THE PERUVIAN MINING SECTOR: EXPLORING ISSUES RELATED TO SOCIAL LICENSE, CORRUPTION AND THE TRANS-PACIFIC PARTNERSHIP TREATY SIPA Capstone Report 2016 Prof. Jenik Radon Jonathan Avila Yohan John Balan Ana De La Cruz Muhammad Affan Javed Suzhe Jia Mubarik Khan Jenny Lee Joseph Maberry Abhinaya Natarajan Vatsala Sahay Naoko Takahashi 1 The Peruvian Mining Sector Spring 2016 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) Mining in Peru (2015) 2 The Peruvian Mining Sector Spring 2016 ACKNOWLEDGEMENTS AND THANKS The Peru Capstone team acknowledges the individuals and organizations that provided invaluable assistance in the preparation 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 would also like to thank the professors and students affiliated with the Communications and Corporate Image program at the Peruvian University of Applied Sciences (Universidad Peruana de Ciencias Aplicadas)—Claudia Guillen Arruda, Paloma Valqui Andrade, Manuel Rumiche, Alexandra Vassallo Bedoya, Pia Fernandez Roig, and Sergio Hoyos—for their time and great contributions to a successful and insightful research experience. The team also expresses deep gratitude to all the community leaders, company officials, private sector experts, academics, scholars, NGO staff, international organization representatives, government officials, and civil servants in Lima, Cajamarca, and Arequipa who made the time to share their invaluable experiences and insights with the group. The team would also like to mention the scholars, experts, and journalists in the United States that provided the team with their insights and comments. The team hopes that your views are reflected in this Report to further the objective of an inclusive development strategy for the extractive industry 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, Professor Jenik’s leadership and wisdom has contributed to the depth of analysis, pragmatism of recommendations and otherwise 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, Affan Javed and Naoko Takahashi for the photographs and Affan Javed for design. The contents of the Report are formatted by Mubarik Khan and Yohan John Balan. The members of the Peru Capstone team are: Jonathan Avila, MPA ‘16 Jenny Lee, MIA ‘16 Yohan John Balan, LLM ‘16 Joseph (J.T.) Maberry, MIA ‘16 Ana De La Cruz, MIA ‘16 Abhinaya Natarajan, MPA ‘16 Muhammad Affan Javed, MPA ‘16 Vatsala Sahay, LLM ‘16 Suzhe Jia, LLM ‘16 Naoko Takahashi, MIA ‘16 Mubarik Khan, LLM ‘16 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. 3 The Peruvian Mining Sector Spring 2016 EXECUTIVE SUMMARY INTRODUCTION A report published by Ernst and Young in 2014 (“EY”) rated ‘social license to operate’ as the third most important risk to the mining industry.1 The EY report details salient factors, such as social and economic impacts; normative shifts; and direct and indirect costs, relating to the mining industry. An analysis of dynamics of communities and dialogue with a broad range of stakeholders is necessary to address impacts on local societies and broader economies. Due to globalization and interconnectedness, communities are cognizant of their rights with regards to mining activities on their territories. Normative shifts resulted in new frameworks, such as UN and ILO conventions, and have altered the relationship between States and the indigenous communities. As stakeholders better understand their rights, the reactions to negative environmental or health impacts have escalated from complaints to civil unrest and protests. This has led to the characterization of the ‘social license to operate’ as a risk. Mining companies directly face increased costs from ‘the inability to pursue future projects and/or opportunities for expansion or for sale.’ Further research shows long-term costs related to project delays, tensions with stakeholders, and inadequate grievance mechanisms. I. SOCIAL LICENSE TO OPERATE Central to any analysis on the impact of the mining industry and its impact on local societies is an understanding of what a Social License to operate is and how it affects the mining sector in Peru. Research indicates that mining companies acknowledge that successful mining projects require the consent of indigenous communities, and communities expect mining companies to secure a Social License to mine their traditional territories. Social License refers to acceptance by local communities that host mining operations, and other stakeholders, such as provincial and regional governments, of the mining projects. Effective social licenses encompass the following three components: 1. Inclusive and consultative process with relevant and affected stakeholders; 2. Good governance mechanisms to facilitate and monitor the engagement process; 3. Grievance mechanisms through which local communities can voice concerns, which are then adequately addressed. – Features – The concept of social acceptance depends on the beliefs, perceptions, and opinions of the stakeholders with regards to the mining company and its activities. The features of social license include legitimacy, credibility, and trust. - Legitimacy: This is based on formal and informal norms of the community, and requires continual community engagement and consultation to promote understanding and transparent information sharing between the mining companies and local communities. - Credibility: There are two parts necessary to sustain social acceptance throughout the lifecycle of the project, and allow future projects to take place: a) Consistent provision of transparent and comprehensible information; b) Compliance with mutually established and agreed upon commitments 1 EY Report - Business Risks Facing Mining and Metals 2014-2015, pp.16-18 (2014) available at http://www.ey.com/Publication/vwLUAssets/EY-Business-risks-facing-mining-and-metals-2014%E2%80%932015/$FILE/EY- Business-risks-facing-mining-and-metals-2014%E2%80%932015.pdf. 4 The Peruvian Mining Sector Spring 2016 - Trust: Legitimacy and credibility are prerequisites for creating trust between the mining company, local community, and other relevant stakeholders. Together the three components facilitate a cooperative atmosphere that generates a mutually beneficial environment. – Characteristics – The following listed characteristics of social licenses affect how companies pursue community acceptance. Generally, Social Licenses are: - Intangible: As it is rooted in perception and opinion, the nature of social licenses are intangible. It is necessary to have clear and transparent dialogue between the company and community to maintain an effective relationship. - Informal: Social licenses are dynamic and change over time as perceptions change and scope of the project change. The company should periodically take stock of social approval to ensure that social acceptance is maintained in presence of internal and external influences. - Dynamic: The perceptions and opinions that local communities hold fluctuate over time and throughout the lifecycle of a mining project. Companies and governments must take steps beyond initial engagement, and extend a continued presence in the local community to sustain viable company-community relations. - Spatially diverse: Social license obtained in one community is not necessarily transferrable to another community with similar mining activities. In addition, distribution of benefits to communities closest to mining sites can result in inter- community conflicts, despite the apparent fairness of this system. Companies and governments must know the impacts on the affected communities regardless of their distance from mining sites, and address their needs appropriately. The term ‘community’ is a misnomer and suggests ‘a singleness of purpose that does not always exist.’ Rather, there are numerous communities with varied interests. Referring to them as “networks” more accurately describes communities that “might not be part of a geographic community” but are nevertheless impacted by mining activities. – Free, Prior and Informed Consent (FPIC) – The United Nations General Assembly resolution 61/295 adopted in 2007, titled “United Nations Declaration on the Rights of Indigenous Peoples” in Article 102 sets out the principle of Free, Prior