Protests to remain key operational consideration for Peruvian extractive sector


16 Feb 2015

Protests to remain key operational consideration for Peruvian extractive sector

Demonstrations on 11 February against a natural gas project operated by Argentine energy company Pluspetrol in Pichanaki, Chanchamayo province, highlighted the ongoing challenges facing extractive and infrastructure projects in Peru. Protests regularly affect foreign companies’ operations, halting construction or production, and disrupting movement and supply chains in the surrounding areas. Protests, most often driven by environmental and land-rights concerns, will continue as ongoing and new extractive and infrastructure projects remain central to Peru’s economic growth strategy. 

Protests against large infrastructure, mining, and oil and gas projects have consistently caused significant business disruption in Peru. The latest protests in Pichanaki have prompted the government to call for the withdrawal of Pluspetrol from block 108, while a protest against Pluspetrol’s operations in northern Peru has resulted in protesters taking over 14 oil wells belonging to the company. The demonstrations have intermittently halted output of around 3,100 barrels per day there since April 2014. Multiple other examples in previous years highlight the ongoing severity of the risk. In 2011, Newmont Mining Corporation was forced to suspend work at its USD 4.8 bn gold mine following increasingly violent protests over water supply in the area, while Southern Copper Corp was forced to cancel its operations at its Tia Maria mine in April 2011 after violent protests against its operations. Barrick Gold also temporarily suspended work at its Pierina mine in Peru following a violent clash during a protest at the facility in September 2012.

Demonstrations targeting extractive or infrastructure projects can also have considerable indirect implications for businesses located near protest areas. Demonstrations are often accompanied by strikes among local communities, and the latest protest against Pluspetrol in Pichanaki involved an indefinite general strike. Industrial action and accompanying roadblocks regularly result in considerable disruption to movement of personnel, goods and supply chains. A demonstration in Quillabamba in early September 2014, over the Gasoducto Sur Peruano project, resulted in a series of roadblocks restricting the movement of personnel and goods across La Convencion province for nearly two weeks. Striking workers regularly resort to blocking major highways as well as roads leading to contested sites and projects, making disruption to movement difficult to avoid. The 48,000 km Pan-American Highway has been intermittently affected by protests, with thousands of workers blocking the road in Arequipa region for several days in March 2014.

Another concern for foreign operators is the high level of violence typically associated with the protests, presenting a physical security threat to employees and increasing the risk of damage to property. The latest protest in Pichanaki involved demonstrators attempting to take control of a police station and an army barracks, as well as stealing a water pump and some tents from the area. Police management of protests often inflames violence and can extend the duration or expand the territory affected by the demonstration. The February demonstration at Pichanaki reportedly resulted in police firing live rounds, leading to the death of one of the protesters, while also injuring 37 others. This is a recurring problem which the government has shown little sign of rectifying. In mid-September 2014, police shot dead a teenage boy at a protest against the Gasoducto Sur Peruano project, despite being under strict orders to use only tear gas against the protesters. The propensity for demonstrations to become violent was underscored by protests against government plans to develop oil and gas resources in Bagua in March 2011, which left 53 people dead, including 30 protesters. The violence of demonstrations also represents a major reputational issue for operators, who may be considered complicit in police brutality by association.

Environmental and land-rights issues are the most common drivers of protests against Peruvian extractive and infrastructure projects. Protesters in Pichanaki have complained that exploratory activities in block 108 in the area have caused significant pollution, though Pluspetrol says its exploratory activities have not resulted in any wells being drilled and that their activities satisfy all environmental laws. Similarly, demonstrations in 2011 against Newmont mining were motivated by fears that that the project would cause damage to mountain lakes in the area and undermine the regional water supply. These concerns will remain prominent and could worsen in the longer term following Lima’s decision in November 2014 to remove the requirement for oil and gas companies to undertake environmental impact assessments prior to exploration.

The Peruvian government has been consistently criticised for failing to engage with local communities and address their concerns over large projects. In light of the government’s historically poor recognition of some indigenous and local community objections, companies investing in Peru should formulate their own public consultation strategies and be willing to conduct independent environmental assessments prior to beginning operations. Effective local engagement strategies are crucial in the absence of government facilitation, and a lack of dialogue can often become a key driver of protests. In Pichanaki, protesters have complained that they had called for dialogue regarding Pluspetrol’s project in September 2014 but were ignored, thus providing no alternative but to launch protests.

Disputes of this nature will continue in Peru with large infrastructure and extractive projects being central to Peru’s economic growth plans. The Peruvian government is eager to continue developing the extractive – and in particular the mining – sector since it accounts for around 60 percent of exports. Nearly USD 42 bn is expected from mining investments in 2015 alone. Continuing unrest will, however, leave major extractive and infrastructure projects, such as the planned the 997 km Southern Gas Pipeline and the Cerro Verde copper complex in Arequipa, exposed to significant disruption, and this will remain a key business continuity consideration for investors.

 

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