By Eve Schram
JAKARTA, Dec 28 2015 (IPS)

If you want to make your developing country more attractive for foreign investors, try signing bilateral investment treaties (BITs) with rich countries. With these treaties countries promise to look after each others’ investors.

That is the dominant idea in the world. Up until now, that is. More and more countries discover that BITs can be quite risky. Indonesia, for example. Last year it received a so-called ISDS claim from an American mining company, which used the Indonesia-Netherlands investment treaty to get exemptions from certain requirements.

Problem number one

“Our perspective on BITs has changed,” says Abdulkadir Jaelani, director of Economic and Social Affairs of the Indonesian ministry of Foreign Affairs in Jakarta. “It seems very much in favor of the investor. Our number one problem is ISDS.”

ISDS (Investor State Dispute Settlement) is a clause in BITs that enables investors to sue a host country, if it feels it has been treated unfairly. The investor will generally claim financial compensation from the host state. This claim will be judged by a panel of three arbitrators, appointed by the investor and the state. The verdict is binding.

Indonesia received five such claims in recent years. Financial compensation was not always the goal. A claim can be used by an investor to block new legislation.

Indonesia started to terminate BITs last year. The Dutch BIT was one of the first to go.

Newmont

The most recent claim against Indonesia came from the American mining corporation Newmont in the summer of 2014. Newmont has had an active copper mine on the Indonesian island of Sumbawa since 1999. Curiously, financial compensation appears never to have been the goal of Newmont. “I believe Newmont used the arbitration case to enforce an export license,” said Bill Sullivan, legal counsel in Jakarta and expert on the Indonesian mining industry.

In 2009, the Indonesian parliament voted for a new mining law, that served to kickstart the domestic processing industry. Every mining company was told to build a smelter, a plant to process mineral ores. “Indonesia is too dependent on natural resources for its budget,” said Rani Fabrianti, head of legal information at the Mining and Energy Ministry. “The Mining Law enables us to grow into an industrial economy and eventually to a service-oriented economy.”

The Mining Law dictated the mining companies to build a smelter no later than 12 January 2014. After that time, the government would enact an export ban on mineral ores.

On 11 January 2014, certain mining sectors, including the copper sector, were delayed. Copper mining companies would receive an export license for copper concentrate, if they showed progress with the building of smelters. In the meantime, the Indonesian government introduced export tariffs on copper concentrate from 25 per cent in 2014 to 60 per cent in 2017.

The two biggest copper miners in the country, the American corporations Freeport and Newmont, were not amused. Still, Freeport reached a compromise with the government soon after and received its export license. The company pledged over 100 million dollars for the construction of a smelter.

Difficult

The negotiations with Newmont were more difficult. The company said building a smelter would be ‘uneconomic’ and that its mining contract with Indonesia dating from 1986 safeguarded it from such activities.

When its storage facilities reached capacity just before the summer of 2014, Newmont called into force the Force Majeure clause of its contract. It means that the company had to stop production for reasons beyond its power. Force majeure is generally used when the contract area is hit by natural disasters or violent conflict.

80 per cent of the 4000 employees of the Batu Hijau mine on Sumbawa were sent on unpaid leave. After that, Newmont filed for financial compensation from the Indonesian government, through a Dutch business entity, citing the investment treaty between Indonesia and the Netherlands. It was able to do so, because the Dutch government does not require companies to have any economic activity in the Netherlands for using its investment treaties.

But just two short months later, news broke that Newmont and the Indonesian government had reached an agreement. Newmont received its export license and can export for significantly lower tariffs than before: 7.55 in 2015 and 0 per cent in 2017. Newmont in turn pledged 25 million dollars to the smelter that Freeport was set to build and annulled its ISDS claim.

Satisfied

Jaelani says he is satisfied with the compromise. “We negotiated, which we prefer over ISDS”, he says. But many Indonesians think differently. Yani Sagaroa is a mining activist on Sumbawa and is often consulted by the Mining ministry in Jakarta. He blames the government for inconsistency. “Newmont had to build a smelter between 2009 and 2014, but did not. Still they can export copper,” he said. “They did not abide by the law.”

In October 2015, Newmont responded to questions about the smelter by saying it is still negotiating with Freeport.

Meanwhile, Indonesia is writing a new model text for its investment treaties, of which the Dutch journalists have gotten hold. One of the most eye catching changes is that Indonesia will only allow ISDS, if they have provided written consent before each case. This means that companies can never use it as a threat or bargaining tool. Whether western countries are willing to swallow this radical departure from the current practice, remains to be seen.

This article is part of a research by De Groene Amsterdammer, Oneworld and Inter Press Service, supported by the European Journalism Centre (made possible by the Gates Foundation). See www.aboutisds.org.

Excerpt:

Rosa Tanguila, a Quechua indigenous woman, cleaning up the pollution caused by Texaco in a stream in her community, Rumipamba, in Ecuador’s Amazon jungle region. Credit: Gonzalo Ortiz/IPS

By Stephen Leahy
UXBRIDGE, Canada , May 18 2014 (IPS)

Conflicts with local communities over mining, oil and gas development are costing companies billions of dollars a year. One corporation alone reported a six billion dollar cost over a two-year period according to the first-ever peer-reviewed study on the cost of conflicts in the extractive sector.

The Pascua Lama gold mining project in Chile has cost Canada’s Barrick Gold 5.4 billion dollars following 10 years of protests and irregularities. No gold has ever been mined and the project has been suspended on court order.

And in Peru, the two billion dollar Conga copper mining project was suspended in 2011 after protests broke out over the projected destruction of four high mountain lakes. The U.S.-based Newmont Mining Co, which also operates the nearby Yanacocha mine, has now built four reservoirs which, according to its plan, are to be used instead of the lakes.

“Communities are not powerless. Our study shows they can organise and mobilise, which results in substantial costs to companies,” said co-author Daniel Franks of Australia’s University of Queensland, who is also deputy director of the Centre for Social Responsibility in Mining.

“Unfortunately conflicts can also result in bloodshed and loss of life,” Franks told Tierramérica.

The study is based on 45 in-depth, confidential interviews with high-level officials in the extractive (energy and mining) industries with operations around the world.

“Conflict translates environmental and social risk into business costs” was published May 12 in the Proceedings of the National Academy of Sciences (PNAS). A special report “Costs of Company-Community Conflict in the Extractive Sector” based on the study is also available.

“We wanted to document the costs of bad relationships with communities. Companies aren’t fully aware and only some investors know the extent of the risk,” Franks said.

“If companies are interested in securing their profits then they need to have high environmental and social standards and collaborate with communities,” Franks said in an interview.

Investing in building relationships with communities is far less costly than conflict. Local people are not generally opposed to development. What they oppose is having little say or control over how development proceeds, he added.

“We want development that benefits indigenous people and doesn’t just benefit someone’s brother-in-law,” said Alberto Pizango, president of the  Interethnic Association for the Development of the Peruvian Rainforest (AIDESEP), an indigenous rights organisation in Peru representing 1,350 Amazon jungle communities.

Peruvian indigenous leader Alberto Pizango, who is on trial in connection with the 2009 massacre in Bagua, has at the same time been asked by the Environment Ministry to help plan the next climate summit. Credit: Coimbra Sirica/BurnessGlobal

“Indigenous people have something to say about harmonious development with nature. We don’t want development that destroys our beloved Amazon,” Pizango told Tierrámerica from Lima.

Pizango has been actively resisting the government of Peru’s selling of petroleum concessions to foreign companies on lands legally titled to indigenous people.

The struggle turned violent outside the northern jungle town of Bagua on Jun. 5, 2009, when armed riot police moved to evict peaceful protesters blocking a road. In the clash 24 police officers and 10 civilians were killed.

Pizango and 52 other indigenous leaders were charged with inciting violence and 18 other crimes. They went on trial May 14 in Bagua.

The indigenous people were protesting 10 legislative decrees they considered unconstitutional, which were put in place by the government to foment private investment in native territories.

“We had no choice and thought our protests were fair and that we were right. But it was too high a price. We don’t want to see that again. We want to move from the ‘big protest’ to the ‘big proposal,” said Pizango, who faces a life sentence if he is found guilty.

The study published in PNAS shows that the violence in Bagua could have been avoided if companies and the government acknowledged indigenous rights and worked with local communities.

“It is with great sadness I say this has yet to happen in Peru,” said Pizango, who was not even in Bagua when the violent clash occurred.

Meanwhile, Peru’s Environment Ministry has asked Pizango and AIDESEP to assist in the planning of the big U.N. climate conference to be held in Lima at the end of the year. The indigenous leader hopes the event will show the world that native people can protect the forest and the climate.

Repairing relationships between communities and companies and governments is difficult, said Rachel Davis, a Fellow at the Corporate Social Responsibility Initiative at Harvard University.

“It is much harder for a company to repair its relationship with a local community after it has broken down; relationships cannot be ‘retro-fitted’,” said Davis, a co-author of the study.

Franks compares this to a divorce, pointing out that only rarely do partners remarry.

Leading mining corporations have apparently begun to understand this, and are implementing the U.N. Guiding Principles on Business and Human Rights and adopting the International Council on Mining and Metals Sustainable Development Framework, Davis said in a statement.

But this is not the case in the oil and gas sector. “Their culture is very different. They’re not used to dealing with communities,” said Franks.

The study shows that environmental and water issues are the biggest triggers of conflicts. Activities like hydraulic fracking for unconventional gas and oil are on the rise and are affecting water. Big conflicts are coming, he predicts.

“It’s a good report but doesn’t address the broader economic and political pressure to push projects through quickly,” said Jamie Kneen of MiningWatch Canada.

Shareholders want big returns on their investments and governments want their royalties sooner rather than later. All of this makes corporations less willing to compromise or to take the time to find alternatives that might be acceptable to local people,” Kneen told Tierrámerica.

“Companies know there will be problems with local communities. Companies often gamble that any conflict will not get too high a profile and try to hide this risk from investors,” he added.

Not all conflicts are resolvable, Kneen said. “Some communities will never accept any risk of contamination to their water.”

This story was originally published by Latin American newspapers that are part of the Tierramérica network.

Map of Eurasian Minerals licenses, as of late 2011. Credit: Eurasian Minerals website

By Correspondents
PORT-AU-PRINCE, Jun 27 2012 (Haiti Grassroots Watch)

Twenty billion dollars worth of gold, copper and silver hidden in the hills of the hemisphere’s poorest country. Investors in North America so convinced of the buried treasure, they have already spent 30 million dollars collecting samples, digging, building mining roads and doing aerial surveys.

The fairy tale is true, but it might not have a “happily ever after” ending.

A 10-month investigation into Haiti’s budding “gold rush” by the watchdog consortium Haiti Grassroots Watch (HGW) discovered backroom deals, players with widely diverging objectives, legally questionable “memorandums”, and a playing field that is far from level.

Although Haitian law states that all subsoil resources belong to “the Haitian nation”, so far the nation has been kept in the dark about the digging and testing going on in the country’s north.

Dieuseul Anglade, a well-respected geologist who headed the state mining agency for most of the past 20 years, was recently fired by Haiti’s newly installed prime minister. Was it because he has consistently championed tougher laws and better deals for the state, and for the Haitian people?

“Minerals are part of the public domain of the state,” the 62-year-old Anglade told HGW a month before he was removed from his post.

The geologist said that if tougher laws and better contracts with the mining companies aren’t written, it would be better to “leave the minerals underground and let future generations exploit them”. The geologist lost his job shortly after that interview.

Another major player in the gold game – Eurasian Minerals – has a different opinion of who should exploit Haiti’s riches.

The Canadian company and its Haitian subsidiaries are poised to mine on the very same ground where Christopher Columbus and the Spaniards once forced Haiti’s indigenous peoples to dig for gold.

Within 40 years of the famed 1492 landing, hard labour in the mines, murder and European diseases reduced the population from perhaps 300,000 to about 600.

Eurasian recently returned to the same hills where so many died, and has been quietly buying up licenses and conventions: 53 of them so far. The company controls exploration or exploitation rights to over one-third of Haiti’s north.

“Eurasian Minerals likes to acquire large tracts of real estate, add value by doing good geology, and then execute astute deals with good partners to advance our assets,” Eurasian’s David Cole said in a recent interview, and in another, he bragged that his company “control(s) over 1,100 square miles (1,770 square kilometres) of real estate” in Haiti.

Eurasian – which has tested over 44,000 samples so far – is partnered with the world’s number two gold producer, U.S.-based mining giant Newmont.

Another Canadian company, Majescor, and a small U.S. company, VCS Mining, and their subsidiaries have licenses or conventions for tracts totaling over 750 square kilometres. Altogether, about 15 percent of Haiti’s territory is under license to North American mining firms and its partners.

As Majescor’s Haitian subsidiary said in a recent corporate presentation: Haiti is “the sleeping giant of the Caribbean!”

The “sleeping giant” awakens

The giant was “asleep” because Haiti’s minerals have previously been too expensive to extract thanks to the tumult of the past three decades, characterised by brutal coups d’état, and due to local resistance to the mining companies.

But the price of gold has held steady above 1,500 dollars an ounce for the past year, Haiti hosts a U.N. peacekeeping force of 10,000 that will assure a modicum of security for the companies, and just next door in the Dominican Republic, foreign gold giants say they’ve found the largest gold reserve in the Americas: 25 million ounces.

Haiti’s newly installed prime minister is also optimistic. Laurent Lamothe, whose slogan is “Haiti is open for business,” has pledged to make mining one of the country’s new growth industries and to change laws in order to make them more business-friendly.

Speaking before the Senate last month, Lamothe said: “Our subsoil is rich in minerals. Now is the time to dig them up.”

In a nation where unemployment reaches 70 percent, where over half the population lives on less than a dollar a day, and where most of the government’s budget is covered by foreign aid, the buried treasure sounds like El Dorado.

But not all Haitians are as enthusiastic as Lamothe or the foreign mining companies. Pit mining can potentially poison water supplies and damage the environment. In the Dominican Republic, some regions are still suffering from mistakes made a few decades ago.

Nor is it clear that the eventual revenues that might be generated would benefit Haiti and its people.

“Invisible gold” with visible dangers

The mining companies estimate Haiti’s hills hold over 20 billion dollars in gold – much of it “invisible” because it exists in tiny particles in the rock and dirt. Extraction will only be possible with environmentally hazardous pit mines.

But Newmont Mining, Eurasian’s partner, knows its pits. The gold giant opened the world’s first pit mine in Nevada in 1962 and later dug in Ghana, New Zealand, Indonesia, and other countries. In Peru, Newmont runs one of the world’s largest open pit gold mines: the 251-square-kilometre Yanacocha mine.

But even with its years of experience, the company’s track record is far from error-free.

In Peru, farmers’ organisations claim their water supply has been slowly polluted with cyanide and in 2000, Newmont’s Peruvian trucking company spilled 330 pounds of mercury, causing dozens of people to become sickened with deadly diseases.

In Ghana, Newmont operates a mine located in a farming region known as Ghana’s “breadbasket”. So far, Ahafo South operations have displaced about 9,500 people, 95 percent of whom were subsistence farmers, according to Environmental News Service.

Newmont has poisoned local water supplies there at least once, by its own admission. In 2010, the company agreed to pay five million dollars in compensation for a 2009 cyanide spill.

In a May 25 email to HGW, Diane Reberger of Newmont wrote, “We can assure you that Newmont is committed to strong environment, social and ethical practices.”

While welcoming the possible benefits that well-built and -supervised mines might bring to Haiti, former state mining agency chief Anglade and other Haitian experts are worried that a pit mine could be dangerous to Haiti’s already fragile environment. Haiti has only about 1.5 percent tree cover, down from about 90 percent in 1492.

“Mines can cause big problems for the environment,” Haiti’s former environment minister told HGW.

Yves-André Wainright, an agronomist by training, noted that in addition to his heavy metal worries, some of the areas under license are “humid mountains”, meaning they play “an important biodiversity role and need to be protected, starting in the prospection phase.” They are also home to tens of thousands of farming families.

Nobody from the environment ministry has been seen at any mine sites, according to community radio journalists.

“When I really think about the possibility of mining, I am not so sure it’s a good thing,” farmer and peasant organiser Elsie Florestan told HGW.

She and her family have some land near Grand Bois, where they grow corn, manioc and sweet potatoes and where Eurasian and Newmont just finished test drilling.

“They say the company will need to use the river water for 20 years, and that all the water will be polluted,” continued the 41-year-old member of Haiti’s Tèt Kole Ti Peyizan (“Small Peasants Working Together”) peasant movement. “They say we won’t be able to stay here.

“If we don’t organise and make some noise, nothing good will happen as far as we are concerned,” she concluded. “We need to ask the president – what will happen to us peasants?”

Who is protecting Haiti’s interests?

Florestan’s fears may be justified.

Haiti has not signed the international Safety and Health in Mines convention or the voluntary Extractive Industries Transparency Initiative, both of which – if followed – offer some protections. In addition, Haiti is ranked as one of the most corrupt countries in the world – coming in at 175 out of 200 countries.

So far, permits have been issued behind closed doors, deals have been sealed secretly, and the test drilling has been carried out with no public scrutiny and little government oversight, by the state mining agency’s own admission.

“The government doesn’t give us the means we need to be able to supervise the companies,” Anglade confirmed in an interview while still head of the agency.

An audit of the agency’s motor pool shared with HGW in January showed that only five of 17 vehicles were in working condition. And with a budget of about one million dollars, the BME is also strapped for human resources.

Only one-quarter of the 100 employees have university degrees. Another 13 percent are “technicians”. The rest are secretarial and “support” staff.

In addition, Haiti has one of the lowest royalty rates in the hemisphere, collecting only 2.5 percent of the value of each ounce of gold extracted.

“A 2.5 percent royalty share is really low,” according to mining expert Claire Kumar of Christian Aid. “Anything under five percent is just really ludicrous for a country like Haiti. You shouldn’t even consider it. For a country with a weak state, the royalty is the safest place to get your money. There is room for manipulation by the company, but it’s not as big as you would think.”

Former minister Wainwright shares Kumar’s concerns. Will Haiti’s “weak state” be able to keep an eye on the mining companies’ work and on the potential environmental damage?

“We have competent staff at the Mining Bureau, but they don’t have the means to carry out their jobs,” Wainwright said.

The mining companies also have friends in high places.

Former Minister of Finance Ronald Baudin – who sat across from Newmont at negotiating tables in 2010 and 2011 – went through the “revolving door” and now works directly for the company. Asked in an interview with HGW about the apparent conflict of interest, the ex-minister said “I have to eat, right?”

In March, Baudin helped facilitate a “Memorandum of Understanding” (MOU) he says allows Newmont to do test drilling. The ex-minister told HGW said the MOU was “a waiver” to current law, which states that no drilling can take place without a signed mining convention.

Lawyers consulted by HGW confirmed that the only way to get around the requirements of a law is with a newer law that would remove the requirements of the old one.

Anglade, then head of the state mining agency, knows the law. He told HGW that he refused to sign the “waiver”.

“I told them it was illegal and that it was not in Haiti’s interest,” Anglade said. Two months later he was out of a job.

Despite Anglade’s refusal to agree, the MOU was signed by the then-ministers of Finance and of Public Works in late March, and Eurasian reported to its shareholders on Apr. 23 that “(t)he joint venture is allowed to drill on certain selected projects under the MOU, and drilling is currently underway.”

As drilling progresses and more ore is tested, the farmers in Haiti’s northeastern mountains say they feel like nobody is looking out for their interests.

Residents of the dirt-poor hillside hamlet of Lakwèv have panned for gold since the 1960s in order to supplement their farming income. Over the past few years, they have seen mining company crews come and go, but they rarely see anyone from the state mining agency or any other government offices.

“It’s always a couple of big white guys with some Haitians. They don’t even ask you who owns what land. They come, they take big chunks and put them in their knapsacks and they leave,” peasant organiser Arnolt Jean explained. “We need a government that controls what is going on, because we don’t have the capacity to do that.”

Lakwèv is destitute. No clinic, no state schools, no running water, and a rutted path as a “road”.

“Our country is poor, but what is underground could make us not poor any more,” Jean mused. “But since our wealth remains underground, it’s the rich who come with their fancy equipment to dig it out. The people who live on top of the ground stay poor, while the rich get even richer.”

Read the entire series at Haiti Grassroots Watch

Haiti Grassroots Watch is a partnership of AlterPresse, the Society of the Animation of Social Communication (SAKS), the Network of Women Community Radio Broadcasters (REFRAKA), community radio stations from the Association of Haitian Community Media and students from the Journalism Laboratory at the State University of Haiti.

Made possible in part by a grant from the Pulitzer Center on Crisis Reporting. The Haitian weekly Haïti Liberté partnered with Haiti Grassroots Watch on this report.