grounded in Chuyugual. The high dependence of the residents on subsistence farming means that any contamination of land or water would have a profound impact in their livelihoods. In contrast, indigenous frames have very little grounding in the valley. The peasant community is not a central political or economic organization for the residents and it does not seem to be a legitimate reference to relate to MBM or to frame and present their grievances to the company.

Turning to the third condition of a successful frame, I analyze how these frames fare in terms of resonating with the company. Do they appeal to this ‘audience’ (that is, the company) and are they accepted as legitimate ways to frame grievances?

Claims framed in indigenous terms do not seem to resonate with the history of company community interactions, and therefore are not articulated. When MBM arrived in the valley, it found that all the surface land required to develop the project was either in possession of private individuals or belonged to the state (MBM 2003). The absence of common resources to deal with or peasant community involvement in the purchase of the surface land for the project made the process of relocation of individual households relatively easy. Only 14 families had to be compensated and relocated, most of which moved to Canibamba Alto, a nearby village, or left the valley altogether (Roca

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Servat 2004, 14). This particular situation minimized the opportunities of local residents to reinforce a shared feeling of belonging to a displaced or affected community.

In contrast to the lack of articulation of an indigenous frame, there is some evidence to suggest that environmental frames do resonate with Community Relations officials. The company recognized since early stages that its presence in the valley would generate some disruptions in the livelihoods of local residents and their normal use of resources. Since the preparation of the EIA in 2003 the company identified El Sauco, the village which was to become the immediate neighbor to the mine, as the area that would suffer the major impacts with the presence of MBM. First, with the establishment of Lagunas Norte, the traditional footpath which residents of El Sauco used for generations to transport their surplus crops to and maintain commercial contact with

Quiruvilca had to be permanently closed. Second, MBM established the mining camp in an area previously used by local residents to extract charcoal for their cooking and heating needs. These disruptions were considered by MBM as legitimate grounds for compensation, and to offset them it established a special program of compensations to

El Sauco. A community relations official explains what this program includes.

“El Sauco has many more benefits than anyone else because of its location and because it was the most affected when the company arrived. They receive a lot of funds and a lot of attention. They are the only ones who get monthly deliveries of free charcoal, for each family. They also get lots of help and the access to company vans so they can bring in and out their products to Quiruvilca.” (Interview 61, 26.07.09).

MBM accepted publicly that the livelihoods of the residents of El Sauco were particularly affected by its presence, and therefore they admit that these are legitimate grounds to make claims on the company. Even today, demands made by residents of El

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Sauco that are accompanied by references to how the company affected their livelihoods are likely to be heeded, even if they are not connected to charcoal or routes to Quiruvilca. For instance, El Sauco is one of the few villages in which MBM encouraged the development of a communal enterprise that provides services to the mine, and village members are hired through it to work for the company.

But the environmental frame seems to resonate with MBM beyond the particular case of El Sauco. In many occasions when I was in other villages of Chuyugual, community relations officials accepted that the river carried fewer fish than before and that this may be a result of the presence of the mine. At the long induction that all new workers receive before starting their jobs at Lagunas Norte, a member of the office of

Environmental Affairs confirmed the disappearance of trout from the Chuyugual River since the mine arrived. This was in front of an audience of dozens of workers, including people from local villages that are part of the program of temporary jobs. In a strategy of ‘damage control’, the official accepted the problem and at the same time claimed that it is not a result of water contamination by MBM, an accusation that could affect

MBM’s reputation much deeper.

“Yes, we know we’ve been having some complaints about the lack of trout, but you must be aware that trout are one of the most delicate fish, and as soon as there is the slightest change in their environment, they leave. The river is not contaminated; otherwise we’d find dead trout, which it’s not the case. We are studying why they might have decided to migrate. It could be because of the noise from the operation or the explosions, for example. This can create vibrations that trout do not like. We’re studying it closely and will give you an answer very soon. In the meantime, we understand that this has to be compensated and that is why Barrick is developing fish farming projects with affected villages.” (Interview 62, 23.07.09)

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Even with a relatively weak environmental frame, MBM seems to be quite responsive to the demands of local populations when they are made in environmental terms, and especially if they come from residents of El Sauco, a village that MBM community officials perceive as the most affected one.

In sum, the case of Lagunas Norte shows that the limited availability of frames is a discouraging start for local residents’ prospects to make rights-based claims on the company. AMAS provides some elements for an environmental frame, but economic and commercial interests keep environmental concerns inhibited in the area. Its lack of assets makes the peasant community of Chuyugual a weak institution to aggregate valley interests and, because MBM did not buy any communal land in the area, the company does not recognize the indigenous frame as a legitimate justification for local demands. In contrast, the environmental frame has been moderately successful in giving local residents a common language to make claims on MBM.

Table 6.4 Lagunas Norte: Local success in adopting global frames Conditions Indigenous Environmental Available? Weak Medium Grounded? Weak Medium Articulated? Weak Medium

6.5. Toquepala – Southern Copper Corporation

Toquepala is located in the highlands of Tacna, 870km south of Lima. It is a large copper deposit that became the first investment of Southern Copper Corporation in Peru. The

Toquepala contract was signed on November 11, 1954, under the investor-friendly

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Mining Code of 1950 and started operations in 1959 (Sanchez Albavera 1981). It was celebrated as the largest foreign direct investment in the history of Peru, the largest copper mine opened anywhere in the world since WW II and, with the cheapest production costs of the industry at the time, it was the most profitable copper project in the world (Brundenius 1972).

Toquepala was the first open-pit mine constructed in Peru, where technological innovation was stalled and the vast majority of the mines were until then underground shafts (Dore 1977). SCC not only brought to the country a technological revolution in extraction processes, but created a very particular community in an extremely rural corner of the southern Andes. ASARCO, the US-based company leading the mining consortium, built the Toquepala mine with living accommodation and facilities to resemble an American suburb of the 1950s, for the comfort of the many expats that moved in to run the operation and their Peruvian workers. The ultimate modern living experience people enjoyed within the limits of Toquepala contrasted strikingly with the basic and traditional lives of local residents.

In 2009, Toquepala celebrated its 50th anniversary. The housing area and the living facilities were never updated and now look run down, and the number of permanent residents has declined considerably since the days of the ASARCO management. However, Toquepala is still an important operation, producing 10% of the country’s total copper output (MINEM 2010c) and generating economic dynamism in the highlands of Tacna.

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6.5.1. The Toquepala Complex

The roads to mining operations do not tend to be roads between two places. Instead, they are paths taken exclusively to get to the mine – and the way ends there. This is most noticeable in the case of Toquepala. To arrive to the operation, one must take a bus from the city of Tacna that goes north along the Panamerican Highway to the small town of Camiara (1 hour 20m). In Camiara, nobody besides those who are going to the mine is standing at the taxi stop, because the road only connects the Panamerican

Highway with Toquepala. At the stop, one takes a shared taxi to Toquepala along a trail road (1 hour). Along the road, the dryness of the area is shocking: there are no settlements or any fields for agricultural use. The only feature of the trip was what looked like a very dirty stream running parallel to the road in the opposite direction. I would later learn that these were mining tailings, flowing down from Toquepala’s operations to Quebrada Honda, the area where they are collected and treated.

The people with whom I shared a taxi to the operation – four temporal workers at the mine – were very curious about me: a woman, from Lima, and under 50. Why on earth was I going to Toquepala? No, I was not a family member of a manager; no, I was not promoting a private pension scheme among the workers; no, I was not an HR person from the Lima office. They were even more surprised to learn that I was planning to live in the mining camp for a month and visiting the villages in the highlands of Toquepala.

Later that evening, talking to officials from the Welfare Office, Community Relations and other areas, nobody could remember another researcher that had been hosted at

Toquepala before. In fact, there is evidence of another academic visit, almost 40 years

268 before I arrived in Toquepala. In the early 1970s, Charles Goodsell, an American political scientist spent a few days in the operation conducting interviews with mining officials.

His trip was part of a project to study the influence of American corporations in Peruvian politics, both at the national level through lobby for favorable public policies and at the local level through their daily shaping of lives in company towns (Goodsell 1974).

Security at the main entrance to Toquepala is heavy, and all residents, even children, are issued identity cards which are verified at every gate. After we clear security, the taxi makes several stops along the way, first at the golf club, then at a cluster of administrative offices, and later at the residential area for the staff, with houses, shops and a school for the children of the staff, where I get off. The taxi continues uphill, to an area called ‘Plaza’, where one finds the open market and several shops and canteens, a residential area for the workers, the hospital, a school for workers’ children, an open market, and the rest of Toquepala’s administrative offices.

There is a marked status difference between staff and workers, in terms of the comfort in the accommodation, recreational facilities and restaurants available, something that was built into Toquepala it since its construction in the 1950s, and is standard in company towns across the world (Finn 1998, Lankton 1991, Robinson 1986).

“Status differences are reinforced not just by pay differentials but also by living arrangements, for the quality of housing and services are directly correlated with class. Staff personnel and their families enjoy detached spacious houses with all the modern conveniences of the average middle class home in the United States. Accommodation for workers is considerably more modest.” (Goodsell 1974, 62).

Currently, staff and workers remain in worlds apart in terms of pay differentials, but living conditions have somewhat equalized (downward) in recent decades and

269 according to some interviewees, especially since 1999, when SCC was taken over by

Grupo México. Yet, residents are unwilling to give up the prestige associated with living and socializing in the ‘Staff’ area as opposed to the ‘Plaza’ area. For example, despite the dwindling numbers of full families living in Toquepala, especially among staff members – they prefer to live in Tacna or elsewhere, with the workers commuting weekly from home to the mine – I was told by one teacher that there is strong resistance to merge the ‘Staff’ and ‘Plaza’ schools into one, and some grades have only four or five students.

But if today Toquepala as a living complex or self-contained urbanization may look somewhat run down, there are some things that maintain its foreignness within its surroundings, such as the golf club, the bowling alley, the roads lined with pine trees and the architecture of the houses. And as a mining operation, Toquepala still keeps its edge as a profitable mine, with high ore grade and low production costs (SCC 2010).

The extractive process in Toquepala employs a standard open-pit mining method to collect copper-rich ore and then crushes it in consecutive mills until it gets a finely ground powder of less than half an inch. The powder is then mixed with water and reactive substances that separates the copper ore from the waste rock.

Where does SCC get the water required to concentrate its copper? It is worth dwelling on this matter because it has been a very political issue since SCC’s mines started operating in this area, one of the driest of the country.

SCC has secured government licenses to use surface and underground water from sources mostly located in the highlands of Tacna, in an area very near the limit

270 with Moquegua. The company collects here, in the province of Candarave, enough water to operate both the Toquepala and Cuajone mines. The water is extracted from

15 wells that pump out the water and it is then channeled through pipelines to Cuajone and Toquepala. SCC’s water licenses allow it to get 1,950 liters of water per second

(lt/s), of which 510 lt/s is surface water from the Suches Lake and the other 1,440 lt/s is underground water from the area of Huaytire and around the Vizcachas Lake, all in the province of Candarave (Balvín 1995b).

In Peru, all users are charged for surface water use, but the legislation has never established a charge for underground water104. Many have argued that this arrangement is unfair, because wealthier farmers and companies have the funds to build powerful pumps to get underground water for free, while poor farmers and herders in the highlands can only access surface water, for which they have to pay. If water is pumped out upstream near the watersheds or where the rivers are born, the volume of water downstream is likely to decline.

This situation has generated a protracted dispute between SCC and the residents of the highlands of Tacna who complain that their water availability is lower since the company arrived. And because the water sources for the mine are in a different province from the one in which the mine is located, those affected by the water shortages are not benefiting from the mining canon, which could be considered a compensation for coexisting with SCC. As I present in the following section, this has created a very particular political economy for Toquepala, in which the residents of

104 Law of Water Resources No. 29338, March 31 2009 and its regulation is DS 001-2010-AG, March 24 2010. 271

Candarave are at least as strategically relevant as those living in Ilabaya, and sometimes even more so.

6.5.2. Toquepala’s Area of Direct Influence: The District of Ilabaya and the Province of

Candarave.

Administratively speaking, Toquepala is located in the district of Ilabaya, part of the province of Jorge Basadre, in the region of Tacna. However, Toquepala’s administrative belonging is as important as its geopolitical situation. Toquepala’s dependence on water sources that are located in the province of Candarave has driven SCC to establish a special relationship with that area as well. Both Ilabaya and Candarave, two localities with very different socioeconomic profiles, are considered by SCC as areas of direct influence.

Ilabaya is a predominantly urban district of 4,414 inhabitants, of which 2,226 live at the Toquepala mining complex. Less than 20% of residents are rural dwellers.

Residents in the district are mostly grouped in three urban areas: Ilabaya proper, Mirave and Borogueña, and are mostly dedicated to agriculture and commerce, or are employed by the municipality. Ilabaya has a large number of producers associations and other organizations that coalesce around Mirave’s large and buzzing local market. The living conditions of its residents are rather good: Ilabaya is connected to the power grid,

77% of houses have piped water (INEI 2007) and since 2009 a new parabolic antenna provides cellphone reception throughout the district. Mayors are the most important

272 local authorities and are elected by popular vote, while the few existing communal authorities are relatively less relevant for public decision making.

As it is the case with other districts that host large mining companies, the mining canon constitutes the most important source of revenue for the municipality. In 2010, it received mining canon transfers for over US$11m, equivalent to US$2,653 per capita if residents of Toquepala are included, although in practice no public investments are made within Toquepala (MEF 2011). In 2008, at the peak of the commodity price cycle,

Ilabaya received even high transfers for mining canon – an amount equivalent to

US$9,505 per capita. This made Ilabaya the district with the largest per capita transfers for mining canon in the whole country.

Given the level of public funds that the district receives, it is not surprising that almost all of Ilabaya’s public infrastructure has been funded with mining canon, including a municipal hostel, an orphanage, an auditorium, a school, a police station, a local magistrate’s court, the municipal building and various other constructions, and all boast inauguration plaques that say: “Mining canon: the engine of local development”.

Through the mining canon, the municipality is also able to hire around 2,000 people, something that an employee at the municipality, considers an important source of monetary income for those families (Interview 28, 08.01.10) but also develops in them a dangerous addiction to a fluctuating source of revenue.

The province of Candarave is composed of six districts that host a total of 8,373 people. This is a semi-rural and relatively poor area in which the main crop is by far alfalfa, covering 6,000 of the 7,000 ha of cultivable land in the province. The alfalfa is

273 used as forage for sheep, alpacas and cows (AgriTacna 2008). Despite their specialization on cattle-rearing, they have not developed connected dairy activities such as the production of butter or cheese, and instead trade their wool and meat in local fairs and in commercial circuits that links them with traders in Puno and Bolivia.

Residents also cultivate oregano for the market, as well as potatoes, maize and broad beans, mostly for their own consumption (UNI 2009). Around 62% of the population depends on agriculture and herding (CONACAMI 2009, 9). They complement their agricultural activities with seasonal migration to the neighboring region of Puno to work in agriculture, while the young prefer to migrate to the city of Tacna to pursue higher education and become a source of monetary income for their families in Candarave.

Local associations are mainly survival organizations connected to central government programs such as the Vaso de Leche, a food security program for children under five, and Juntos, a conditional cash transfer program sponsored by the government. There are 13 peasant communities registered in Candarave, and 11 of them were established before the Agrarian Reform, which reveals this as an area that has a longer tradition of communal associations. Political authorities elected by popular vote coexist with communal authorities elected in assemblies by the members of peasant communities. In some areas communal leadership is more legitimate than mayors, whose presence outside the districts’ urban centers is rather sporadic.

In contrast to Ilabaya, Candarave receives very low levels of mining canon, an equivalent of only US$912 per capita in 2008 (the year in which Ilabaya received

US$9,505), because the distribution rule defined in the mining canon law favors the

274 district where the operation is located and determines much lower transfers for the other districts and provinces of the region where the mineral is extracted (see chapter

3). In most cases, the law is fair in compensating those who are the most affected by the operation, that is, those next to the mine itself. Yet, in this case, there is a divorce between those who directly witness their water sources dwindling due to the presence of an extractive company and those who are compensated.

In sum, the province of Candarave has a very different socioeconomic and political profile, as can be glanced from Table 6.6. While Ilabaya is above the national average in UNDP’s human development index, life expectancy, literacy and income per capita, Candarave is a poorer and less developed area, and consistently scores below average in all the indicators.

Table 6.5. Populations in the area of influence of Toquepala: Comparing Ilabaya and Candarave Population IDH Life expectancy Literacy Income per capita IDH Ranking Years Ranking % Ranking US$ Ranking Peru 27,428,615 0.62 73 93 125 Ilabaya 4,414 0.67 55 73 420 95 316 195 28 Candarave 8,373 0.57 100 70 143 88 97 64 120 Source: UNDP (2010)

The highlands of Candarave have low organizational density, they are inadequately connected to urban areas and commands few material resources, all factors that would make it less likely to successfully mobilize residents and makes claims on the company, according to approaches that rely on social mobilization to explain a favorable distribution of discretionary funds. Despite all this, its strategic location provides its residents with an asset that people in Ilabaya do not have ready access to: its residents can rally around the fact that SCC’s use of water sources in their province

275 directly affects them. And while Ilabaya receives large transfers from mining canon that steer social demands toward the municipality and its mayor and away from the company, Candarave’s meager mining canon transfers squarely places SCC as the main target of claims-making. For these reasons, the next section focuses on Candarave as the main community of interest for SCC, and on the ability of local residents to adopt global frames to influence the allocation of SCC’s discretionary resources.

As I argue below, Candarave’s location, social grievances and their history of relations with SCC makes them more relevant for the company than Ilabaya. Moreover,

Candarave’s ability to attract the attention of Toquepala’s Community Relations team despite their low organizational density calls into question the importance of social density and social mobilization claimed by ‘pull theories’ and suggest that instead the power of ideas and frames may in some instances trump the presence of collective organizational assets.

6.5.3. Toquepala: Local Success in the Use of Global Frames

Despite its distance from Tacna (6 hours, most of them on dirt road) and its weak transport links (a bus leaves from the district of Candarave for Tacna every two days),

Candarave is not disconnected from the two crucial global frames that have been successfully used in other mining-impacted areas to ‘extract from the extractors’.

Elements to construct an indigenous frame in this area are provided by

CONACAMI and its regional chapter, like in some of the other cases. CORECAMI Tacna was established in Candarave in 2003 under the leadership of the members of water

276 management groups in different districts of this province. Today, it keeps sporadic presence in the area, but in the last five years CORECAMI Tacna has lost cohesion and, as a result of internal conflicts, its role of broker and information transmitter between

Candarave and the rest of the CONACAMI network has weakened. Still, CONACAMI remains a source of information, especially through CORECAMI Moquegua, whose leaders visit Candarave occasionally due to their mutual troubles with SCC, and

CORECAMI Puno, which are relatively close to Candarave geographically as well as commercially.

Labor is also a well-known organization in this area and it helps remotely with information that allows locals to construct an environmental frame. Although Labor does not have an office in Candarave, or in fact anywhere in Tacna, it has important itinerant ‘emissaries’ that have become brokers between the offices of Labor in

Moquegua and Lima and Candarave’s local residents. The network of emissaries is supported and expanded annually through Labor’s Leadership school105, as students maintain contact with Labor after they have graduated.

There is evidence of the availability of these two frames in Candarave, but to what extent are they grounded in local residents and espoused as valid and legitimate ways to make claims to SCC?

The Southern Andes is an area with a strong tradition of peasant communities, many of them historical and established long before the Agrarian Reform encouraged

105 NGO Labor’s capacity building program gathers local leaders from the great south (Moquegua, Tacna, Puno and Arequipa) in the city of Moquegua for a few days every two or three months, and provides them with information on environmental laws, other mining experiences and new concepts that will later shape the environmental frame they will develop locally. 277 the creation of new peasant communities106 (Diez 1997). In the south, these pre-

Reform peasant communities are more than just an economic organization or an institution to represent the collectivity in negotiations with the state and other external actors. They are also the basis of a collective identity (Diez 2007).

In the highlands of Tacna, there are 13 peasant communities, and at least 9 of them have strong collective identities, as they were created decades before the

Agrarian Reform, some as far back as the 1944 (MINAG 2004, 134). Even though the

‘raw materials’ for an indigenous discourse are more readily available here than in some of the other cases like Pierina, it seems to be difficult for locals to connect their communal identity with the indigenous frame as it is presented in the international discourse. In fact, during fieldwork, I found very little evidence that the indigenous frame galvanizes claims-making to SCC in Candarave.

For the peasant communities of Candarave, the indigenous frame is not grounded, and is considered instead as something associated to the indigenous peoples of the Amazon, not the Andes. As a resident of the district of Quilahuani and former leader of CORECAMI Tacna maintains, it is neither legitimate not genuine for them to make claims to the company as indigenous peoples.

“We are peasant communities, not indigenous communities or indigenous peoples, they are in the selva. MINSUR [another mining company operating in Tacna+ says it hasn’t infringed the law because in its area there are no indigenous communities and therefore the Convention 169 [of the ILO] does not apply. And they are right, strictly speaking. Now some people in Huanuara [a village of

106 In contrast, the Northern Andes are considered an area where the creation of peasant communities is more recent, and was mainly spurred by the Agrarian Reform legislation that encouraged families that were previously hacienda workers to organize themselves as such to receive land and other expropriated assets. Diez (1997) calls these post-reform and ex-hacienda peasant communities. 278

Candarave southeast of Toquepala] say that they are part of an indigenous community, when it never was! They only say it now because it is fashionable, we could say… But we need to stop fooling ourselves! We are not indigenous.” (Interview 63, 16.04.10).

When CORECAMI Tacna was established, it was mainly constituted by water management groups of Candarave, and only 3 out of the 13 peasant communities of

Candarave joined it. After CONACAMI took its ‘identity turn’ at the National Congress of

2003 and placed indigenous claims at its core, the then leadership of CORECAMI Tacna and most of the water management groups were disinclined to follow this line.

Elections were convoked in Tacna and a new leadership was elected in what is considered by some a fraudulent process (Interview 63, 16.04.10). The new leaders were mainly representatives of urban organizations such as the Tacna Defense Front and the Defense Front of the Interest of Candarave, and they had little qualms on adopted CONACAMI’s identity politics. The vice president of CORECAMI Moquegua, is also a strong advocate of CONACAMI’s new line and has traveled to Candarave in several occasions for communal meetings and other events107. He claims that identity is the underlying source of mobilization potential, and discounts the issue of reduced water availability per se as enough basis of mobilization.

“The issue of identity is very important for the people. For instance, here in the south the deep issue is not really water, but it is the identity what makes people mobilize. If you have a stick, you won’t necessarily use it. If you use it to hit someone, we have to ask why you’ve used it like that. What moves people is their identity.” (Interview 64, 22.03.10).

107 See for example the video of a community meeting in Huanuara, in which the then president of the peasant community of Huanuara salutes the presence of the vice president of CORECAMI Moquegua as “my very good friend and colleague”. http://www.youtube.com/watch?v=7-2Te8N8eDY

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Yet, some of the groups directly affected by water scarcity in Candarave do not consider the new CORECAMI as legitimate, and these internal disagreements reveal that the indigenous frame is not truly grounded.

Why are residents in the highlands of Candarave reluctant to embrace a frame that is apparently so in tune with local historical conditions? One could only wonder whether the resistance of these individuals to vindicate an indigenous identity comes precisely from the long history of communal organization in these areas. These communities were legally classified as ‘indigenous communities’ until Velasco’s

Revolutionary Government. As part of the legislation of the Agrarian Reform, the government changed their name from ‘indigenous communities’ *comunidades de indígenas+ to ‘peasant communities’ *comunidades campesinas] in an effort to eliminate the negative connotations of servitude embedded in the previous concept. The demands to present themselves as indigenous communities might feel as a U-turn they cannot face to make.

Perhaps it is, as some have suggested, that indigenous frames are more likely to take root among population in areas with no previous mining history that want to prevent extractive industries from settling, displacing current economic activities and transforming their way of life. After the indigenous mobilization against privatization in the Amazon that ended up with a terrible episode of State repression in 2009, indigenous frames have been closely associated to a total rejection of extracting activities in an area, something that is unthinkable in the case of SCC. In contrast to these mining-virgin territories, Candarave has lived with SCC for over 50 years. The

280 director of Labor Moquegua suggests that this large cohabitation makes a radical confrontation based on an indigenous frame less relevant in the south of Peru.

“In Moquegua and Tacna, the situation is very different from other parts, because here Southern will not leave, it is unthinkable that it will ever leave. So people can only reasonably ask them to be more social and environmentally responsible, and especially concentrate on water issues. That is the most they can ask. A confrontational discourse based on indigenous values to try to force Southern to leave will never work. Southern is way too involved in the economy of the south to ask for anything more radical.” (Interview 55, 03.03.10).

In contrast to extended local hesitations to embrace an indigenous frame to make claims on SCC, local residents feel comfortable raising an environmental frame to demand compensations from SCC. Water scarcity is a long-felt problem of this area and many local residents recognize it as an ever-present concern. In the words of the former mayor of Candarave,

“The problems with lack of water are not new. My family is from Candarave and I remember when I was a child that we suffered some years because there was not enough water.” (Interview 65, 06.01.10).

Just like SCC received water licenses from the ANA to get 1,950 liters of water per second (510 lt/s of surface water and 1,440 lt/s of underground water), smallholders who belong to the water management groups in Candarave have water permits to use a total of 2,346 lt/s (CONACAMI 2009, 9). They mostly take surface water from the

Callazas River, which flows off the Suches Lake and also from other springs in the area to cover their agricultural needs.

Locals claim that water scarcity has become more extreme since SCC arrived, and that dry years are now much more common than before. According to officials from

Candarave’s Agrarian Agency of the Regional Agrarian Direction *Oficina Agraria de la

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Dirección Regional Agraria], it is unclear why water availability has become more of a problem in the last years.

“It is hard to tell. It could be due to the company, but it could well be due to climate change. For example this year the rainy season that would normally arrive in early December has not arrived yet [in January]. This does not have anything to do with SCC, obviously, but people still blame them because they need to hold someone responsible.” (Interview 66, 06.01.10).

But regardless of the precise reason why water availability has declined, it is clear that local grievances on the grounds of water availability tend to be more acute in dry years, when water volumes are down. SCC’s wells around the Vizcachas Lake and its superior technology to guarantee their water supply ensure that they get every single one of their 1,950 lt/s year-round. The situation is very different for local residents, as was explained to me by one of the Community Relations officials based in Toquepala.

“We never have to reduce our [water] consumption, while smallholders have to reduce their water consumption because they get whatever is left of volume in the Callazas River, and sometimes they get only 1,100 lt/s [less than half of their permits+”. (Interview 67, 20.04.10).

The problem is on only with lack of water for agriculture, and herders on the highest parts of Candarave whose household economy is highly dependent on their livestock complain that the wetlands where their animals used to drink have now disappeared as a result of SCC extracting high volumes of underground water.

For the owner of a little grocery shop in Candarave where she sells her produce and other basic goods like candles and salt, water is far more central to their concerns and a more grounded way to standardize claims-making and unite demands under the same language than the indigenous frame. She confides to me:

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“Here there are no old customs that we long to recover, the ‘traditional’ and those things are not strong. Here, the central issue for us is water.” (Interview 68, 06.01.10).

In fact, back in February 2008, when the municipality of Candarave together with the

Defense Front of the Interests of Candarave carried out a local consultation on the presence of mining in the province, the preferred to pitch it in environmental terms, not indigenous, despite the fact that they were using the ILO Convention 169 on Indigenous

Peoples to convoke it108.

As I have shown, local preferences for making claims to SCC are on the side of adopting the environmental frame over the indigenous one. Yet, even when frames are grounded and resonate with a local audience as a genuine and legitimate way to present their grievances, they must fulfill another condition before they are successfully adopted. Frames must be able to resonate with the other key actor in the dynamic: the mining company. Only if the frame is recognized as valid by the company will it affect its allocation of discretionary funds.

The indigenous frame, which has already low acceptance among local residents in Candarave because of negative connotations they associate with being indigenous, does not seem to resonate strongly with SCC either. Because the indigenous identity has been originally connected in the Peruvian Andes with peasant communities which held

108 The municipality of Candarave convoked the consultation in the spirit that “the population of the peasant communities and villages of the province of Candarave can decide on the current mining activity and the pretention of new mining companies to settle, and that their decision of acceptance or rejection should be considered by the central government; all in defense of life, water, the environment, and to be able to leave future generations an environment where they can live with dignity without contamination nor destruction of the biodiversity.” (By-law issued by the Municipality of Candarave 2007, quoted in CONACAMI 2009, 9). The consultation took place on February 17, 2008.

283 land in common, one of the main claims made in the name of this identity has been fair compensations for land purchases and in some cases demands of resettlement. This has been true in the case of the Tintaya mine (De Echave 2005), the Antamina mine (Gil

2009, Salas 2008) and others, and was successfully raised in the case of Pierina discussed in this chapter.

Yet, land claims do not resonate with Community Relations officials in

Toquepala, mainly because land purchases in this area were secured many decades ago, when indigenous identities did not aggregate interests or spurred major action anywhere in the country. SCC has purchased all the land required for its current operations and even potential expansions. The fact that SCC’s presence in Candarave dates back to the 1950s is perhaps the strongest asset that plays in its favor and prevents any demands for land compensation. This makes the indigenous frame unable to be truly articulated.

In contrast to the little traction provided by land grievances in a context in which the company settled more five decades ago, the environmental frame is one that resonates deeply with SCC in Candarave. First, the fact that Candarave is SCC’s main source of water makes it a priority area to maintain good relations with. A standoff with local residents in Candarave could lead to boycotts to SCC’s wells – something that has happened in the past – and may compromise its production schedule. Not only is

Candarave the source of all water supplies for both of SCC operations, but given the current legislation on water resources in which users of underground water are not charged, SCC gets most of their water (1,440lt/s out of 1,950lt/s) for free. The fact that

284 the monies from the mining canon do not reach this province further compounds this situation.

SCC may be complying with Peruvian regulations in terms of water use and canon (which distribution is out of SCC control) yet the company is aware that local conditions offer residents enough elements to appeal to global institutions on the ground of ‘illegitimate’ or ‘unfair’ (rather than illegal) behavior and present themselves as affected populations. An official at SCC’s central Community Relations office in Ilo recognizes the importance of Candarave as the source of water and justifies an increased attention to the area on these grounds.

“We know that the key conflict with the population of upper valley is water. The rest are excuses and waffle *relleno+.” (Interview 69, 11.01.10).

The Toquepala Community Relations team knows the political and strategic relevance of Candarave. Their interaction with villages in Candarave is daily and they are attuned to the claims made by local residents. There are some efforts to allocate more

SMP funds to this province, to offset the lack of mining canon. Also, Candarave has 8

Technical Coordinating Committees (CTC), the unit in charge of allocating SMP funds, including one for each of its 6 districts, one for a village (Huaytire) and one in the city of

Tacna for regional-level projects – in contrast, there are only two CTCs in Moquegua.

This reveals two very different strategies from virtually the same team (as the areas of influence of Toquepala and Cuajone are both managed by the same people). Moreover,

SCC has a permanent office in the district of Candarave with one of the few Community

Relations officials that are dedicated exclusively to an area.

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Table 6.6. Toquepala: Local success in adopting global frames Conditions Indigenous Environmental Available? Strong Strong Grounded? Medium Strong Articulated? Weak Strong

6.6. Conclusions: Local Opportunities to Extract from the Extractors

Having explored in detail the four case studies, some important conclusions can be drawn. First, the contrast of cases within the same company confirms that both company and local characteristics are important to explain distribution of resources. By looking at company factors exclusively, the results of Cuajone (low level of funds, more donations than projects and few investments in fence line populations) are expected from a company that has a low institutionalization of CSR practices on the ground.

Likewise, the results of Pierina (high level of funds, more projects than donations and many investments in fence line populations) come as no surprise. But the counterintuitive results in the cases of Toquepala and Lagunas Norte reveal that there are important margins of maneuver for local populations, even when confronting a company that has fewer institutionalized practices of CSR on the ground. Therefore, social funds are not only defined by the company’s preferred strategy, but by the pressures that locals put on the company through the successful use of globally relevant frames. By making a connection between local framing strategies and distributional outcomes, I emphasize the importance of local politics to understand the impacts of mining companies on the ground.

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Second, the close study of fence line populations questions the importance of civil society organizations as the main factor behind higher levels and better quality discretionary spending, and redirects attention to the use of globally relevant frames. In all four cases, fence line populations have very low levels of organizational density and their ability to pressure companies directly (through demonstrations or boycotts) or indirectly (through media campaigns or public advocacy) are extremely limited. For the villages covered in this study, adopting a focus on organizational density and on the standard ‘material’ assets used to measure levels of institutionalization of an organization, such as membership, budgets, personnel, funding sources or contacts with organizations abroad are not relevant to explain instances of success or failure. As such, standard social movement theories of distribution do not have much explanatory power in these mining localities. Instead, the crucial factor that explains why some fence line populations are more able than others in extracting from the extractors appears to be the level of success in their adoption of a global frame. Grievances are heeded not when local residents have higher levels of organization and are able to make claims by force; instead, they are heeded when framed in ways that are regarded as legitimate both by locals and companies.

Third, the analysis reveals new ways to think about the influence of transnational networks at the local level. Globalists identify organizational interactions between global and domestic civil society associations that are mainly urban and formally organized (NGOs, grassroots organizations, civil associations, etc.) as the main factor behind a particular distributional outcome. But the villages in the vicinity of mining

287 companies do not tend to be directly connected to any transnational network and often are located far from urban centers where domestic NGOs are established. Although at first it would seem hard for such fence line populations to establish any connection with global civil society, the cases show that they still have chances to insert themselves in these globalized networks, albeit not through the same ‘organization-to-organization’ transmission channel. The transmission channel at this micro-local level is not as institutionalized as it is at higher levels. Rather than linkages between organizations, the mechanism here is one that relies on local entrepreneurs that have loose connections to urban NGOs and are able to transfer elements of global discourses into their villages. In places where individual entrepreneurs exist and are within the sphere of influence of local NGOs, fence line populations increase their leverage and can negotiate with the company under better terms. But where local villagers have no access to the negotiating strategies that pay off in the current context – namely the environmental and the indigenous frame – they have less bargaining power vis-à-vis the company.

Globalists study the connections between global and domestic organizations and the ways in which global concerns, norms and ideas are transmitted through these networks. Here I focus on the next link down the chain: the connection between domestic organizations in the city and the social life of rural areas. At this level, it is not organizations, but local entrepreneurs the essential elements in the transmission of information, concepts and strategies from cities to rural areas, and they are the mechanism through which international ideas may reach even the most isolated villages.

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Fourth, the cases illustrate the relevance of collective rights as ways to frame local grievances, as opposed to individual rights. In the cases presented, local demands are supported by their belonging to a group that has been affected collectively and deserves compensation. It is a way to make public claims more legitimate. Residents that appeal to environmental and indigenous rights see themselves as part of a collective, and it is through this belonging that their demands acquire weight in the eyes of mining companies.

Yet, not all collective frames are equally appealing or accepted. The case of

Pierina confirmed that although mining companies may find environmental and indigenous frames persuasive, labor frames are rejected – even though they also constitute a collective right. This provides some insights on the possible limits of framing: for companies, it seems that some demands (especially labor-based ones like the right to unionize or to extend labor benefits to subcontractors) are out of the question. Moreover, even within frames that are considered legitimate by mining companies, some demands are beyond reach. For example, local residents would be unlikely to get the right to veto new projects or expansions even within an environmental or indigenous frame.

Fifth, despite the fact that it has been pointed out that social capital may be eroded when a mining company arrives (Bury 2004), local organizations can under certain conditions be strengthened by the presence of the mining company. For instance, in the peasant community of Cuncashca, near Pierina, the communal organization and leadership has become more vocal and a stronger point of reference

289 for locals since the arrival of the company. The water management groups in the highlands of Candarave, near Toquepala, have stretched their original mandate and become social organizations with political connotations for local residents. Damonte

(2005) also finds that the peasant community of Angoraju, near Antamina, becomes more cohesive and stronger after the negotiation with the company by consolidating their collective memory of previous negotiations with external actors. These are encounters that can definitely make or break an organization.

The final and perhaps most important conclusion of this chapter is to draw attention to the complex nature of the encounters between mining companies and local populations, which take place in a new global and national context that affords locals new opportunities to make claims to mining companies in terms of ‘compensation’ and

‘right to development’, which are more powerful terms than just appealing to ‘charity’ or ‘reciprocity’. These openings, however limited, are sometimes seized by local residents armed with globally-relevant frames to influence the allocation of companies’ discretionary funds.

The nuanced outcomes across these four mining operations raises serious doubts about the validity of a conventional view that sees companies as the strong and powerful actors that set unilaterally the terms of the negotiation. While local populations undoubtedly remain the weaker party in the bargain, it is clear that under certain conditions they can take advantage of global frames that have proven to influence mining companies’ behavior and sway the allocation of their discretionary resources in their favor.

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Chapter 7. Summary of Findings and Agenda for Further Research

In this project I have examined the connection between patterns of allocation of private social investments of extractive companies and the company-community dynamics observed on the ground, in four mining operations in Peru. The puzzle that drove this enquiry in the first place was the variety of “welfare packages” – in terms of size and quality – that mining companies distribute in their areas of influence. Why in some cases discretionary funds are large and potentially more welfare-enhancing than in others?

This question has become extremely important in the case of Peru, a mineral- rich country in which extractive companies are increasingly taking public responsibilities in their areas of influence. The creation of multi-million dollar private funds for social development by many companies and the controversies generated by the involvement of private actors on welfare provision, a duty that is in theory a state responsibility, sparked my interest to examine the ways in which these resources were being distributed and under what conditions they could deliver in their promise of closing the gap between the positive impacts that mining generates in the national coffers and the social disaffection it stirs in mining localities.

The analysis of mining companies’ two main social investment funds – the

Solidarity Mining Fund (SMP) and the Community Relations Operating Budget (CROB) revealed important variations along three dimensions: the levels, the type of funds allocated (projects or donations) and the geographical distribution of funds (fence line

291 populations or beyond). This variation was as important in SMPs, which is in theory a fund more regulated by the government in terms of size and distribution, as it was in

CROBs, which is a fund at the complete discretion of companies. This preliminary finding not only raised questions about the lack of effectiveness of current SMP regulations, but also deeper questions about the distributional politics that were driving the decisions to allocate private social funds one way or another.

I selected two global mining companies for this study, Minera Barrick

Misquichilca (MBM) and Southern Copper Corporation (SCC), and studied the two mines that each company operates in Peru. At the company level, MBM and SCC are very different in a number of characteristics, and yet they were subject to the same pressures to commit funds to social investments and have responded by creating the same formal institutions to do so. At the operation level, each pair of operations of the same company shares a number of elements, and yet the distributional outcome in each is very different. How to explain these surprising outcomes of convergence between firms and divergence across operations of the same company?

The case selection was also interesting because research on mining companies in

Peru has been circumscribed to a few companies and, despite being politically and economically important, there was very little research on SCC and MBM. Moreover, the outcomes of these four operations retain the diversity of patterns of allocation of social funds revealed in the industry as a whole.

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Figure 7.1. Variation in the distribution of mining companies’ discretionary funds High quality Low quality Projects over donations Donations over projects Fence line over the rest The rest over fence line

High levels Pierina (MBM) Lagunas Norte (MBM) Larger budgets

Low levels Toquepala (SCC) Cuajone (SCC) Smaller budgets

Alternative approaches to explain the variation in outcomes were unsatisfactory.

Globalist accounts presented limitations to explain what happens at the very local level and unable to account for variations on outcomes within the same company.

Dependencists’ primary focus on the state seemed to need some updating as, although the state sets national parameters for private welfare provision, the actions that determine the welfare packages in terms of size and composition happen between companies’ officials and local populations, outside the reach or influence of the state.

Variants of the Political Opportunity Structure theories emphasize organizations and movements as the element that improves local populations’ bargaining position vis-à-vis companies, but the fence line populations studied can hardly afford to create or sustain such organizations and do not privilege tactics of contention with companies, and yet under some circumstances they have the leverage to sway companies’ distribution.

My analytical approach seeks to address these shortcomings. I recognize the importance of global and local forces as well as the influence of state action, but introduce a few twists to overcome the limitations of other approaches. First, I expand on globalist approaches by examining to what extent and through what mechanisms the

293 resources generated by global social movements reach the micro-local spaces where fence line villagers encounter mining company officials. Second, I consider the influence of the state at the level of setting national parameters in which companies and local populations act, but as the state does not influence directly the decisions of allocation of discretionary resources, its impact is considered a background condition. Third, I recognize the agency of local civil society, but rather than evaluating organizational density and ability to create a social movement, I explore a non-movement-based tactic through which fence line populations increase their leverage on mining companies.

Finally, instead of joining a debate on whether companies have morally internalized the ideas of CSR, I shift the attention to the role of institutions, incentives and structures that make a company behave in a certain way.

The argument I make in this dissertation is that the distribution of private social development funds is influenced by two factors: companies’ internal institutional arrangements that translate CSR statements of intention into CSR practices and local residents’ ability to adopt globally relevant frames to make claims on companies’ funds.

Armed with this theoretical framework, I examine the cases under study. I find that despite being under the same national parameters of CSR and having a similar CSR rhetoric at their headquarters, MBM scores higher in terms of the institutionalization of

CSR into its daily routines than SCC. At MBM, its Community Relations team has a higher level of internal organization, with lines of activity, a clear chain of command and reporting procedures, and its work is recognized as important by other departments in the company; it has put in place some institutional structures to respond to public

294 demands for transparency and participation; and has specific procedures to allocate their social development funds. SCC scores lower in each of these three indicators. But if the implementation of procedures of CSR may account for the positive outcome in

Pierina (as MBM score in CSR practices is high) and the negative outcome in Cuajone (as

SCC score in CSR practices is low), it raises questions about the other two cases, which reveal outcomes that contradict expectations.

To explain within-company variation, I turn to the ability of populations in the vicinity of each mining operation to adopt frames that resonate at the global level. I find that the reason why Toquepala has higher and better quality social funds than Cuajone is because of the capacity of fence line populations to represent their claims and concerns through an environmental frame, and adopt the language and notions that are recognized by international organizations as legitimate grievances for populations near mining operations. This was possible because elements of an environmental frame were available for villagers near Toquepala, the frame was grounded in a very dry and arid locality and the frame was articulated in the history of company community relations and locals established a cause-effect connection between the presence of the mine and the intensification of water problems. The indigenous frame was also available, but it did not meet the conditions of being grounded and articulated, and therefore did not take root. Thus, even when confronting SCC, a company that has lower levels of institutionalization of CSR procedures, the successful use of global frames at the local level increased the negotiating power of fence line villages in Toquepala. Conversely, the smaller budgets and lower quality social investments in Lagunas Norte than Pierina

295 made sense when I examined the lack of leverage that fence line populations had vis-à- vis the company. In the villages adjacent to Lagunas Norte, local residents were far from the sphere of influence of NGOs that could ‘pollinate’ local entrepreneurs that would take to their villages the elements to build an indigenous frame. Environmental frames were relatively more available through the action of a religious organization that had a radio station and a small lab to test the presence of metals in water samples, but the influence of this organization is relatively recent and locals are still working on adopting a shared language and presenting their concerns to the company through them.

Hence, although the institutionalization of corporate practices of CSR may set positive incentives to company officials to behave responsibly, the more desirable result of higher budgets and higher quality social funds is realized only when, at the same time, fence line populations have the ability to adopt global frames and use a common language to make claims on companies and, through their use of frames, make a credible threat that their remote allies could come in their support if necessary.

Figure 7.2. Determinants of the distribution of mining companies’ discretionary funds

Local use global frames

Effective Ineffective Pierina (MBM) Lagunas Norte (MBM) Larger budgets Larger budgets High Higher quality Lower quality Company’s CSR practices on the Toquepala (SCC) Cuajone (SCC) ground Smaller budgets Smaller budgets Low Higher quality Lower quality

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Areas for further research

Through any research process, many new questions and issues spring from the data and the analysis that, due to time and resource constraints, cannot be pursued. But they can be added here, as an agenda for future research that could hopefully expand our understanding of the new dynamics between extractive companies and fence line residents and their implications for local development.

A promising area for further research is that of the tradeoffs of having private actors as welfare providers. There has been a wide endorsement of non-state actors as providers of welfare goods and services in developing countries and, in resource-rich

Latin American countries, mining companies have in practice stepped up to this task.

Advocates from the public and private sector suggested that mining companies’ social responsibility programs could be a good way to ensure that the macroeconomic benefits that mining creates at the national level would have a parallel at the local level. Mining companies’ involvement in local social development efforts was widely supported and encouraged in Peru, in the hope that this social contribution would improve the economic conditions of vulnerable populations.

However, important caveats have been raised on having private companies in charge of public welfare provision in their areas of influence, ranging from ‘technical limitations’ in the geographical scope and temporal sustainability of their programs

(Newell 2005, Rasche et al 2008, Cheshire 2010, Jones Luong unpublished) to ‘goal limitations’ that raise the question of whether private companies can really place their

297 commitment to social justice or poverty alleviation above profit maximization (Jenkins

2005, Imbun 2002, Kline 2005). Indeed, corporate allocation of social investment may concentrate in those areas that are either socially problematic to the company or that have a higher capacity to organize and demand from it rather than targeting those in need This biased provision of goods and services may reinforce existing local inequalities.

Most importantly from a political point of view, the impacts of private welfare provision raise serious concerns on the legitimacy of public institutions and the relationship between authorities and citizens in mining areas. The public roles that are now expected from mining companies – in practice, the definition and implementation of social policy at the subnational level – are in theory state competences, the source of its legitimacy and its connection to its citizens. The promise of speedy provision and redistribution may end up eroding the political capacities of local authorities and generating institutional weaknesses that may last beyond the life of the mine (Perla

2010). Given the voluntary nature of private welfare provision, residents do not have any mechanism to ensure its continuity, and it may be difficult for locals to complain about a private welfare provider that only has a voluntary commitment to deliver.

It would be a mistake to be simplistic about the impacts of CSR, by measuring it only in terms of level of funds – or even in kilometers of paved roads or number of school facilities – without accounting for its political and institutional impacts. The tension between the potential economic benefits and the political and institutional costs of mining companies’ intervention in social affairs stresses the importance of exploring

298 the conditions under which private provision can be most beneficial for local populations.

Another line of research stems from the methodological approach and case selection developed in this project to understand the relationship between mining and local development. Moving beyond normative standpoints that state that CSR is nothing more than smoke and mirrors or that it constitutes the new way to eradicate poverty and bring progress, I advocate for ethnographically inspired comparative analyses that examine the encounters of companies and locals on the ground. It is in these daily encounters where the potential to damage or improve local conditions is realized, particularly because this is an issue only timidly regulated by the state and therefore informal interactions between fence line populations and company officials are very important to define the outcomes. Moreover, selecting cases that have received less attention has the double benefit of generating fresh primary research that could help understand that particular case and providing the research community with potentially comparable information to feed generalizations or point at limits of extant explanations.

There are more than thirty companies involved in large and medium-scale mining in

Peru, and it is unfortunate that in many cases the research interest is only sparked when a situation of social or environmental mismanagement hits the news.

A third area for analysis, perhaps of a more policy-oriented nature, revolves around the best way to design national regulations that establishes minimum operating standards in environmental and social issues but that incentivizes the adoption of additional voluntary CSR commitments that can be monitored and measured. Currently,

299 national level formal regulations are not influencing companies’ allocations decisions as much as some think. Parameters are vague and supervision is lax. Now that a new government will take office in July 2011, there may be room for changes. First, the new administration will decide if the Solidarity Mining Program is extended for another five years in the current conditions or with some modifications. Second, civil society organizations may put again on the table the possibility of creating a windfall tax on companies. It is a good moment to produce rigorous analyses of what the best options would be and what are the best ways to implement them. The gray areas that we have now are a recipe for misunderstandings and create opportunities for the savvy to take advantage over the rest. This is an important point for a public policy agenda on mining and development.

A fourth issue for further research is the new ways in which locals can influence extractive companies’ behavior. Despite conventional wisdom of who prevails in an encounter between a large powerful global company and a small marginalized local community with little population and organizational density, I have shown that in some cases fence line populations have access to new ways to leverage their position and influence company’s allocation. This must not be exaggerated of course, as companies remain the powerful actor in that encounter, but it is analytically interesting and encouraging that there are some new weapons that the weak can make use of, even when their access to material and organizational resources is limited. Globally sanctioned frames allow local communities to make credible threats of being able to impose significant costs that can affect the company’s bottom line. In many cases, fence

300 line populations use this tactic over open conflict, and are successful in swaying the distribution of social investments in their favor.

This opens fascinating questions about the variety of ways available for civil society to re-embed market structures. If the traditional face of the countermovement

(Polanyi 1944) was that of organized civil society, now frames seem to have developed a life of their own beyond the organizations that created them in the first place, and may be equally useful tools to discipline the market. This would signal a more democratic access to opportunities for resistance: not only those acting within organizational structures and institutions can fight back, but people without or outside organizations can do it as well.

A fifth area that would benefit from more analysis is the nature of the social investments that are demanded when a particular frame is assumed in order to make claims. For instance, when fence line villagers successfully adopt an environmentally frame to increase their leverage on companies, does this mean that the type of demands they make are more likely to be environmentally related? In theory, if locals were worried about water availability and quality, for instance, one would expect the projects demanded to the company to be related to securing water for local needs.

Likewise, it could be expected that when indigenous frames are used, the projects demanded would be related to indigenous concerns. However, preliminary evidence suggests that this is not the case. A number of civil society representatives acknowledge that often environmental and indigenous concerns are used as a way to pressure and to

301 get funding and attention from international organizations, not as a heartfelt interest. In

Ancash, a member of a local civil society organization confided with despair:

“When there is a spill of petrol, the people ask: Is it a spill from Antamina? Is it from Pierina? And if the answer is that it isn’t, that it is a spill from the petrol station, people do not complain. If the spill would have been from Antamina, they would have protest and blocked roads!” (Interview 50, 17.09.09).

Moreover, from the data on social investments analyzed in this project, it seems that people demand the same things regardless of the frame they use: their top demands are for basic infrastructure and job opportunities. Yet, the dataset is limited to confirm this as I cannot be sure if people asked for projects that were aligned with the frame they used (say, bilingual education when using an indigenous frame) but were completely rejected by companies – and therefore ended up being cut off the list of projects that were agreed upon. For this reason, more fine-grained research needs to be done, in particular by examining the types of projects that local populations demand, not only those that are agreed upon. If there were no connection between frames and type of demands, it would question the extent to which these frames are actually internalized by those who use them, or merely adopted for tactical reasons. And it would also stress the weakness of state presence in these areas that forces citizens to become strategic to get access to even the most basic goods and services.

Along these lines, it would be interesting to analyze if local residents discriminate among potential sources of goods and services, and make different sets of requests to the state, to the private sector, to NGOs or other potential ‘social investors’ according to what locals second-guess they are willing to provide.

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Finally, it would be interesting to explore the external validity and the limits of this argument. The most likely cases to which it could apply are other mining and oil companies in Peru. Other Latin American countries where the state has adopted a similar hand-off approach to regulating mining and where encounters between companies and communities are unmediated, such as Guatemala, could also be likely cases. It could be interesting to explore the validity of the argument for other mines operated by the companies included in this study. Southern Copper has mines in Mexico

(and soon in Chile) and Barrick South America owns operations in Dominican Republic and Chile. Are corporate styles maintained across borders and under other domestic regulations? Does SCC Chile have a lower institutionalization of CSR practices than

Barrick Chile? A cross country comparison could shed more light on the importance of the national level parameters in which companies operate.

Outside the extractive industries, big infrastructure projects like dams, transcontinental highways or pipelines could also be a good testing ground. These projects tend to be carried out by large multinational construction companies under similar CSR codes and are expected to follow high standards of social and environmental behavior, and they offer opportunities to evaluate if local populations seek to adopt indigenous and environmental frames to make claims on such construction companies.

Exploring these avenues for further research will contribute to developing a more comprehensive understanding of the short terms dynamics and long term effects of resource extraction in local spaces.

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