THE IMPACT OF SUSTAINABLE DEVELOPMENT ON MINING PROJECTS: THE PERUVIAN EXPERIENCE (ENGLISH AND SPANISH)

• Jurisdiction: Derecho Internacional

Mining and Oil and Gas Law, Development, and Investment - Book 1
(Apr 2007)
CHAPTER 6A
THE IMPACT OF SUSTAINABLE DEVELOPMENT ON MINING PROJECTS: THE PERUVIAN EXPERIENCE (ENGLISH AND SPANISH)
Antonio Pinilla Cisneros ¹
Legal Manager and General Counsel
Compañía Minera Antamina S.A.
Lima, Peru

ANTONIO PINILLA CISNEROS

Antonio Pinilla Cisneros has been legal manager and general counsel of Compañía Minera Antamina S.A. since 1999. In this position, he has been involved in the creation and organization of the legal department of the Company, supporting the process of constructing the mine and putting it in operation on time and under budget. Also in this position, he has worked in the development of a contractual system, managing litigation, giving legal advice to all areas of the company, supporting the legal completion for the project finance, among many others legal matters. Antamina is world class mining operation owned by the Xstrata group, BHPBilliton, TeckCominco and Mitsubishi Corporation that involved an investment of more that 2,400 Million through a project finance in year 1999. The deposit is located in Ancash, Peru. Before this position, he was legal counsel for the Peruvian branch of Occidental Peruana Inc, a related company of Occidental Petroleum. Here he was involved in giving general legal advice to other areas of the company specially supporting the contractual process. Before joining Oxy, from 1992 to 1994 he worked as a lawyer and as Legal Coordinator of the National Superintendence of Tax (SUNAT), public entity in charge of collecting and administrating internal taxes, taking the responsibility to legally support the internal purchase processes and the acquisition of offices all around the country. He graduated from the Catholic University of Peru in year 1991 and has a Masters Degree in Corporate Law with the University of Lima in 1998. He has published articles in mining specialized gazettes and a book titled "Los Contratos Ley en la Legislación Peruana" where he analyses the importance of the stability agreements for attracting investment to Peru. He has also attended specialized courses in management in Peru and the Program Management for Lawyers at the University of Yale in New Haven, Connecticut, USA. He is fluent in Spanish and English.

Antonio Pinilla Cisneros ocupa el cargo de Gerente Legal de Compañía Minera Antamina S.A. desde 1999. En esta posición, ha sido responsable de la creación y organización del departamento legal de la compañía, prestando apoyo en el proceso de la construcción y puesta en operación de la mina dentro del plazo previsto y por debajo del presupuesto estimado. El departamento legal ha tenido a su cargo la implementación de un sistema contractual en Antamina, la administración de los procesos judiciales, la prestación de servicio de asesoría interna a las diferentes áreas de servicio y operativas de la compañía y brindó apoyo efectivo en el proceso de cumplimiento de los requerimientos legales del financiamiento de Antamina, entre otros. Antamina es una operación minera de clase mundial de propiedad del grupo Xstrata, BHP Billiton, TeckCominco y Mitsubishi Corporation que implicó un financiamiento de proyecto de más de 2,400 millones de dólares en 1999. El yacimiento se encuentra localizado en la Región Ancash en Perú. Anteriormente, fue abogado de Occidental Peruana Inc., Sucursal del Perú, empresa vinculada al grupo Occidental. En esta posición, estuvo encargado de brindar asesoría legal a otras áreas de la compañía, especialmente en temas contractuales. Antes de trabajar en Occidental entre 1992 a 1994, fue abogado de la Superintendencia Nacional de Administración Tributaria (SUNAT) entidad encargada de la recaudación de tributos internos en el Perú, ocupando la posición de Coordinador de la Intendencia Nacional Jurídica y apoyando los procesos internos de compras, así como la compra de locales a nivel nacional. Es abogado graduado de la Pontificia Universidad Católica del Perú en 1991 y Master en Derecho Empresarial por la Universidad de Lima en 1998. Ha publicado artículos en revistas especializadas y el libro titulado "Los Contratos Ley en la Legislación Peruana" donde se analiza la importancia de los contratos de estabilidad jurídica como instrumentos para atraer inversiones al Perú. Ha asistido a cursos de especialización en gerencia en el Perú y al programa de Gerencia para abogados de la Universidad de Yale en New Haven, Connecticut, EEUU en junio del 2006. Tiene dominio del español e inglés.

This paper deals with some practical solutions developed in Peru to handle the claims and grievances lodged by local communities when faced with the development of mining projects on their lands. It analyzes the reasons why a gap exists between the text of the law and the real situation that companies interested in developing or that are already developing mining projects in Peru must face. We will see that, in general, the solutions that mining companies and the State have given to these problems are focused on promoting the sustainable development of people living in the vicinity of mining projects. The above title thus summarizes the main idea of this paper. Moreover, the process involved in the search for solutions that will help obtain the much-desired social license requires companies to engage in social responsibility.

1. Traditional mining development scheme in Peru:

a. What does the law say?

In broad terms, the first thing we need to do to undertake a mining project in Peru is to obtain authorization to develop the mineral resources through a mining concession. Under Peruvian law, four different types of concessions can be obtained: a mining concession, a beneficiation concession, a general service concession, and a mining transportation concession. The concession implies an irrevocable right in rem, as long as the concession holder complies with all the applicable requirements set forth in the law. ² The main right afforded by the mining concession is the right to carry out mining exploration and exploitation activities within a duly determined area of indefinite depth delimited by the vertical planes originating from the sides of a square, rectangle or closed polygonal, the vertices of which are referred to UTM coordinates. Legally speaking, the mining concession requires the issuance of an administrative resolution whereby the State grants the mining concessionaire the right to carry out mining exploration and exploitation operations within the surface land granted for such purpose, and the right to own the mineral resources to be extracted. The payment to be made by the

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concessionaire in exchange for the mining concession is called mining good standing fee or validity fees.³

Notwithstanding, the first thing we should bear in mind is that the mining concession does not afford the right to own the surface land where the concession is located, to the extent we are speaking of two different properties. Accordingly, one of the first and most important challenges faced by concession holders is gaining access to the surface properties overlying the mining concessions. This process, which frequently requires very complex negotiations, becomes the first source of conflict, as we will analyze later on in this paper.

Peru's mining legislation originally contained an expropriation regime in favor of the mining concessionaire. However, this regime was repealed with the entry into force of the Constitution of 1993, which afforded mining concessionaires the right to apply for a mining easement to gain access to surface land. Although this right is still in effect, it requires following a complicated procedure that proves difficult to follow. In practice, the possibility of obtaining an easement is very unlikely. As a matter of fact, the easement is not intended to affect or weaken the ownership right of third parties; however, in many cases easements have been requested to open new pits, which completely distorts the nature of this legal concept.

In addition, mining concessionaires have to obtain environmental authorizations to carry out exploration and exploitation activities. Peruvian law requires having an Environmental Impact Assessment (EIA) approved by the General Bureau for Environmental Affairs (DGAA), an agency that reports to the Ministry of Energy and Mines, as a basic requirement to carry out these activities. The EIA preparation process includes participatory mechanisms to foster the participation of communities located in the vicinity of the projects. Although these mechanisms are necessary and play a key role in the process followed to obtain the so-called "social license", they become a source of conflict between local communities and potential mining investors.

Moreover, a mining concessionaire that intends to start operations must obtain a series of authorizations and permits from different central, regional and local government entities. Conflicts arise from this process, particularly from the companies' interaction with local governments. These conflicts complicate the development of projects and become a source of conflict. Moreover, due to the complex organization of Peruvian politics, difficulties are encountered at the time of taking the necessary steps to obtain these authorizations and permits. For example, in order to start up the Antamina

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project in the Ancash region, in Peru, the company had to obtain more than three hundred and seventy authorizations and permits from different administrative entities.⁴

However, despite having obtained a mining concession and all the necessary authorizations and permits to carry out mining activities according to law, social problems frequently hinder the normal development of mining projects or make them much more expensive as a result of work stoppages and even acts of vandalism. In fact, the thing is that a very important

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