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Mining in Peru Spring 2015 Page | 1 Mining in Peru Spring 2015 OTHER REPORTS Mining in Peru: Benefiting from Natural Resources and Preventing the Resource Curse is published by the School of International and Public Affairs (SIPA) at Columbia University as part of a series on natural resource management and development in Africa, Asia, and Latin America. Other publications include: Oil: Uganda’s Opportunity for Prosperity (2012) Politics and Economics of Rare Earths (2012) China, Natural Resources and the World: What Needs to be Disclosed (2013) Mozambique: Mobilizing Extractive Resources for Development (2013) Colombia: Extractives for Prosperity (2014) Tanzania: Harnessing Resource Wealth for Sustainable Development (2014) Page | i Mining in Peru Spring 2015 ACKNOWLEDGEMENTS AND THANKS The Peru Capstone team acknowledges the individuals and organizations that provided invaluable assistance in the creation of this Report. In Peru, the team thanks Mario Huapaya Nava, Fatima Retamoso, and Mayu Velasquez at the Ministry of Culture, Government of Peru, for their support and guidance. The team also expresses deep gratitude to all the community leaders, company officials, private sector experts, academics and scholars, NGO staff, international organization representatives, government officials, and civil servants in Lima, Espinar, Cusco, and Arequipa who took the time to share their experiences and insights with the group. Scholars, experts, and journalists in the United States also provided the team with their insights through phone calls and email. The team hopes that your voices are captured in this Report to further the implementation of more inclusive development strategies for the extractive industry, in particular mining, in Peru. In New York, the team thanks Professor Jenik Radon, Esq, the Capstone advisor, for his mentorship and guidance. He has advised governments across the world on the sustainable development of resources, including Georgia, Afghanistan, Tanzania, Cambodia, and Colombia, and his leadership and wisdom has informed every aspect of this Report. The team also thanks Stefan Brown, Jill Marden Casal, Suzanne Hollman, Sylvia Polo, Josephine Vu, and all the people at SIPA and Columbia Law School who made field travel to Peru possible. Marshall Leaman designed the cover page, Paulo Isayama and Lara Pham took the photographs, and Christina Tecson formatted the contents of the Report. The members of the Peru Capstone team are: Stephanie Ashton, MIA ‘15 Kathrin Bausch, LLM ‘15 Isabela Cunha, MIA ‘15 Anna Bulman, LLM ‘15 Danfu Liu, MIA ‘15 Jacinth Pathmanathan, LLM ‘15 Lara Pham, MIA ‘15 Nandini Ravichandran, LLM ‘15 Maya Srikrishnan, MIA ‘15 Christina Tecson, LLM ‘15 Kazumasa Ueda, MPA ‘15 Ruthia Yi, MIA ‘15 The recommendations and content of this Report are the sole responsibility of the 12 authors and do not represent the views of Columbia University or its affiliates, nor the Ministry of Culture, Government of Peru or other stakeholders. Page | ii Mining in Peru Spring 2015 EXECUTIVE SUMMARY AND KEY RECOMMENDATIONS Peru is poised to achieve unprecedented economic success, political stability, and social inclusion after decades of elusive development and periodic relapses into conflict and crises. Recent economic growth can be attributed in part to a vigorous mining sector, as Peru is a global leader in the production of copper, gold, and silver. Peru has been able to avoid detrimental resource revenue dependence through sound policies and legislation and investment management, but mining activities can still destabilize the trajectory of success. Social conflicts fueled by the consequences of mining continue to take place, the slump in economic growth in 2014 has been attributed in part to overreliance on mining outputs, and Law 30230 passed in 2014 to bolster foreign investment has the bearings of a retrograde policy decision, weakening regulations that had been implemented to assure sustainable development. Analysis of laws for mining, investment, and corruption and transparency shows that the Government of Peru has space to continue its growth path while closing gaps through which the destructive impacts of mining might seep in through economic, social, or environmental channels. Devolution of centralized state authority in Peru has been ongoing. Regional governments now have greater responsibility for local development, inviting investments, the provision of public services, and the management of natural resource revenues, all in accordance with the national agenda. Considerable asymmetries in capacity exist, however, and regional governments are perceived to be unable to effectively manage these responsibilities. Conceptually, strong regional institutions should build community involvement and participatory frameworks that permit more inclusive development planning, foster transparency, and allow for mitigation of the true costs of mining. These true costs include social and environmental impacts that can be assessed using contextual proxies and estimates. Regional and local governments are currently unable to consistently deliver these essential services. Current scholarship surrounding transnational investments posits that investors are driven primarily by the availability of resources and market factors, and pro-investment legislation might only have ancillary effects. A lax regulatory environment might even deter investors if the government cannot confer adequate social acceptance of mining activities, which implies greater risk of unrest or interruption to operations. Peru has been implementing second-generation investment laws since 2000, which prioritize sustainability, and have a markedly different scope from the preceding generation of laws, which focused on attracting transnational investments. These second generation laws, and the relatively more stringent regulations they stipulate, have not impeded foreign investments in Peru, which have consistently grown in the past decade. Consulta Previa, the Law of the Right to Prior Consultation for Indigenous and Native People (Consulta Previa), was passed by the Government of Peru in 2011 and is a highly progressive application of international human rights standards to protect the interests of indigenous communities. Coupled with the Citizen Participation Law passed in 1990 (Participacion Ciudana), these laws are intended to provide space for dialogue and participation of all stakeholders in mining activities, reducing conflict and increasing mutual gain. While the laws exist, their implementation has been uneven, and social unrest persists as community members continue to feel exploited by the mining sector. Insufficient consultation of local communities, social and environmental impact assessments whose outcomes don’t have decision-making power, and the absence of sustainable, meaningful enforcement measures can all reverse the positive gains that have been made thus far. Parts 1 and 2 provide the research design and implementation of this Report, a snapshot of the current political landscape, and an overview of the Peruvian legal system and branches of Government. Part 2 also analyzes the legal framework for Mining Concessions in Peru, which is predicated on providing a facilitating environment for mining companies. Part 2 argues for a strict declaration of the duties and obligations of mining companies. Amongst others, the Part includes recommendations on stringent qualification criteria for grant of Mining Concessions and approval requirements for transfer of Mining Page | iii Mining in Peru Spring 2015 Concessions. Importantly, this Part recommends community engagement even prior to the grant of the Mining Concessions and extensive information sharing with the public and establishment of appropriate grievance redressal mechanisms to address public concerns on the grant of Mining Concessions. Finally, while the titling process in Peru has achieved some positive results, this Report argues that the land registration and titling procedures in rural areas of Peru need greater formalization, so landowners who are impacted by subterranean mining activities can be adequately compensated. Parts 2(III) and (IV) discuss issues of corruption and lack of transparency, which are estimated to cost Peru USD 3.5 billion a year in market distortions and foregone revenue. Peru has signed on to international anti-corruption measures, in addition to implementing national frameworks. Recommendations in this Part include greater public access to information, self-reporting rules for mining companies, and greater activities in anti-corruption programs, organizational transparency and disclosure of beneficial ownership, and financial and operational reports. Part 2(VI) scrutinizes foreign investment law, and the balance between foreign investor rights and the Government’s obligations to the welfare of the people. In the event of disputes between the Government of Peru and its foreign investors, this Part discusses what recourse the Governments could pursue to protect its interests. Recommendations in this Part include legal provisions that give the Government clear authority to administer to the people’s needs without accusation of expropriation, and clauses on arbitration proceedings that ensure domestic settlements where possible, and prevents the risk of double counting. Part 3 provides an overview of the economic implications of mining. It discusses the general state of the economy in Peru, the impacts of foreign direct investment and international trade,