Mining and Water Governance in Peru

Leonith Hinojosa | Open University

Peru is a country rich in natural resources. It is the world’s largest producer of silver, the second of copper and zinc, and the sixth of gold. It is also among the twenty countries with the largest water resources worldwide. Yet the distribution of these resources within the country is highly uneven. Nearly 98% of Peru’s water is found in the Atlantic basin, while the Pacific and Titicaca basins contain just 1.8% and 0.5%, respectively. Mineral deposits are similarly highly concentrated. Over 90% of the copper extracted in the country comes from the Andean regions of Ancash, Moquegua, Tacna, Arequipa and Cuzco; 82.9% of extracted gold comes from Cajamarca, La Libertad, Ancash and Arequipa; and 92.2% of zinc and 67.0% of silver come from Pasco, Ancash, Lima and Junin. In a number of these mineral-rich areas water levels are often subject to considerable seasonal variation, which periodically serves to exacerbate supply shortages.

The Expansion of Mining

Since the economic liberalisation of the 1990s all governments have promoted foreign direct investment (FDI). Incentives offered to foreign firms have included tax exemptions, stability agreements, reduced royalty fees (and exemptions) and credits for reinvesting and repatriating profits. As a result, FDI has grown consistently: 296% under President Fujimori (1990 - 2000), 22% under Toledo (2001-2006) and 134% under García (2006-2011). Over the past five years total capital investment in the mining sector, including both foreign and domestic finance, has nearly tripled.

Yet in some areas, the sector’s contribution to the Peruvian economy has been fairly limited. Between 1991 and 2009, just 6.5% of Peru’s Gross Domestic Product (GDP) was attributed to mining activity, while manufacturing and agriculture contributed 16.4% and 8.2%, respectively. According to the latest census (in 2007), mining employed only 1.3% of the economically active population, whereas agriculture employed 23.3%. The mining sector is today estimated to have created 125,976 jobs directly, and 503,904 indirectly.

Where the Peruvian economy does depend on the mining sector is in its exports and state revenues. By 2009 mineral exports comprised some 66% of Peru’s total export revenue. Between 2006 and 2009 government revenue from the canon minero (income and capital tax on mining companies), royalties and concession rights totalled around US$ 2.5bn per year. Of this, regional governments in mining areas received between US$ 0.68bn (2006) and US$ 1.15bn (2009). The possibility for new development and poverty-reduction programmes funded by such revenues today constitutes one of the principal arguments for further expansion of the sector.

Conflicts between Mining and Agriculture

Public attitude to mining, in particular to large-scale corporate mining, depends largely on a local population’s own expectations, the area’s mining history and the reputation built up by companies over time. Seeking to lessen popular resistance to expansion of the mining sector, in 2004 Congress introduced a bill providing for the taxation of mining activities and the redistribution of associated revenues to affected regions and municipalities. This raised hopes that increased government earnings and new job opportunities could help accelerate local development in the country. However, the subsequent significant increase of the size of territory under concession and of exploration activity, particularly in the western Andes, created concern among farmers and other rural populations over the large amounts of water to be used by the mines.

The impact of mining on water resources has always been a matter of dispute between mining firms and farmers. More recently the dispute has spread to other sectors of society. Of approximately 250 social conflicts (average per year 2006 - 2009) recorded by the Peruvian Human Rights Ombudsman 60% were related to mining and one in eight concerned water issues.

While conflicts relate to access and use of water, vital for both mining and agricultural activities, they also represent political and ideological struggles over the correct path to economic and human development in rural areas. They further reflect the widespread sense among local populations that they are excluded from the benefits that mining can bring. Conflicts, both new and long-standing, are currently delaying enormous investment projects, such as the enlargement of the Toquepala copper mine in the south and the Conga gold mine project in the north.

Underlying these conflicts are four factors: 1) natural water scarcity and the scarcity produced by the inefficient distribution of water resources, 2) competition, instead of cooperation, between mining and agriculture users, 3) inefficient water management by both sectors, and 4) the different (economic and non-economic) values placed on water by different consumers. Alongside this are structural factors that affect the potential for growth and the expansion of large-scale mining. High levels of unemployment/underemployment and poverty in rural areas, as well as a legacy of poor relationships between some companies and communities, are several such factors.

Further, the extraction of groundwater and the expansion of mining activity into high mountain areas and near basin headwaters have all caused massive – at times violent – reactions by local populations who believe mines responsible for water scarcity and environmental degradation. Competition for water between mining and other users has been portrayed mainly as a contention between large companies and small farmers (campesinos). Historical competition for water among agricultural users has received less attention, perhaps because it has been resolved without much difficulty through ad hoc arrangements or by illegal practices of water theft.

One reason that the relationship between mining and local populations has proved so problematic is that the various parties place different values and meaning to water resources. The idea of water as only an industrial material with a commercial value is challenged by the communities’ broader understanding of water as a life-giving resource. While the 2009 Water Law very generally acknowledges both meanings, the symbolic value of water for most of the rural indigenous population has not been sufficiently understood, let alone institutionally addressed. The value placed on water by such groups combines both elements of economic rationality with elements of cultural and territorial identity. As such, the meaning and value of water is continuously evolving and can be negotiated.

Challenges for the Presidential Agenda

The 2009 Water Law established a new legal framework and created opportunities for more equitable and efficient management of water resources. These opportunities, however, are threatened by uncertainties over the law’s interpretation, weak state enforcement, new forms of centralised decision-making over access to and distribution of water and, most importantly, by the asymmetry in power between the state, mining companies and communities. All this could challenge Humala’s proposed agenda for "inclusive growth".

Fears that water scarcity will increase if mining operations expand are exacerbated by extremely low investment in water management and infrastructure. Furthermore, the use of water as a political and economic bargaining tool has produced conflicts between local, regional and central governing authorities.

There is no easy solution to conflicts over water and mining. It’s clear that Peru’s economy needs a mining sector which makes a significant contribution to government finances and technological progress. But it is also clear that sustainable, long-term growth will require poverty reduction through increasing the rural poor’s access to irrigated land and investing in water management training. Developing emerging areas, such as high-value agriculture and agro-industry, will also require sufficient access to clean water.

To achieve Humala’s aim of sustained and inclusive growth the government will need to address the issues of water and mining. To be successful, negotiations between the government, mining companies and other water users will have to deal not just with technical or ecological matters, but also with issues of sustainability and justice.

 

This article is based on two research projects, both funded by the ESRC: “Extractive industries and changing waterscapes in the Andes” (The Open University, 2010-12,http://www.open.ac.uk/socialsciences/andean-waterscapes) and Territory, conflicts and development in the Andes (University of Manchester, 2007-9, http://www.sed.manchester.ac.uk/research/andes).

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    The Peru Support Group exists to promote social inclusion, sustainable development and the observance of human rights in Peru. To that end the PSG highlights shortcomings in observance of established norms, whether international or local in nature, in its research, advocacy and publications. In so doing, it underscores the relationships that exist within the political system, how institutions work, and the effectiveness of policies that aim to reduce poverty and inequality within the context of sustainable development.

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