Letter to the World Bank from Peruvian NGOs on the Extractive Industries Review

Letter to the World Bank from Peruvian NGOs on the Extractive Industries Review

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Lima, 05 April 2004

Sir:
James D. Wolfensohn
President
World Bank Group
1818 H Street NW
Washington, DC 20433

Fax: 001-202-522-3031

Call upon the World Bank to implement the Extractive Industries Recommendations

Dear Mr. Wolfensohn,

We, representatives of civil society organisations from Peru who sign this letter, send you our most sincere regards. We were very pleased to receive the final report of the Extractive Industries Review (EIR), the result of several years of arduous work under the direction of Dr. Emil Salim. We congratulate the World Bank Group for having taken this praiseworthy and valient initiative to start a process of evaluation and self-criticism regarding the appropriateness and orientation of its policies in support of extractive industries. We call upon your institution to be coherent with the initiative taken and implement all its conclusions and recommendations.

However, we have noticed that the report presented by the EIR team has caused great upheaval within the mining sector and some governments, who started a campaign questioning its conclusions and recommendations. This attitude contradicts their full participation in the entire consultation process. In particular, we haven taken notice of the arguments presented to the World Bank Directors by the Peruvian government, represented by the Ministry of Energy and Mining (MEM), and by the National Mining, Oil and Energy Society of Peru.

On the basis of our daily work for and with the communities and people affected by mining in Peru, we affirm that the arguments of the mining sector and some governments are invalid. Please allow us to justify this statement:

1) We consider that the measures suggested by the EIR report are reasonable and have to be implemented as a minimum to protect the environment and human rights, especially those of populations directly affected by mining operations, and to guarantee public governance. Just as the World Bank's social and environmental policies do not affect our country's sovereignty, they would not either. On the contrary, a lot of the proposed measures regularly appear in our authorities' discourse, which is unfortunately never implemented. A great part of the proposed measures is simply based on internationally recognised rights, such as free, prior and informed consent. Neither the World Bank nor the government, and even less the mining sector, can decide freely whether or not to implement them.

2) We consider that during the last decade, the Peruvian economy has become more and more dependent on the extraction of raw materials. As a result, it has become extremely vulnerable to price fluctuations on world mineral markets. The continuing growth of the mining production and of its participation in national exports clearly shows that mining in Peru does not need incentives of the World Bank Group for its development. We propose that the World Bank rather promote economic diversification of our country, giving priority to those activities that contribute to reduce poverty and create local jobs and have a minimum of social and environmental negative impacts. We want to build a economy based on solidarity, that contributes to the country's development and alleviates poverty and inequity, which have been accentuated during the last decade.

The foreign investment flows captured by the mining sector continue to contribute very little to local development and have contributed even less to poverty reduction. It is very significant that in those regions that have attracted strong mining investment during the last decade, poverty levels have not diminished significantly. Today, according to official statistics of the Social Compensation Fund (FONCODES), about 88% of the people living in mining areas pertain to the stratus of extreme poverty, are very poor or poor. The cases of Cajamarca and Pasco are worth mentioning. We repeat some of the arguments that we have already presented during the EIR process:

• According to the National Tax Administration (SUNAT), the mining sector's participation in the General Sales Tax collection does not exceed 1.2%, in the Income Tax it reaches about 10%. Taking into account only these two taxes, which strictly reflect the mining companies' tax contributions, their relative share in domestic tax collection does not exceed 2% of the total domestic tax income. The percentage of their income tax contribution is small, mainly because of the existence of tax stability contracts that grant tax benefits and deductions of different types to mining companies. For example, due to tax stability contracts, companies such as Pierina or Antamina are exonerated of income tax payment during their first 8 or 10 years of operation. It is worth indicating also, that 50% of the income tax is destined to mining canon which has a redistributive purpose. In 2002, according to information taken from the Ministry of Economy and Finance, mining canon ascended to 39 million US$, representing hardly 1.05% of mineral exports the same year, which totaled 3.7 billion US$. The sum of all amounts destined to mining canon over the previous 6 years was no more than 170.397 million US$. The contribution of mining to the country through tax payments may be very small, the share of it that really reaches the people directly affected by mining is even less significant. This becomes obvious when we consider that only 20% of the total amount destined to mining canon benefits the local governments of those districts where mining companies are operating. It is necessary to indicate that the sub-surface fee paid by mining companies does not improve the situation we described. In 2002, the total sum received for sub-surface fees was only 4.8 million US$, in 2003 5.1 million US$.
• The generation of employment by 'modern mining' is rather insignificant and hardly benefits the local people because of the high degree of specialisation of the workforce it requires. The allegation that mining creates 350,000 indirect jobs is very optimistic. According to statistics of the Ministry of Employment, the mining sector employs only 0.8% of the Economically Active Population.
• Local acquisitions by mining companies are also limited, and although it is argued that they invest strongly in public infrastructure, these works usually respond in the first place to their own needs and have caused serious damages to the lands and territories of many communities and populations living next to their operations.
• Social programmes often do not respond to the real needs of communities, are used as an instrument of public relations and may even generate or exacerbate internal conflicts within the affected communities and populations.
• If we add to all these problems the negative impact of the rising cost of living in mining areas, for instance in Cajamarca (Minera Yanacocha), we do not know of a single case where mining really has had a clear positive net impact on the poorest people in Peru.

3) Considering that today only 10% of Peru's mining potential is being explored or exploited, and that many of the current and future mining projects are located in sensitive or vulnerable areas, such as the headwaters of river basins, it is highly alarming that Peru still does not have an economic-ecologic zoning of the national territory. Very wisely, the EIR recommends the establishment of no-go areas, including those that are intended to be designated as protected areas in the future by national or local officials. We think it is particularly important to recognise the fundamental role of local and regional authorities in this respect.

4) We believe that one of the most important recommendations of the EIR is the recognition of free, prior and informed consent of the indigenous peoples as well as of other people and communities in whose territories and lands mining companies are intending to explore and exploit minerals. This is the only way to avoid major conflicts between mining companies, local populations and indigenous peoples, and therefore it is an absolute precondition to achieve that investment in extractive industries may contribute to diminishing poverty. It is not only a question of granting a veto right to a small number of individuals. In the case of Tambogrande for instance, the government never recognised the opposition of 98% of the population, expressed in a referendum. The new Regulation of Citizens' Participation in the Approval Procedure of Environmental Impact Assessments (December 2002) somehow improved the former legislation regarding provision of information to the public, however it does not facilitate the resolution of serious conflicts between mining companies and adjacent communities and populations, as it does not guarantee that their opinion really is taken into account. This is clearly illustrated by the cases of Pampamali (Huancavelica) and Yanacocha (Cajamarca), apart from the already mentioned case of Tambogrande. But there is more: the unconstitutional procedure of mining servitude allows the forced reallocation or displacement of communities and populations. The aforementioned Regulation does not comply with ILO Convention Nº 169, signed and ratified by Peru, amongst other reasons because it does not allow the population to be consulted before any exploration activity within the affected peoples' territories. Finally, not to accept free, prior and informed consent would be incoherent with the extractive industry sector's discourse that it is necessary to obtain a 'social license' for extractive projects.

5) In environmental matters, the Peruvian government still has not shown its real capacity and will to effectively monitor and supervise mining activities. Part of the problem is the absence of an environmental agency with this capacity independent from the MEM, and the conflict of interest within the MEM that at is the same time responsible for the promotion and monitoring of mining investments. The nomination in 2003 of Hans Flury Royle (legal director of the mining company Southern Peru Copper Corporation and former president of the National Mining, Oil and Energy Society of Peru) as the new Minister of Energy and Mines, was just another demonstration of the close ties between the mining sector and the MEM. Economic and financial short-term needs of companies and authorities usually prevail upon environmental and public health criteria. Clear examples are the cases of La Oroya and Callao, where thousands of children continue to suffer from lead intoxication, due to the permissiveness of the responsible authorities and companies involved, who fail to take the necessary measures. The people of Choropampa still suffer the consequences of the mercury spill from Minera Yanacocha, while the city of Cajamarca faces problems of water contamination and shortage caused by the same IFC-sponsored company. Instead of contributing to development, the future of the entire population is endangered.

In short, we consider that mining in Peru actually does not take place within a framework of sustainable development, as is clearly demonstrated by the dozens of conflicts that keep on appearing all over the country.

During the nineties, the World Bank has played a decisive role in the creation of a legal framework that promotes mining investments, without consulting the communities and populations affected. Numerous mistakes have been made in that process, which have to be corrected, starting with the mistakes made by the World Bank itself. The EIR recommendations are one step in the right direction.

In spite of the problems that have arisen during the process, most of which the EIR team has been able to resolve in a satisfactory manner, we consider that the EIR has complied with its major purpose: to realize a sincere, objective and transparent evaluation of the World Bank's support to extractive industries, with the participation of all stakeholders. It is impossible that all conclusions and recommendations satisfy all stakeholders. If the World Bank decides to implement the EIR recommendations, this would be a clear show of its committment to the fight against poverty, and for human rights, transparency and governance. However, should the World Bank decide to reject the basic EIR recommendations, once more it would privilege the position of a few powerful economic interests and undermine civil societies' trust in the organization, in Peru and the rest of the world, in particular of the people affected by extractive industries.

Counting on your commitment to the poor of our country and of the world, we are confident that you will take the right decision.

Sincerely,

Asociación Ambiental de San Marcos, Ancash
Asociación Civil Foro Democrático
Asociación Civil Radio Marañón
Asociación de Defensa y Educación Ambiental - ADEA, Cajamarca
Asociación Diaconal Paz y Esperanza
Asociación de Propietarios de Chipta-Pincullo, San Marcos - Ancash
Asociación de ex Propietarios de Antamina, San Marcos - Ancash
Asociación Interétnica de la Selva Peruana - AIDESEP
Asociación para la Defensa y Desarrollo de Kuelap, Amazonas
Ayuda en Acción Perú
Capital Humano y Social
Comité de Defensa y Vigilancia del Lago Chinchaycocha
Comité de Derechos Humanos y Desarrollo Humano Pasco - CODEH Pasco
Comité de Derechos Humanos y Desarrollo Humano Huacho - CODEH Huacho
Comité de Defensa del Medio Ambiente y de Desarrollo Sostenible - CODEMADES, San Mateo de Huanchor
Comité de Afectados por la Minera Mayoc, Lima
Cooperacción, Acción Solidaria para el Desarrollo
Coordinadora Distrital de Comunidades Afectadas por la Minería Secclla - CODICAMI Secclla, Huancavelica
CODICAMI Ccochaccasa, Huancavelica
CODICAMI Anchonga, Huancavelica
Coordinadora Nacional de Comunidades del Perú Afectadas por la Minería - CONACAMI PERU
Coordinadora Permanente de Los Pueblos Indígenas del Perú - COPPIP
Coordinadora Regional de Afectados por Plomo del Callao
Coordinadora Regional de Comunidades Afectadas por la Minería Apurímac - CORECAMI Apurímac
CORECAMI Ancash
CORECAMI Cusco
CORECAMI Huancavelica
CORECAMI Ica
CORECAMI Junín
CORECAMI Moquegua
CORECAMI Pasco
CORECAMI Piura
CORECAMI Puno
CORECAMI Tacna
Coordinadora de los Pueblos Afectados por la Minería en Cajamarca - COPAMI
Coordinadora de Comunidades Afectadas por la Minería de la Provincia de Huari- COPROCAMI Huari-San Marcos
COPROCAMI Chincheros, Apurímac
COPROCAMI Oyón, Lima
EcoVida, Cajamarca
Federación Departamental de Comunidades Campesinas de Pasco - FEDECCPA
Federación Nacional de Trabajadores del Agua Potable y Alcantarillado - FENTAP
Frente de Defensa de la Cuenca del Río Zaña
Frente de Defensa y Desarrollo de San Marcos, Ancash
Frente de Defensa del Valle de San Lorenzo y Tambogrande, Piura
Frente Popular
Fundación Ecuménica para la Paz - FEDEPAZ
Foro Ecológico del Perú
Hoja Verde
Instituto de Investigación, Capacitación y Promoción (IINCAP) 'Jorge Basadre', Cajamarca
Pastoral Indígena de la Parroquia San Lorenzo, distritos de Barranca, Manaseriche, Pastaza, Morona, Cahuapana
Programa Laboral de Desarrollo - PLADES
Red de Jóvenes Ambientalistas de Apurímac - REDJA
Red Jubileo Perú