COMMUNITY DEVELOPMENT AGREEMENTS

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2015)
CHAPTER 11B
COMMUNITY DEVELOPMENT AGREEMENTS
Ana Elizabeth Bastida
Lecturer
University of Dundee
Scotland
Carlos Ciappa
LLM Candidate
University of Dundee
Scotland
Carmen Villaran Ascenzo
LLM Candidate
University of Dundee
Scotland

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ANA ELIZABETH BASTIDA specializes in law, policy, and governance of natural resources. Her specific expertise is in mining law and the design and implementation of resource regimes and practices that integrate environmental, social, and economic dimensions of development in the extractive industries. She has more than 20 years' experience working in academic, advisory, and consultancy positions, and is involved in education and training projects. She is a lecturer (part-time) and led the Mining Programme at the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP), University of Dundee for 10 years (2003-2013). She acts as external advisor, with assignments for governments (Argentina, Cîote d' Ivoire, Ecuador, El Salvador, Ethiopia, Georgia, Mozambique, Mongolia, Montserrat, and St Helena Islands, United Kingdom), intergovernmental organizations (United Nations, EBRD, IFC, World Bank, GIZ, DfID), non-governmental organizations (IUCN, RWI, Global Witness, Open Society Justice Initiative), and corporate institutions (ITRI Ltd.), as well as companies (Anglo American, Rio Tinto, De Beers). She is the Academic Director of a new Masters in Mining Business Management at the Catholic University of San Juan, Argentina. She has participated in major initiatives on mining and sustainable development including the MMSD; the MMDA and the International Study Group for the Review of African Mining Regimes supported by the UN Economic Commission for Africa. Elizabeth is a qualified lawyer in Argentina (Specialization in Natural Resources Law, University of Buenos Aires, cum laude; LL.M in Resources Law and Policy (CEPMLP, Dundee; with distinction), Ph.D (CEPMLP/Dundee). Member of the Environmental Law Group of the IUCN from 2000; nominated in the Who's Who of Mining Law consecutively from 1999; member of the Academic Board of Revista Argentina de Derecho de la Energía, Hidrocarburos y Minería; and former Deputy Managing Editor of the Journal of Energy and Natural Resources Law.

CARLOS CIAPPA is a Chilean lawyer pursuing an LL.M. in Mineral Law and Policy at the University of Dundee -- CEPMLP. Carlos has worked for Centrales Hidroeléctricas de Aysén S.A., providing legal council to develop a hydroelectric complex in Chilean Patagonia with special focus in community agreements, water rights allocation, and Environmental Impact Assessment processes. He was an associate in the natural resources group of the firm Allende, Bascuñán & Cia providing legal counsel to several clients related to mining projects. From 2010 Carlos worked for the Chilean government, first as an advisor to the General Directorate of Water and later as Head of the Legal Division for the same institution. In Chile, he also was a Lecturer in several courses, including the Water Law course for the Master of Laws in the Catholic University of Chile and the Environmental Regulation course for the Master of Environment in the Finis Terrae University.

CARMEN MARíA VILLARÁN ASCENZO is a Peruvian lawyer, and a mining policy and legal specialist in environmental and social matters related to investments and acquisition transactions in the mining and energy sectors, providing legal advice on mining agreements, permits and licenses, water rights matters, surface rights and communities' related issues. She obtained her law degree from the Pontificia Universidad Catolica del Peru, where she also completed the Environmental and Natural Resources Law postgraduate program. She is completing an LL.M in Mineral Law and Policy in the Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP) in the University of Dundee. Furthermore, she was elected as the Activity Liaison of the University's CEPMLP Mining Club.

Preliminary Review and Discussion in the Latin American Context¹

Draft Working Document - Not to be cited without the authors' permission

1. Introduction

A recent study by Franks et al expressed the real impact of conflict on business performance and continuity in the language of costs and business risks.² The study highlighted the diverging corporate strategies to deal with conflict and suggested the need to further on the understanding of the dynamics of conflict and its root causes to achieve sustainability outcomes. It also observed that sound policy and regulation drives varied approaches by companies, concluding that:

... a policy environment that encourages effective predictive assessment and management of environmental and social impacts, greater community involvement in dialogue and decision making during the early stages of projects (including addressing community held expectations for consent); the formalization of such dialogue into agreements between companies and their employees, Indigenous peoples, and communities; and the implementation of conflict resolution and grievance handling approaches, is particularly important in ensuring that environmental and social risks are managed and conflict is regulated in constructive ways. (p. 5)

Community Development Agreements (CDAs) aimed at shaping the relationship between resource companies and host communities are becoming common practice in the industry, and even a legislative requirement in a number of jurisdictions.³ They are broadly modelled in the practice of agreements entered with indigenous communities, which emerged in

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resource-rich and developed countries as Australia and Canada.⁴ A growing body of multi-disciplinary literature is advancing understanding on the drivers, process, contents and limitations of CDAs.

CDAs are but one of the vehicles to deliver development outcomes to local communities affected by resource projects (others include social investment programs implemented by companies; community development and impact mitigation plans approved by government; development forums; partnerships, trusts and development funds).⁵ Their defining features have been described in terms of process (the agreement as a result of fair negotiation and/or facilitation in which communities, or community representatives, are engaged) and of content (the purpose being to create mutual obligations between the parties, with provisions addressing broader developmental objectives rather than narrower financial compensation).⁶ The written document might take a legal form and obligations arising from it might be legally enforceable, although these are not defining features of CDAs and there are hotly contested.

This DRAFT examines the case for community engagement in mining; the literature, trends and emerging aspects of the debate on CDAs, as well as the legal frameworks in place in Peru and Chile. It also presents preliminary findings of research into the practice of community engagement in these countries and attempts a critical appraisal of CDAs in the light of the emerging literature. It is a WORKING DOCUMENT that shows research and reflections in process. We very much welcome comments.

2. The Case for Community Engagement

The relation between extractive industries and communities living nearby is highly contested, and has become the focus of much analysts and debate.⁷ While the very same nature of mining turns it into particularly exposed to conflict and community opposition,⁸ local conflict spreads along the spectrum of large-scale projects (including dam, wind energy,⁹ nuclear,¹⁰ coal¹¹ and geothermal projects).¹²

2.1 The Cost of Conflict

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The literature consistently points out at the benefits for all stakeholders derived from good relations among communities and companies.¹³ Studies have also shown the higher costs for projects resulting from conflicting relations.¹⁴ In 2008, Goldman Sachs conducted research on 190 projects operated by the major oil and gas companies, presenting the

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profound impacts of community unrest on project developments and delays. An independent follow up to that study showed that one company suffered a US$6.5 billion decrease on its value due to theses conflicts.¹⁵ In 2011, a study led by Rachel Davies and Daniel Franks elaborated on a comprehensive framework to analyse costs related to community conflicts. The data grounding such study showed that the stoppage of an exploration project could cause around US$10,000 of losses per day;¹⁶ and a world-class mining project with capital expenditure of between US$3 and US$5 billion lost around US$20 million per week of delayed production in net present value terms as a result of community conflict.¹⁷ In 2014, Davies and Franks published a follow-up version to their 2011 study with an expanded data set and an examination of conflict in around fifty projects worldwide (the study we quoted in the Introduction to this paper). They observed:

For example, at one Latin American mine, a nine-month delay during construction in 2010 resulted in US$750 million in additional project costs. Community conflict in one country led to stoppages and down days that cost another project US$100 million per year. In another case, community conflict that shut down a few key power lines caused an entire operation to halt at a cost of US$750,000 perday. A seven-day blockage of an energy project's supply route in a Middle Eastern country, which interrupted operations, cost US$20,000 per day. ¹⁸

Stoppage and security costs are just two of the pernicious effects of company-community conflicts. Project modification, risk management, material damage, capital, personnel, reputation and redress are also costly impacts for companies out of community conflict.¹⁹ Companies take into account some of these costs, but usually overlook others, as...