German M. Cash

Social Conflicts in the Extractive Sector of Peru: Moving towards

New Models of Natural Resource Management

Natural Resource Management

• Center for International Conflict Resolution at SIPA• Project with UNDP Peru in the Office of Conflict Prevention • Conflict between extractive industries and local communities• Need for more effective policies of Natural Resource

Management

• Drivers of Conflict• Environmental Sustainability• Economic growth Vs. Environmental Protections• Lack of Environmental Regulations• Political and Social Exclusion of Affected Groups

Natural Resource Management in Peru

• Scope of research: Assess the evolution of social conflicts in Peru linked to natural resource management, the different approaches adopted by stakeholders (UNDP, Government, Extractive Companies and Community Organizations,) as well as conflict prevention and resolution mechanisms being implemented, in order to provide recommendations for improvement and offer alternative approaches to natural resource management.

• Client: United Nations Development Program (UNDP) Peru • Project: Social Conflict Prevention over the Use of Natural

Resources (2012 - 2016)• Funded by Canadian International Development Agency

(CIDA), UNDP, various Peruvian government agencies

Overview of Peru• One of the fastest growing economies in Latin America

• Main force of economic growth is increased FDI in natural resource extraction (gold, copper, silver, oil, and natural gas)

• However, rapid economic growth has fueled social tensions between local communities and mining companies

• Documentary on Informal Mining in Peru

Cases and Regions Informal Mining

(Gold)Madre de Dios

Camisea Project(Natural Gas)

Cusco

Conga Project(Gold)

Cajamarca

Quellaveco Project(Copper)

Moquegua

Lote 1AB (Oil)

Loreto

Rio Blanco Project (Copper)

Piura

Methodology

• Qualitative and quantitative analysis from primary and secondary sources.

• Field work, two main tools:

1) Interviews (primarily qualitative analysis)

2) Indicators (primarily for quantitative analysis)

Identifying the ConflictRoot Causes Triggers New Root Causes

· Historic feelings of social, economic, and political marginalization among communities

· Weak state legitimacy and low capacity

· Weak representation of rural areas

· Poorly coordinated government strategy for national and sustainable economic development

· Social frustration, unrest and community protests

· Economic inequality among different groups of society

· Economic losses for other activities (agriculture, livestock…)

· Absence of strong mechanisms to address grievances by the government

· Environmental degradation

· Imposition of an economic development model from the capital

· Mismanagement of decentralized responsibilities over canon investment and conflict resolution in the regions

· Absence of strong mechanisms to address grievances by the government

Stakeholders and their Approaches

• Companies• Profit driven exploitation and social disengagement• “Social Embeddedness”

• Community Organizations• Social organization and mobilization• “Clientelism” and Corporate Paternalism

• Government• Mismanagement of revenues, weak state legitimacy, and negligence• Engaging actors through conflict resolution mechanisms like roundtables

Effective and Noneffective StrategiesStakeholder Approach Case Dollar amount

Cost/Benefit to stakeholder

Company

CSR initiatives that do not include

Social Embeddedness

Conga Project

Cost:

6.8 billion USD in earnings for the company in 2013

Social disengagement Rio Blanco Project

Cost:1.6 billion USD

lost earnings for the company in 2011

CSR initiatives that include Social

Embeddedness

Camisea ProjectBenefit:

50 million USD

Effective and Noneffective Strategies

Communities

Community Organization and Empowerment

LoretoInability to assign dollar amount to benefit due to ongoing negotiation process from dispute over compensation.

Lack of community organization

CajamarcaInability to assign dollar

amount to benefit due to ongoing negotiation process

from dispute over compensation.

Government

Canon mismanagement Peru

Cost:3.5 billion USD

Unused

State inability to mediate Cajamarca

Cost:1 billion USD

Loss of canon and royalties

Weak state legitimacyMadre De Dios

Cost:180 million USD

Loss of canon annually

Coming to the Table

1) The outcomes of the process of conflict resolution are directly dependent on the form of engagement of the company.

2) The company’s engagement in the dynamics of natural resource management and it’s role in the conflict resolution process are driven by:

• profit • pressures and incentives used by the government.

3) The government’s engagement with the companies is influenced by:

• pressure from community organizations, • changing international laws and norms

Conclusions• Increase in FDI in extractive sector is associated with increase in social

conflicts

• Absence in consensus on quantifying costs and damages among stakeholders

• Social embeddedness plays a significant role in mutual development

• Roundtables are most effective with government support, active engagement of company, and the backing of international standards

• Social conflicts allow communities to achieve their political objectives, incentivizing conflict

RecommendationsProblem

1. Difference in perceptions of social development, CSR, and valuation of costs 2. Lack of national coordination of natural resource management3. Weak state legitimacy

Solution● Companies

○ Enhance CSR, moving towards social embeddedness○ Prior consultation with communities before extraction○ Engaging with state institutions

● Community Organizations○ Empower community leaders to engage in the process of natural resource

management (workshops, monitoring, etc.)○ Resist “clientelism,” patron-client traps

Recommendations

● Government○ Implement National Strategic Development Plan ○ Incentivize social embeddedness by awarding projects and

concessions to companies with a similar focus ○ Institutionalize social embeddedness as a norm and responsibility in

the extractive sector○ Address issues of weak state legitimacy, Improving government

presence in rural communities

● UNDP○ Maintain back-track approach to strengthen state legitimacy○ Allocate resources to civil society groups and government initiatives

focused on training communities to monitor the process of extraction○ Early warning alerts - Place permanent offices of conflict prevention in

the remaining eleven regions that are of concern