AMERICA BUSINESS AND ECONOMICS COMMUNITY LABOR

The Dilemma Between Chinese Mining Tycoon and Peruvian Town Morococha: an Analysis of Toromocho Mine in Morococha, Peru

By Sitong Chen, Yidi Sun and Yingle Su

Toromocho Mountain, 140 kilometers from the capital Lima, at 4,600 meters height, has a magnificent view comparable to any mountain range. In the past few centuries, the roar of the machine has never stopped on this high mountain, in addition to the scenery, it also possesses an enormous significant mineral resource—copper.

Toromocho is one of the world’s largest unexplored mines, with 1.52 billion tons of ore, grading 0.48% Cu, 0.019% Mo, and 6.88 g/t Ag. The exploitation of Toromocho copper mine has a long history that can be traced back to the 16th century. Historically, the ownership of the copper mine has been changed several times. In 2008, Chinalco, a critical state-owned enterprise directly supervised by the central government from China, spent $3 billion to acquire the development rights and mining rights of Toromocho. This project also became the most significant mining project invested by Chinese companies overseas at the time.

As a country with abundant natural resources like copper, silver, and gold, Peru has always been an attractive investment destination for Chinese companies. In 2019, Peru officially joined China’s Belt and Road Initiative and received a $4.89 billion investment from China. Currently, over 170 Chinese firms are operating in Peru, most of them are mining companies.

However, as Chinese mining companies entered Peru, a series of problems, such as labor disputes and community conflicts, dragged many Chinese projects into the quagmire. 

Shougang, the first Chinese mining company to enter Peru in 1992, has suffered strikes for years due to inevitable cultural conflicts between Peruvian worker unions and the Chinese management team. Moreover, The Minera Las Bambas project, undertaken by China Minmetals’ subsidiary MMG also encountered difficulties in dealing with indigenous people, who blocked the main highway for two months in 2019.

Unlike the above two cases, at first, Chinalco was regarded as a model for Chinese enterprises to develop mining in Peru at the first stage. Because of the nature of the Toromocho open-pit mine, copper mine development would inevitably lead to a negative societal and environmental impact on local communities. Community relocation is thus the imperative option to further push forward the progress of the project copper mines. 

Source: Minera Chinalco

However, relocating such a large town was something no one had tried before. After obtaining the development rights, Chinalco had taken the lead in investing the $50 million purely for the relocation of the community before any other extractive activities started. The move was celebrated as a triumph initially, then it sparked and exacerbated the conflicts between Chinalco, local government, and residents.

Timeline of Toromocho Mine

Relocation Caused Economic Problems 

The ongoing conflicts around Toromocho mine came from the refusal to move 65 local families at the end of 2019. Meanwhile, only 20-minute-drive from the old town Morococha, Chinalco has built a new town of small dwellings, which is called Carhuacoto, with the capacity to accommodate nearly 1200 displaced families. 

the Old Town and the New Town

During the relocation process, residents of Carhuacoto and Morococha encountered a series of difficulties and problems. To sum, the one leading cause of conflicts comes from the sustainability of the economy regarding compensation and future vocational opportunities.

New Town Carhuacoto: The failure of economic sustainability 

Near half of the residents attribute their move to external coercion or inner discomfort, according to a UNCP survey in 2017. 37% of the residents, on the other hand, are motivated by job opportunities. According to the Environmental Impact Study written by  Knight Piésol in 2009, Chinalco promised that “regardless of the gender, companies will provide equal employment opportunities as long as the individual meets the training requirements for the work.” 

However, the unemployment rate reached 52% of the population, and nearly 70% of the residents did not receive any forms of vocational training.

Historically, the residents in Morococha thrived by devoting themselves to prospering the local mining industry. Oppositely, according to Julia Cuadros, the director of CooperAcción, a Peruvian NGO dedicated to strengthening participatory territorial management under the exercise of cultural diversity, gender equality, and respect for human rights, what Chinalco did was to relocate the residents far away from the mining area. There is no chance for them to do business with the mine for economic prosperity.

“Look at the street. There is dead silence,” said Karla Victoria, the president of the new town’s Merchants’ Association.  In this way, residents can barely gain access to the major mining area, or the commercial center, for a better job opportunity, due to the exclusive blockade from Chinalco.

Under the grave situation in the new town Carhuacoto,many residents have a second move to other prosperous cities like Lima.

Fabio D. Miranda, an anthropological scholar from the Catholic University of Peru, who once conducted 3-month field research at Toromocho mine. He indicated that “The whole social structure becomes reshuffled, so a phrase that was very common is ‘I do not know my neighbors anymore’ It’s becoming a hotel town rather than a ghost town.” The regroup of social structure in the new town may bring the loss of self-esteem and self-identity and thus result in a high risk of marginalization for residents. 

The issue of economic sustainability makes the future of the new town faded, which is also the concern for old residents.

Old Town Morococha: Inadequate compensation, Community History, Land Ownership 

The residents in the old town, striving for a better life and resettlement arrangement, did not accept the violent demolition of their symbolic houses, which represented the annihilation of their indigenous culture and history, personal rights, communal living, collective memories, and futures. 

For this reason, residents in the old town decided to stay and resist until the end. 

Fabio discussed the possible implications of the old residents’ psychology, “I don’t think we can simply characterize the old town residents and people who are refusing to move out as the emotional attachment to land or something like that. That’s not a correct frame to say this. This is more of land rights, and they feel that they are not being compensated enough.”

Inadequate compensation appeared as a significant problem for the residents. “The way how the company takes territory from them is arbitrary,” said Elvis Fuster, Vice President of the Broad Front for the Defense and Development of the Interests of Morococha (FADDIM), a collective founded following the resettlement process.

The conflict has been ignited again due to the second expansion of the project in 2018. In addition to the economic hardships and meager compensation, Chinalco was being accused by the most recent disputes on illegal expropriation of 34 hectares of local land and continuous intimidation, harassment, surveillance.

Cause Analysis

Dialogue Table for the Morococha Population Resettlement (MDPRPM), intended to serve the interests of the parties involved in a given conflict, is a  common mechanism in  Peru to provide a  space for discussion and negotiation. According to the local NGO Red Muqui, a network of Peruvian institutions to promote the communities and its sustainable development, the conflict between Chinalco and local communities convenes entities from various sectors with disparate stands, including the national, regional and local governments, social organization, community representatives, and Chinalco. The approach of holding a Dialogue Table did not seem to be effective since there is no continuous attention to follow the results and development after each meeting.

Stakeholder Analysis in Morococha Case

The government, Chinalco, and the local community are the protagonist of conflict. Julia explained this circumstance seriously, “There has to be a good government that depends and works for the people. There has to be a community that has the knowledge and knows their rights to be respected. There also has to be a responsible company. If we don’t have this, there will always be problems like what we see right now.” Each of the stakeholders is not doing their job correctly and then triggers a more significant conflict.

From the perspective of Chinalco, three problems contribute to a more significant issue currently. In the first place, inadequate preliminary investigation caused the misunderstanding that all the residents are homogeneous in income level, ethnicity, and culture. Complex demographic composition makes up Morococha —– there are immigrants from other parts of Peru who are the tenants and indigenous communities who own the property. According to Fabio, “On the baseline study, they treat all the residents as a flat population of poor people.”

Furthermore, insufficient communication is another issue throughout the resettlement. For a long time, SCG, a third-party firm providing services in the analysis and management of the social issues and risks associated with public and private sector investment projects, served as a communication bridge between Chinalco and residents. The biased baseline study conducted by SCG made Chinalco wrongly assume the residents were anti-mining, thus attempting to separate the community from the mining activity.

Even until today, Chinalco is being accused of failing to fulfill the commitments. Julia said, “Chinalco is one of the first companies that subscribed to the images of responsibility in the world. What is happening now is that the company is not implementing the guidance.” Indeed, although Chinalco has provided residents with well-equipped homes, the company has not effectively restarted the economic and social development in the new town.

As for the residents, due to the complicated demographic composition, the community itself had an internal conflict that failed to achieve collective action. Fabio said, “It’s fragmented. People don’t have any organizational principle to make a united front to the company.” Moreover, little to no education leads to irrational choice and judgment among community members. “Expectations of the population are maybe too high, many people lack technical skills, and a lot of them are ancient,” said Fabio.

Looking at the issue from the role the government played, the incomplete and problematic legal system to supervise the operations of foreign companies at all levels of Peruvian governments abandons the interest of people, while favoring the company. “Chinalco is not violating any of the rules of the Peruvian government. The problem is that the Peruvian government rules laws are feeble because they are not protecting the people’s rights. There’s a lot of corruption,” said Julia.

In an interview with Prof. Jenik Radon from Columbia University SIPA, specializes in human rights for minority groups under environmental justice issues, he commented that “There is a lack of capacity in the Peruvian government. That means many do not have the skills, the knowledge, and adequate resources.” Fabio also added his opinion from a different view, “The government has relinquished its responsibilities in the town following a long tradition of mining enclaves. Honestly, I haven’t heard much from the central government in late years.”

Conclusion and Implications

Enterprise 

The difficulties encountered by Chinalco are undoubtedly the epitome of the current status of Chinese companies’ mining investment in South America. Although Chinalco has always been very cautious about community issues and has made various efforts, the results do not seem to be satisfactory.

From the case of Morococha, it is learned that solving community problems is a complicated and specific process. Even if the companies have a reasonable plan in the early stage, they still need to ensure that the implementation phase is specific and accurate, especially for the fulfillment of the commitments made.

When dealing with a community having diverse interest actors, it is essential to communicate with the local community representatives regularly to learn about the real-world situation in the community truly.

On the other hand, some critics may argue that the inaccurate transfer and understanding of the information is because most of the employees in Chinalco are Chinese in Morococha. The truth is that not all of the middle management team and local employees are Peruvians who know well about their country. So the key to maintaining excellent communication is not about the nationalities, however, it is about that decision-makers of the enterprise should make full use of the monitoring system and feedback mechanism to ensure the accurate communication in the top-down model. 

Back to the enterprise itself, although profitability is the core of the enterprise’s survival. However, the enterprise should never regard the community as a rival for the interests. An ideal win-win situation to resolve the conflict is that the community could make a living in the mining industry. At the same time, Chinalco could be responsible and environmentally friendly to carry out the operations.

Government

During the relocation of the Morococha community, as a significant third party, the coordination role that the government should play has almost disappeared in the entire case of Morococha.

From the perspective of the central government, a more complete legal system and stricter regulatory mechanisms can force companies to improve their ability to fulfill their social responsibilities.

Compared with the Peruvian central government, local governments should bear more responsibilities on this issue. The current Dialogue Table mechanism has not been fully utilized, which leads to the failure of negotiation between enterprises and communities. Therefore, between the enterprise and the community, the local government could take a more proactive role and neutral perspective, make full use of the Dialogue Table mechanism, and lead the dialogue to resolve conflicts. 

Besides, local governments should strictly inspect the implementation of the entire project. While protecting the interests of the community, it should also provide consulting services for enterprises to solve community problems.

At a certain level, ensuring the smooth progress of corporate investment and protecting the interests of community residents are also the key to success for local governments.

Community

Among all stakeholders, the community, especially the community with comprehensive demographics composition, cultures, and diverse backgrounds, is the weakest. Compared with the government and enterprises, due to the lack of reliable power, the community often can only take extreme actions such as strikes, protests, demonstrations, and violent resistance when protecting its rights and interests. The more decentralized communities, the more intensive such personal resistance.

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