Violent protests underline challenges for China-Peru mining cooperation

Despite a wave of violent protests over environmental impacts and redundancies in the extractive sector, which resulted in the Peruvian government declaring a nationwide 60-day state of emergency, Peru’s president Ollanta Humala and Chinese premier Li Keqiang sealed further cooperation on mining in Lima last month with a simple handshake. On the Peru leg of Premier Li’s Latin America tour in May, he and President Humala signed 10 accords promoting bilateral cooperation on mining, infrastructure and education, among other areas. And in a bid to further increase the mining sector’s output and upgrade China’s industrial exports to Peru, Li, who was speaking at business symposium whilst in Lima, called on Chinese mining equipment manufacturers to transfer technology to Peruvian operations. He also stressed the need for better communication between Chinese enterprises and their Peruvian employees, urging the former to do more to ensure decent living and working conditions. But the fatal shooting by police of a 38 year old man, after violent clashes erupted in the Marcona district of the Ica region around Peru’s largest iron ore mine, owned by China’s Shougang Hierro, undermined Li’s earlier call for “harmony”. Previously, seething discontent had boiled over at the Tia Maria copper mine in the southern Arequipa region, owned by Mexico’s Southern Copper, bringing operations to a halt.  It was left to Peru’s environment minister, Manuel Pulgar-Vidal, to deliver news on May 23 that troops would be deployed to guarantee social order over the next two months. Peru already counts on mining for around 15% of GDP and Chinese capital, which accounts for a striking 30% of all investment in the sector, is credited with both the Andean nation’s economic recovery after a patchy 2014 and the 9.3% year on year increase in mining output. But problems continue for the sector, which is a direct employer of around 200,000 people in Peru.  Protestors at Shougang were demanding the district-wide provision of potable water and objected to the multiple redundancies of outsourced, mostly service workers. Along with electricity, Shougang manages Marcona district’s water supply as part of a unique concession that dates back to the 1990s. Local news reports claimed that the man killed during the confrontation with police, Luis Quispe Chumbi, was not an employee of Shougang but was showing solidarity with the 65 workers who lost their jobs after a contract with tertiary recruitment firm COOPSOL Minería was cancelled on April 18. Shougang reacted to the fatal confrontation by taking out a full-page advertisement in Peruvian daily La República on May 27 calling on the Peruvian government to protect its staff and the investments they are making “for the benefit of the country”. On the same day, Humala appeared to reassure foreign investors, saying that “political noise” would not affect Peru’s economic development. Shougang has a turbulent history of strikes and protests and it is not the first time they have resorted to communicating their position in newspapers. And in a curious development, La República also reported  that one of the men arrested by police after damaging Shougang property, Ruben Américo Soto Soto, gave initial testimony that he was enlisted to do so by one of the company’s own security bosses. Shougang has denied that it paid infiltrators or agents provocateurs, and has rejected Soto’s version of events. Soto himself has since changed his story. Same old Shougang? The reason for persistent conflict and enduring poor perceptions of Shougang, according to Cynthia Sanborn, an expert on Peru’s extractive sector at the Universidad del Pacifico, is that they started off on the wrong foot. “Shougang continues to be seen as the stereotypical ‘abusive’ Chinese firm,” Sanborn told Diálogo Chino, “even if the nature of the abuse is exaggerated.” Sanborn explains that when Shougang acquired the rights to develop the iron ore mine, the package of concessions included control of water and electricity supplies and even the port in Marcona, which has contributed to perceptions of a company satisfying its thirst for natural resources without respecting the needs of the local community. Shougang executives claim to have tried to transfer control of the water supply to the local municipality, which is apparently unwilling or unable to manage it. The town’s administration has denied this. “There is no other case like this in Peru,” said Sanborn, adding that under normal circumstances; “investors gain concessions to extract the subsoil resource, but the rights to land, water and other goods are not theirs.” The town of San Juan de Marcona was created by American investors in the 1950s then brought under state control during the ‘70s and ‘80s. Shougang then acquired the concession during the wave of privatizations instituted by President Alberto Fujimori following his election in 1992. But it instantly also acquired a bad reputation when on selling to Shougang, the Peruvian government sacked half the town’s employees who were living in company housing. Shougang tried to evict them and replace them with Chinese. However, Shougang came up against the town’s militant unions, who have been historically allied with local politicians and who have strong ties to the National Mineworkers Confederation, allowing them to mobilise widespread opposition and make their complaints heard in national media. And it seems that yet again, Shougang have fallen victim to their own bad reputation. “This is ironic,” says Sanborn referring to the outbreak of violence caused by Shougang not keeping COOPSOL employees on their payroll, “because according to our data, Shougang uses a lower percentage of subcontracted tertiary service workers than other large Western mining companies in Peru.” Worse still, Shougang has now had to respond to accusations of hiring agents provocateurs to commit acts of vandalism again its own property. La República originally reported that Soto, who was sentenced to seven months in custody after damaging Shougang installations, was being paid 100 soles (US$  31) per day by deputy security chief Antonio Arévalo. However, Soto now claims that he had been employed by Shougang since May 19 to defend installations from attack. Shougang’s head of public relations, Guillermo Alfaro, said Monday that he was unaware of Soto’s latest testimony but rejected the initial one outright. On being asked if Soto could have been employed by Shougang’s outsourced security personnel supplier Solmar, Alfaro replied; “Solmar can’t take people on to do us damage.” As with Shougang, violent protests are nothing new at Southern Copper’s Tia Maria. The giant copper mine is owned by Mexico’s Southern Copper and UK news and intelligence service Latin News estimates that in addition to seven killed since 2011, over 100 people have been injured since the first protests at the site 16 years ago. Seemingly learning the lessons from the Shougang experience, Chinese state-owned Chalco, which operates the Toromocho copper mine, spent around US$ 10million on community relations after inheriting the toxic legacy of Toromocho’s previous owners. And it has achieved some notable successes, suggesting that in the broader Peruvian context, it is not the mine operator’s nationality that protestors take issue with. Toromocho is a huge part of Peru’s plans to increase mining output as it is expected to produce 300,000 tonnes of copper per year once at full capacity. Whether Organic or orchestrated, the coincidence of the protest at Shougang with the arrival of Li Keqiang in Peru served as a timely reminder that Chinese companies, workers, unions and Peru’s local governments desperately need to engage in constructive dialogue. “It certainly belies Mr. Li´s exhortation to Chinese firms in Peru to establish positive relations with their workers and local communities,” says Sanborn.