Social Conflicts in the Extractive Sector of Peru: Moving towards New Models of Natural Resource Management German M. Cash

Natural Resource Management Center for International Conflict Resolution at SIPA Project with UNDP Peru in the Office of Conflict Prevention Conflict between extractive industries and local communities Need for more effective policies of Natural Resource Management Drivers of Conflict Environmental Sustainability Economic growth Vs. Environmental Protections Lack of Environmental Regulations Political and Social Exclusion of Affected Groups Introducing the Team: Team Peru after a security briefing with UNDSS in Lima. Nervous smiles :P (June 2013)

Natural Resource Management in Peru Scope of research: Assess the evolution of social conflicts in Peru linked to natural resource management, the different approaches adopted by stakeholders (UNDP, Government, Extractive Companies and Community Organizations,) as well as conflict prevention and resolution mechanisms being implemented, in order to provide recommendations for improvement and offer alternative approaches to natural resource management. Client: United Nations Development Program (UNDP) Peru Project: Social Conflict Prevention over the Use of Natural Resources (2012 - 2016) Funded by Canadian International Development Agency (CIDA), UNDP, various Peruvian government agencies

Overview of Peru One of the fastest growing economies in Latin America Main force of economic growth is increased FDI in natural resource extraction (gold, copper, silver, oil, and natural gas) However, rapid economic growth has fueled social tensions between local communities and mining companies Documentary on Informal Mining in Peru Peru’s current positioning as one of the fastest growing economies in Latin America make its political and economic stability a critical issue both nationally and globally. The main impetus behind Peru’s momentous economic growth has been increased foreign direct investment (FDI) in natural resource extraction. While this characteristic has fueled economic growth, it has also come with extreme social conflict and triggered political instability in the country.

Informal Mining (Gold) Rio Blanco Project (Copper) Cases and Regions Informal Mining (Gold) Madre de Dios Camisea Project (Natural Gas) Cusco Conga Project (Gold) Cajamarca Quellaveco Project (Copper) Moquegua Lote 1AB (Oil) Loreto Rio Blanco Project (Copper) Piura

Farmers from Cajamarca during a strike to protest the Conga mining project on November 24, 2011. (Source: Waging NonViolence)

Scene of deforestation of the Amazon outside of Puerto Maldonado, Madre de Dios. June 2013. (Photo credits: Nicholas Nassar)

Methodology Qualitative and quantitative analysis from primary and secondary sources. Field work, two main tools: 1) Interviews (primarily qualitative analysis) 2) Indicators (primarily for quantitative analysis)

Identifying the Conflict Root Causes Triggers New Root Causes · Historic feelings of social, economic, and political marginalization among communities · Weak state legitimacy and low capacity · Weak representation of rural areas · Poorly coordinated government strategy for national and sustainable economic development · Social frustration, unrest and community protests · Economic inequality among different groups of society · Economic losses for other activities (agriculture, livestock…) · Absence of strong mechanisms to address grievances by the government · Environmental degradation · Imposition of an economic development model from the capital · Mismanagement of decentralized responsibilities over canon investment and conflict resolution in the regions · Absence of strong mechanisms to address grievances by the government Peru has ranked among the fastest growing economies in Latin America. Rich in minerals and oil and natural gas reserves, Peru witnessed vast influxes of investment in the extraction of these resources in the past two decades. Concurrently, rising export prices increased the already significant torrents of money into the country, followed by an increase of social conflict linked to natural resource extraction and its effects on the environment. The very land that produced this source of wealth also serves as a home for a diverse population, segments of which did not benefit as they foresaw from the increase in investment, while in some cases forced to change their traditional economic activities and livelihoods conditions. While issues surrounding the presence and operation of extractive companies appear to be the main causes of these conflicts, a closer study reveals that there are more deeply-rooted causes that resurface with the drastic increase of foreign direct investment in the extractive sector, and are fueled by new causes and triggers of conflict. Mining investments increasing by 35 percent per year, reaching $10 billion annually in 2012→ Social conflicts increased by 300% during the last five years with 149 recent disputes involving extractive industries

Stakeholders and their Approaches Companies Profit driven exploitation and social disengagement “Social Embeddedness” Community Organizations Social organization and mobilization “Clientelism” and Corporate Paternalism Government Mismanagement of revenues, weak state legitimacy, and negligence Engaging actors through conflict resolution mechanisms like roundtables

Effective and Noneffective Strategies Stakeholder Approach Case Dollar amount Cost/Benefit to stakeholder Company CSR initiatives that do not include Social Embeddedness Conga Project Cost: 6.8 billion USD in earnings for the company in 2013 Social disengagement Rio Blanco Project 1.6 billion USD lost earnings for the company in 2011 CSR initiatives that include Social Embeddedness Camisea Project Benefit: 50 million USD Newmont’s business strategy primarily focused on the most profitable way to extract gold with very little or no consideration for environmental protections, community relations or economic development. After several violent conflicts erupted between the local communities in Cajamarca and Newmont, and after the company’s inadequate response to the mercury spill in mountain Quilish, the government had to intervene and suspend the Yanacocha mining project until social tensions could be resolved. Communities near the Rio Blanco site raised concerns about the economic, environmental, and social impacts of the project to the company Zijin, and demanded that this information be made public. The company’s unwillingness to address the community concerns and failure to comply with the community’s understandings of CSR standards led to massive protests and social unrest and a complete halt of company activities. The Camisea project is the first case that has studied and proved that it is economically profitable to address social and environmental concerns. Investing in research on community needs, maintaining corporate health, safety and environmental standards and facilitating long-term development and social capital initiatives with local and regional stakeholders, give a competitive advantage to the company over companies that do not invest in such initiatives.

Effective and Noneffective Strategies Communities Community Organization and Empowerment Loreto Inability to assign dollar amount to benefit due to ongoing negotiation process from dispute over compensation. Lack of community organization Cajamarca Government Canon mismanagement Peru Cost: 3.5 billion USD Unused State inability to mediate 1 billion USD Loss of canon and royalties Weak state legitimacy Madre De Dios 180 million USD Loss of canon annually In Loreto, independent community monitoring programs by indigenous organizations have been created which train and equip local community members to properly monitor, assess and report any environmental damages caused by extractive operations. As a response, the national and regional governments have initiated conflict mitigation efforts that engage all the stakeholders through dialogue processes and collaborative monitoring activities. Community interest are involved in the development and management of natural resource extraction. A clientelistic relationship between the community and the company has developed in Cajamarca. Locals opposed any initiative in order to receive further payments, perpetuating a state of constant conflict. The company is focused solely on overcoming immediate obstacles in order to continue operations which have left underlying causes unresolved thus leading to the halt of company activities. 1200 job positions were lost and rents and tourism have considerably dropped. Despite the large annual amount of Canon received, local and regional governments have a limited capacity to manage revenues .. On average, less than half of the money available to spend in 2011 was actually spent, contributing to protests and depriving poor communities of necessary infrastructure. The absence of government services further increases unrealistic demands from and dependency on the mining companies to provide basic and necessary services. The government suffers from low capacities to address social conflicts and the subsequent inability to resolve these disputes fuels more social pressures and frustrations towards the government. In Yanacocha. The government’s inability to mediate the conflict and the debate over the Energy Impact Assessment led to the resignation of the Vice President of the Ministry of Energy and Mines and the cessation of company activities. The inefficacy of the decentralization process in terms of dealing with issues that arise from the formalization process, land distribution, and managing social conflict, generates serious social, environmental, and economic costs. These costs are caused by the pollution that comes with informal mining, the growing dependency on the informal market, increased human trafficking and crime that come with dependency on an informal market. The inability to formalize mining and collect Canon and Royalties are the direct loss of the government.

Yanacocha, Cajamarca

Coming to the Table 1) The outcomes of the process of conflict resolution are directly dependent on the form of engagement of the company. 2) The company’s engagement in the dynamics of natural resource management and it’s role in the conflict resolution process are driven by: profit pressures and incentives used by the government. 3) The government’s engagement with the companies is influenced by: pressure from community organizations, changing international laws and norms

Outside of the offices in Loreto of a group of indigenous populations negotiating with the company (Photo credits: ?)

Conclusions Increase in FDI in extractive sector is associated with increase in social conflicts Absence in consensus on quantifying costs and damages among stakeholders Social embeddedness plays a significant role in mutual development Roundtables are most effective with government support, active engagement of company, and the backing of international standards Social conflicts allow communities to achieve their political objectives, incentivizing conflict

Recommendations Problem Solution Companies Community Organizations Difference in perceptions of social development, CSR, and valuation of costs Lack of national coordination of natural resource management Weak state legitimacy Solution Companies Enhance CSR, moving towards social embeddedness Prior consultation with communities before extraction Engaging with state institutions Community Organizations Empower community leaders to engage in the process of natural resource management (workshops, monitoring, etc.) Resist “clientelism,” patron-client traps

Recommendations Government UNDP Implement National Strategic Development Plan Incentivize social embeddedness by awarding projects and concessions to companies with a similar focus Institutionalize social embeddedness as a norm and responsibility in the extractive sector Address issues of weak state legitimacy, Improving government presence in rural communities UNDP Maintain back-track approach to strengthen state legitimacy Allocate resources to civil society groups and government initiatives focused on training communities to monitor the process of extraction Early warning alerts - Place permanent offices of conflict prevention in the remaining eleven regions that are of concern