TED Case Studies
Trade and Environment: Peru Mining
CASE NUMBER: 357
CASE MNEMONIC: PERUMINE
CASE NAME: Peruvian Mining
1. The Issue
Mining has been an important sector of the Peruvian economy
since the Spanish Conquest. Traditionally it has contributed about
half of the Country's export revenue. After over twenty years of
isolation from direct foreign investment, the mining scene is
changing. Political and economic stability have brought renewed
interest in Peru as a resource rich investment opportunity for
foreign companies. Peru has also been very active in pursuing
foreign exploration partners and mining joint ventures through a
variety of incentives and the removal of restrictions. The mining
industry boom is exemplified by the excavation of iron resources.
The purchase in late 1992 of the state iron producer by the
Shougang Corporation of China resulted in an immediate 35% increase
in iron output by the year 1993. As other entrants to the iron
mining promise to flood this market, long neglected environmental
issues, both past and present, must be confronted by the Peruvian
government.
2. Description
The Peruvian economy, heavily dependent upon exports of
naturally occurring resources, must insure that the use of the
mining sector as a major source of foreign exchange and industrial
growth will be sustainable and not lead to exploitation and
degradation of the environment. The mining industry has been
virtually unregulated for decades. As the government continues to
invite foreign investment, there are some questions as to where the
liability lies for past environmental abuses, and what plans will
be put in place to insure future behavior is responsible and not
environmentally damaging.
As Peru's economy experiences a new awareness in the value of
industrial privatization, it must reconcile environmental concerns
while it continues to lure foreign investment. The mining industry
has long been recognized as causing major environmental problems.
The most pronounced affect it has had is on the quality of the
water in the principal river systems. There has been, to date, no
organized effort to determine the size or the gravity of the
problems caused by mining, nor has the Peruvian government
articulated any solutions or priorities for cleanup or future
interventions. As President Fujimori continues to privatize all
state-owned enterprises and eliminate barriers to trade and
investment, the government must become environmentally savvy and
insist on the same from the foreign operators investing in the
Peruvian mining sector.
The mining industry in Peru accounts for only about 2.5% of
its labor force. Employment is mainly found in the agricultural
sector and the underground economy. Mining makes up close to 3% of
the gross domestic product. (A Country Profile 1994, 17) This
percentage promises to grow if you take Carlos Diez-Canseco's word
for it. As the general manager of Sonaminper, Peru's mining and
petroleum association, he sees Peru as almost virgin territory for
exploration, "All the deposits we know of now have been known for
30 years. With new exploration techniques, more investment, and
modern technology, there's no real limit to future development."
During the 20 months to June, 1994 there have been over 8,000 new
claims staked by Peruvian and foreign companies, covering some 5.8
hectares.(Wall Street Journal 1995, A15)
This increase in investment is actively being promoted by the
Peruvian government. Fujimori and his government claim to be
taking on a new role with the new found political stability. It
has eliminated subsidies on imported foodstuffs, simplified and
reduced import tariffs, eliminated export subsidies and removed
many of the restrictions on private capital transactions.
President Fujimori now insists that investment in Peru has been
secured through legislation and international guarantees. What has
yet to be secured is protection for the environment. Because of
these reforms the Peruvian government expects to have valid claims
cover almost 15 million hectares very soon, this representing only
one-third of the mineral bearing land of Peru's coast and
highlands. Exploration activity is unrestricted, except on
cultivated land. Peru's mining ministry estimates that the sector
will see some $8.4 billion of investment between 1996 and 2003 -
$1.8 billion going toward exploration. $2.2 billion going to
expansion, and $4.4 billion to developing new projects and
prospects.(Wall Street Journal 1995, A15)
Iron mining is symbolic of the overall growth in the mining
industry in Peru today. Iron mining production per ton increased by
36.9% between 1993 and 1994. The government of Peru is the first
and most important party involved in the future of the mining
industry and its effects on the environment. In a recent
advertisement sponsored by the government, in the New York Times,
environmental activists may find little solace. In describing the
new government role it states, "Today, public administration in
Peru is limited to tasks relating to health care, education,
justice, infrastructure and safety, as well as social development
in regions affected by poverty.(Wall Street Journal 1995, A13)
This may be a ploy to attract investment, but nowhere is there a
mention of protecting environmental concerns.
The second major party involved is the foreign investors. These
companies seek to take advantage of Peru's wealth of natural
resources as well as avoid the stringent regulations of their home
countries.(see BOLGOLD case) With corruption still very prominent
throughout Latin America, the future of the environment will depend
much upon the responsible behavior of these firms. As Peru
experiences a revision of its economy, it has not developed
concrete standards and regulations that are based on environmental
sustainability. It has also not addressed the issue of liability
new buyers will have for past environmental abuses and problems
created before their purchases.
The privatization of Centromin is one example of where these
issues need to be addressed. "Who is going to pay for the
ecological degradation of Junin Lake and Mantaro Valley," asks
writer Gonzalo Castro. Although there isn't a completed study on
the amount to repair the damage to these two areas, estimates run
up to $500 million. To have a company be financially responsible
for this in entirety would be overwhelming. This would have long
reaching effects on future investment, and with it the economy.
Still, environmentalists within Peru and outside have called for
companies to take a certain amount of responsibility in these
cases.
First and foremost, pressure must be put on these companies (
as well as the Peruvian government) to avoid contributing to the
degradation of these areas. Environmental groups as well as other
nations could play a large part in reducing the demand for products
that come from a company operating at a high cost to the
environment.
The second responsibility being placed on new buyers is that
of incrementally reversing the deteriorated areas. Lake Junin is
one of many landmarks that need to be improved. USAID considers
intervening, with the help of the World Bank to insure that the
government holds the new foreign investors to these ideals, a
measuring stick tying environmental protection to AID has yet to be
worked out. Pressure should also be applied by outside countries
to expect this of their multinationals.
At this moment there is no clear official environmental
protection agency. Various bills for the creation of a national
authority or national environmental council have been
proposed.(USAID 1995, 15) For this reason outside influences as
well as domestic movements are very important in promoting certain
guidelines for foreign investors to follow. Private organizations
have been collecting funds to improve the environment as well as
put pressure on the Peruvian government and private industry. As
all the holdings of Mineroperu have been disposed of, as well as
many state run refineries and unexploited deposits of copper and
gold, and Peru continues towards privatization, a new relationship
must be forged between government and business.
The government is attempting to address past abuses by
drafting new environmental regulations, but these regulations
address end-of-pipe effluence rather than creating incentives to
reduce the production of pollutants and future degradation that
sustainability requires. The waste generated by the mining
industry consists of mining tailings, smelter gases, overburden,
flotation chemicals and oxidation products including acids, air
pollutants and sludge.(USAID 1995, 12)
The process that metals go through to win the metal from the
ore has been virtually unregulated for decades. Through the
processes known as smeltering, zone temperature separation and
electrorefining the metals are concentrated and purified. During
this process a large amount of water is used and a huge amount of
expended ore, called tailings, need to be disposed of. Sulfur
dioxides, carbon dioxides and other air pollutants are emitted
along with other liquid and solid wastes. Theses wastes have
impacted not only the drinking water as far away as Lima (the
nation's capital), but have affected other sectors of the economy
as well. Heavy metal has been found in virtually every sediment
analyzed along the coast as well as in marine life caught along the
coast.(USAID 1995, 6)
Tailings and water runoff are found downstream from most
mining locations. They have affected the Rimac river, upstream of
Lima, which supplies 70% of the drinking water through the city's
La Atarjea drinking water plant. Even though many plants take in
water with Lead concentrations of up to 15 ppm, officials claim
that through flocculation and precipitation the lead is removed
before reaching the tap- water user. Most experts are quick to
disagree, citing this as a controversy that needs to be resolved.
No extensive studies have been done, but USAID
officials as well as other experts fear that heavy metals are
pervasive throughout the eco-system and can influence the possible
contamination of seafood and also sludge and agricultural
products.(USAID 1995, 7) Recent advances in operations have made
it possible to drastically reduce if not virtually eliminate
discharges, while recycling some of the tailings back into the
spent part of the mines. This process has been seen in the mining
operation of PERUBAR, the challenge will be to insure other plants
follow suit.
Another potential problem related to mining is the usage of
highly toxic mercury for the separation of gold in marginal or
outlaw mining operations.(USAID 1995, 14) Uncontrolled, mercury
has been released into the aquatic environment. Other parts of
Latin America have had similar problems due to clandestine gold
operations. Because of this there have been reports of hazardous
levels of Mercury in fish and mother's milk. There have even been
reports of neurological damage due to vapor and food exposure.
Mercury releases have the potential to affect many people among the
rural populations residing close to the affected water courses, and
river basins.
The Mining Ministry (MEM) lists three critical environmental
areas in need of study. These are the Ilo/Lacumba basin, the
Montero Basin, and the Rimac basin. To prevent greater collateral
damage to the water systems and eco-tourist sites, there must be an
understanding of baseline problems as well as a monitoring program
on potential mining emissions.
Overall the mining industry has been a major contributor to
the environmental degradation of Peru. Much damage has already
been done, and as of today the damage continues. Steps have been
taken in the right direction, but much more needs to be done. The
Peruvian government, having created a stable economic environment,
is now the key party to regulate an environmentally sound system.
Responsible foreign mining operations are another party in this
system, and because their is no history of environmental regulation
or present structure of enforcement, International organizations
such as the IMF, WWF and World bank will be important to create a
sense of urgency.
3. Related Cases
BRAGOLD case
VENGOLD case
GEDDES case
SMELTER case
YELLOW case
GUANO case
PAPUA case
SUMMIT case
Keyword Clusters
(1): Trade Product = Mining
(2): Environmental Problem = HABITat
(3): Forum: PERU
4. Draft Author:Kenneth Baker (August, 1996)
5. Discourse and Status: DISagreement and INPROGress
Peruvian environmental interest groups as well as outside
groups such as the WWF are trying to exert pressure and persuade
the government to adapt stronger legislation to control both past
and present abuses created by the mining industry. The government
of Peru is presently lobbying vigorously to increase foreign
investment in the mining industry, and is therefore apprehensive
about implementing new regulations and radical environmental
reforms.
After the approval of NAFTA Latin American countries are
increasingly organizing themselves to compete effectively in
international markets. USAID finds the implications of free trade
to environmental-related obstacles that might be required as
preconditions for adoption of international trade agreements.(USAID
1995, 1)
6. Forum and Scope: Peru and MULTIlateral
7. Decision Breadth: 1
8. Legal Standing: LAW
In a recent advertisement in the Wall Street Journal, the
Peruvian government boasts, "The bulls are on the rampage in Peru,
where the economy is hot and the government continues to redefine
its role." These bulls (investors), as the government calls them
approvingly, must be forced to maintain sustainable growth and deal
with past environmental degradation. The only way to enforce this
is through national law and regulations at the country level, but
also enforced at the provincial level. This can be helped along by
the NGO's and powerful trading partners such as the United States.
Labor safety at mining sites is and will continue to be an
important issue in the future. Due to a lack of safety regulations
Peruvian mines have been consistently prone to accidents harming
the lives of many workers. These issues are brought into question
in the BOLGOLD case. Although they are also prevalent in Peru,
these issues are taken up in greater detail in the BOLGOLD case.
9. Geographic Locations
a. Geographic Domain: South America
b. Geographic Site: The ANDES
c. Geographic Impact: Peru
10. Sub-National Factors: NO
The government of Peru at the federal level is where the
legal power stands. The interests of regions of the country
outside of Lima are dependent on the decisions made there. Foreign
investment, likewise seeks to influence the government at the
federal level, as do environmental groups. Provincial entities
have limited power in making far reaching legislation.
11. Type of Habitat: TEMPerate
12. Type of Measure: Regulatory Standard
The Peruvian government, with substantial power vested in
President Fujimori, both regulates foreign investment and
environmental standards. Regulatory measures are necessary, as
shown by the US industry in 1985, to support cleaner technology and
prevention of pollution. Government imposed regulations must take
into account past abuses and legitimate power and credibility must
be given any new Peruvian environmental protection agency, such as
CONAM (Commission Nacional del Medio Ambiente).
13. Direct v. Indirect Impacts: INDirect
14. Relation of Trade Measure to Environmental Impact
a. Directly Related to Product: NO
b. Indirectly Related to Product: YES MINE
c. Not Related to Product: NO
d. Related to Process: YES Land Pollution
15. Trade Product Identification: MINE
16. Economic Data
The mining sector can be broken down into six major minerals:
the most substantial is iron with 780.7 million metric tons (mmt),
followed by Copper at 27.3 mmt, Zinc with 10.1 mmt, Lead with 2.7
mmt, Silver at 657.4 million ounces, and gold at 23.4 million
ounces. While manufacturing still dominates the industrial origin
of gross domestic product at %23.8, mining is at %2.6 and stands to
grow.(A Country Profile 1994, 16) For example, a recent
advertisement attempting to lure more investment(in the Wall Street
Journal) brags that refined copper output should rise about 10% due
to technological improvements.
Mining's importance in other sectors of the economy also
promises to grow. As far as employment, mining made up 2.5% in
1992 and has grown .4 between 1993 and 1994. This began with the
Newmont Corporation's decision to invest $40 million in developing
the gold deposits of Yanacocha, the first new foreign investment
in Peruvian mining for over 20 years. The USA's Southern Copper
Corporation has recently entered the top five revenue grossing
companies in Peru.
17. Impact of Trade Restriction: LOW
Although measures must be taken to control the inflow of
foreign investment and the outflow of natural resources, any
measures taken by this pro-business government will have a low to
medium impact on the trade competitiveness. As Peru becomes more
dependent on foreign investment and tries to remain a more
attractive alternative to other South American countries, major
environmental action at the expense of competitiveness becomes less
likely. The government may take measures to tie in environmental
improvements to modernization efforts of inefficient mines. In the
case of Southern Peru Copper Corp (SPCC), which is majority owned
by a U.S. interest, it sees technology and renewed efficiency as
the most promising way towards a cleaner safer Peru.
Four years ago, SPCC embarked on a $300 million investment
program in environmental improvement and new solvent
extraction/electrowinning plants at its two largest mines.(Wall
Street Journal 1995. A17)
The result has been a pronounced increase in the amount of
copper produced. Still, consideration is given to industrial
production and employment concerns, and therefore any measures
taken will not be permitted to have a high impact on trade
competitiveness.
18. Industry Sector: MINE
19. Exporters and Importers:
20. Environmental Problem Type: Land Pollution
Solid waste containing caustic soda, iron, metal shavings,
lubricating oils, sulfuric acids, and sludge with iron oxides have
been the most prevalent in the mining of iron. Non-ferrous
foundries such as slags containing nonferrous metals and ashes,
metal dirt, and gaseous emissions are also associated with the iron
mining.
The mining industry in general impacts cities, drinking water,
ecologically sensitive parks and coastal areas. Toxic pollutants
can be attributed to damage health and eco-tourism, as well as an
overall economic decline from associated illness and loss in
productivity.(USAID 1995, 12)
Peru was a signatory to the Basel convention which aimed to
prevent inter-country hazardous waste, of which silver mining solid
waste is a main part. These wastes are defined as waste that can
cause acute or chronic toxicity to humans, ignitability, infectious
disease and potential extensive ecological damage. This treaty has
been virtually ignored by Peru and those who should be enforcing it
through trade sanctions.
21. Name, Type, and Diversity of Species
22. Resource Impact and Effect: Product and Scale
The mining industry is considered to be high by some, many
(USAID) consider it to still be in the medium range. If
regulations and foreign investment provisions (incorporating the
reconciliation of past abuses) are imposed on this sector, the
impact will be less. Production improvements can also produce a
positive impact leading to a cleaner and more efficient way of
operating. But if the government continues to put investment
priorities ahead of environmental concerns, the impact could become
very high.
Peru with its large and unregulated "informal" labor sector
(those not officially seen as employed) is considered very
vulnerable to wastes and abuses. There is also very little
information about thousands of hazardous materials and chemicals
being dumped into Peru's waterways. Large discoveries (as happened
in the U.S.) of abandoned hazardous waste dumps, dating back
decades, could also increase the known impact of iron mining
abuses.
23. Urgency and Lifetime: Low and 100s of years
The problems of air and sea pollution are just recently being
given extensive study. With a resurgence of new activity in this
sector, and continued discovery of past and lasting abuses, it is
difficult to estimate the extent or pace of the loss. The most
important intervention that USAID/Lima can do is to conduct a
baseline inventory of the extent of the waste and this in turn will
be a good way to know of the urgency and which areas to address
first. (USAID 1995, 5)
24. Substitutes: RECYCling
25. Culture: NO
26. Trans-Boundary Issues: NO
27. Rights: YES
Peasants in the frontiers, who typically work for mining
concerns, are subject to unequal economic and political treatment
and are subjected to many hazards in their working environment
because of this. The death of 7 mining workers in Peru just a
month ago in April is an example of the unsafe, unmonitored
conditions encountered by Peruvian miners. The points articulated
in the BOLGOLD case illustrate some of the other problems faced by
Peruvian miners.
28. Relevant Literature
Becker, David. "The New Bourgeoisie and the limits of dependency;
mining, class, and power in Revolutionary Peru". Latin American
Research Review, v 24, 1989, 184 - 208.
Cunningham, Patrick. "The other side of the coin". The Geographical
Magazine, v 62, September 1990, 30 - 34.
Godfrey, Brian. "Migration to the gold-mining frontier in Brazilian
Amazonia". The Geographical Review, v 82, October 1992, 458 - 69.
Godoy, Ricardo. "Production Strategies of Bolivian miners". Human
Organization, v 46, Spring 1987, 48 -54.
Kline, Harvey. "The Columbian debates about coal, Exxon, and
themselves". Inter-American Economic Affairs, v 36, Spring 1983,
3-28.
Lipske, Michael, "Cracking down on mining pollution". National
Wildlife,v 33, June/July 1995, 20 -23.
Moffatt, Anne. "Microbial mining, boosts the environment, bottom
line". Science, v 264, May 1994, 770.
Journal of Environmental Health. "EPA salutes clean up efforts of
Wyoming mining pollution". July/August 1995, 36.
Go To Super Page
Go to All Cases
Go to TED Categories
I. Identification