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PERU: Bailout of Mining Co. Eclipses Environmental Disaster

Milagros Salazar

LIMA, Apr 8 2009 (IPS) - The Peruvian government refused to bail out the U.S. mining and metallurgical company Doe Run, which has caused severe pollution in the highlands city of La Oroya, from its severe financial troubles.

But it did grant the company a second extension of the deadline for environmental cleanup projects. And local banks as well as mining companies that depend on the Doe Run Peru smelter took care of the bail-out.

An economic solution thus prevailed over the urgent need to protect the health of residents of La Oroya, who have no choice but to continue breathing the toxic fumes of the company’s large multi-metal smelter, several sources told IPS.

“Protection of the living space of the local population is a permanent state obligation that arises from the fundamental right of people to enjoy a balanced environment that is fit for sustaining life,” says a statement on Doe Run released by the ombudsperson’s office Monday.

A letter sent by national ombudswoman Beatriz Merino to Prime Minister Yehude Simon, to which IPS had access, urges the government to adopt effective measures to improve environmental standards in La Oroya, located at 3,300 metres above sea level in the Andes mountains in the central province of Junín.

The letter was in response to the Apr. 3 announcement by Environment Minister Antonio Brack that the Missouri-based Doe Run was given another three months to comply with the Environmental Improvement and Management Programme (PAMA) to which it committed itself in 1997, when it obtained the concession for the smelter in La Oroya.

The 35,000 people of the town breathe air polluted with sulphur dioxide, lead and cadmium emissions from the Doe Run smokestacks.

The Blacksmith Institute, a New York-based non-governmental organisation dedicated to supporting pollution-related environmental projects in developing countries, included La Oroya on its list of the world’s 10 most polluted places in 2006 and 2007.

Brack made the announcement of the deadline extension after the government reported that a group of Peruvian companies and banks would guarantee two new credit lines for Doe Run totaling 175 million dollars, after the company nearly halted work in March when banks cut off its financing.

According to the authorities, a closure of the smelter would lead to the loss of 3,500 jobs in mining companies throughout the central part of the country.

The plant was facing an October deadline for carrying out an environmental clean-up programme, which is to include the construction of treatment plants to lower toxic emissions. But Brack argued that because the company would stop operating for a few months until the financing came through, “the PAMA plan will have to be briefly postponed.”

Experts say the move is against the law, because the first extension of the deadline for the clean-up stated that any further extension would not be valid.

“Any decision must treat the health of the local population as the priority,” Iván Lanegra, environmental affairs official in the ombudsperson’s office, told IPS. “Furthermore, environmental standards and instruments aren’t designed to resolve problems faced by a company, but must establish general guidelines that address the needs of the public.”

In 1997, Peru’s environmental authority, CONAM, concluded that the smelter was the source of 99.7 percent of the toxic emissions in and around La Oroya.

Measurements carried out at different monitoring stations in the city so far this year show that the air quality standard of 0.5 micrograms per cubic metre of air set by Peruvian law has not been met.

Doe Run Peru’s financial crisis broke out in late February, when the BNP Paribas, Banco de Crédito del Perú and Standard Bank cut off a 75 million dollar credit line. The company also has unpaid bills to suppliers of nearly 100 million dollars.

But how could the firm be facing such a critical situation after several years of soaring mining prices?

The company operated with a revolving credit line, with which it purchased zinc, copper and lead concentrates from mining companies in central Peru, to which it then sold the material processed in the smelter.

But it owed nearly 140 million dollars to Renco Group, the New York City-based holding company controlled by Ira Rennert, of which it is a subsidiary.

However, between 2005 and 2008, Doe Run posted net profits of 400 million dollars, economist José de Echave of CooperAcción, a local social development organisation, pointed out to IPS.

“This is a good opportunity to carry out an exhaustive analysis of the financial situation of Doe Run and its operations in Peru,” said de Echave. “The contract that it signed with the state should be reviewed in detail.”

When the state privatised the La Oroya smelter in 1997, it failed to create an adequate regulatory framework.

“It should also be checked whether the bond letter and trust agreed with the state as protection for compliance with the PAMA clean-up plan, in case the company had any financial problems, have been executed,” José Luis Capella with the Peruvian Society for Environmental Law told IPS.

The bailout by the Peruvian banks and mining companies involves guarantees for 75 million dollars in revolving credit and supplies of 100 million dollars in mineral concentrates.

“The problem is that they have not published the agreements, because they signed a confidentiality clause. But what is needed is transparency, because when public health is at stake, the issue is no longer a private matter,” former deputy minister of mines María Chappuis told IPS.

Capella argued that “no financial crisis faced by the company should make people forget that the residents of La Oroya come first.”

In May 2006, the Constitutional Court urged all concerned authorities and Doe Run to take urgent steps to protect the people of La Oroya.

In 2007, the Inter-American Commission on Human Rights issued a precautionary measure on behalf of 65 residents of La Oroya affected by the air pollution, who had taken legal action.

Studies carried out by a team of scientists from the St. Louis University School of Public Health in Missouri in 2005 found that a majority of children under six in La Oroya have toxic levels of over 40 micrograms of lead per decilitre of blood (mcg/dl) – four times the maximum safe limit of 10 mcg/dl set by the World Health Organisation (WHO).

Many also had high levels of cadmium, arsenic, mercury, antimony, caesium and thallium.

And an epidemiological study conducted by the Health Ministry in 2004 and 2005 found that 50 percent of minors in the province of Junín had asthma.

“We want the company to be honest with us and with the state,” the head of the Movement for the Health of La Oroya, Rosa Amaro, told IPS.

Peru is the world’s second leading producer of silver, fifth of gold, and third of copper and zinc.

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