Transparency, consultation and conflict - Wiley Online Library

Natural Resources Forum 35 (2011) 283–292

Transparency, consultation and conflict: Assessing the micro-level risks surrounding the drive to develop Peru’s Amazonian oil and gas resources James Haselip Abstract Since the 1990s, successive Governments in Peru have sought to expand the exploration and production of the country’s oil and gas resources. This economic agenda poses significant opportunities and risks which are usually considered at the macro-level and framed by debates regarding the so-called “natural resource curse”. While risks such as “Dutch disease” are important to consider, a worrying set of short-term issues surrounds the impacts of rapid changes brought on by oil and gas industrial development at the micro-level, namely, those that affect local communities and the environment. In the case of Peru, this is especially relevant to the vast areas of ecologically sensitive and previously under-developed Amazonia that are now under concession to oil and gas companies. Low levels of industry transparency combined with a lack of uniform free, prior and informed consent are exacerbating community-level grievances, and the conflicts to which they can lead. As the oil and gas industry expands in the Peruvian Amazon, the risk of conflict is likely to prove far harder to minimize or ameliorate than are the challenges of managing industry revenues and the risk of currency appreciation most often associated with the natural resource curse. narf_1404 283..292

Keywords: Peru; Amazon; oil and gas; conflict; risk.

1. Introduction Academic literature on the “natural resource curse” can be broadly divided into risks at the macro and micro levels (Humphreys et al., 2007). While some academics have questioned the empirical basis of the macro-level risks (Brunnschweiler and Bulte, 2008), most literature on the topic refers to the paradoxical tendency among countries, and particularly less developed countries, that have a high dependency on natural resource extraction to experience low levels of economic growth and stability, as well as a plethora of associated societal and developmental failures (Bhattacharyya and Hodler, 2010; Brollo et al., 2010; Ross, 2001; Stevens and Dietsche, 2008). At the macro-level, the “curse” is often attributed to a decline in the competitiveness of non-extractive local industries caused by the influx of foreign exchange which often appreciates local

James Haselip is at the United Nations Environment Programme — Risø Centre, Systems Analysis Division, Risø National Laboratory for Sustainable Energy, Technical University of Denmark. E-mail: [email protected] © 2011 The Author. Natural Resources Forum © 2011 United Nations

currencies, a phenomenon termed “Dutch disease” (Auty, 2001). In addition, a reliance on major extractive projects often leads to rent-seeking behaviour, corruption and general revenue mismanagement (Auty, 2001, 2007; Davis and Tilton, 2005; Sachs and Warner, 2001). The main strands of micro-level “curse” include: pollution; social breakdown; crime; violence; and the marginalization of indigenous communities; which often inform local grievances that, in turn, increase the risk of conflict (Brulle and Pellow, 2006; Carruthers, 2008; Hilson and Yakovleva, 2007; Murshed 2002; Murshed and Tadjoeddin, 2009). It is these micro-level risks surrounding Peru’s Amazonian oil and gas industry which this paper seeks to explore, taking into account the country’s rapidly expanding natural gas export capacity; progress with the Extractives Industries Transparency Initiative (EITI); and the National Coordination Group for the Development of Amazon Peoples, set up in July 2009, that aimed to improve dialogue and consultation with indigenous communities. The specific issue of grievance-based conflict risk came to the fore during and after the demonstrations and subsequent violence in Bagua, June 2009, in which 33 people were killed (Haselip and Martínez Romera, 2011).

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James Haselip / Natural Resources Forum 35 (2011) 283–292

2. Why Peru? Academic discussions of conflict risk surrounding the extraction of natural resources in Peru have, to date, largely been concerned with the country’s mining sector (ArellanoYanguas, 2008; Bebbington, 2007; Bebbington et al., 2008). However, oil and gas resources are being rapidly developed throughout Peru. The rise of global energy prices during 2004-2008 led to a frenzy of commercial interest in Peru’s oil and gas exploration concessions. Consequently, the proportion of the country’s non-protected Amazonia allocated for oil and gas exploration — where most of the country’s hydrocarbon reserves are thought to be located — grew from 15% to 72% by 2009 (Finer and Orta-Martínez, 2010). Published work on the social and economic risks surrounding Peru’s rapidly expanding oil and gas sector, are, however, limited and have thus far focused on the Camisea natural gas project, operational since 2004 and by far the country’s largest. The non-market costs of the Camisea project have been variously highlighted as the failure of effective and equitable distribution of local revenues, as well as for the environmental damage and increased social conflict caused (Gamboa, 2008; Grupo Propuesta Ciudadana, 2009; Hearn, 2007; Munilla, 2010; Pratt, 2007). This paper is informed by both primary and secondary research. For primary research, interviews were conducted in Peru in mid-2009 with individuals representing the oil and gas industry, NGOs, the public sector, international organizations and local communities (see table in appendix). These interviews took the form of semistructured dialogues with opening questions informed by the author’s prior readings on the topic.

3. Summary of Peruvian oil and gas resources and industry According to the US Energy Information Administration, Peru’s proven oil reserves total 930 million barrels, the majority of which lie beneath the country’s northern Amazon region. The country also has the fifth-largest proven reserves of natural gas in South America (EIA, 2009), a position which looks set to change as important finds continue to be made. Oil production as of 2009 averaged 115,000 barrels per day (bpd). However, production has failed to keep up with domestic consumption in recent years, and the country imported approximately 40,000 bpd in 2009 (EIA, 2010). In 2009, Peruvian natural gas production stood at 3.4 billion m3, placing it 50th in global production rankings (EIA, 2010). Advances in liquefied natural gas (LNG) technology have enabled Peru to expand its production of natural gas for export as well as for the domestic market. Indeed, the majority of currently active exploration

concessions are for natural gas. Although there is currently a global over-supply, and hence low prices paid for LNG, the Peruvian Government calculates that this export industry will pick up in the longer term and become a major boon for the economy. To this end, a US$ 3.8 billion LNG terminal opened in mid-2010 in Pampa Melchorita,1 170 km south of Lima, with a nominal capacity to process 4.4 millions tonnes of gas per year (hydrocarbonstechnology.com, 2011). With this, Peru stands to become a significant source of non-OPEC LNG for export to Mexico, Chile and the West Coast US. While the Government leased more oil and gas concessions in the Amazon basin (both exploration and drilling) between 2005 and 2009 than at any other time, the industry is not new to the region. Since 1939, a total of 996.3 million barrels of crude oil have been pumped from Amazonian wells in Peru, peaking at 129,000 barrels per day in 1979, mostly in the northern region of Loreto (OrtaMartínez and Finer, 2010). However, exploration work has been extensive in the Peruvian Amazon. Since 1970, 104,000 km of 2D seismic lines have been cut, with half of this taking place in the years following the first major global oil price hike of 1973 (Finer and Orta-Martínez, 2010). As of 31 December 2009, 41.2% of the entire Peruvian Amazon was under oil and gas concession, covering a total of 322,092 km2. This translates into 52 individual concessions currently active in Peruvian Amazonia, 45 for exploration and 7 for drilling (Finer and Orta-Martínez, 2010). In addition, there are 12 more areas under “technical evaluation agreements”2 covering 122,340 km2 (15.6% of Peruvian Amazonia), as of mid-2010 (Finer and OrtaMartínez, 2010). These concessions were granted without notification or prior consultation with either settler or indigenous local communities, while at least 17 exploration blocks overlap existing and proposed reserves for indigenous communities living in voluntary isolation (Finer et al., 2008). To date, a total of 679 exploratory and production wells have been sunk in the Peruvian Amazon, with 266 currently in production (Finer and Orta-Martínez, 2010). Block 67, which is being developed by Perenco (an Independent Anglo-French company), covers more than 100,000 hectares of the Marañon basin in Loreto and has estimated oil reserves of around 300 million barrels (Oil Voice, 2008). All this activity has been associated with environmental damage. It has also caused social disruption that has shaped the dynamics of ongoing socio-political grievances, of, in particular, the Achuar, Kichwa and Urarina indigenous 1

The project was financed by the same consortium made up of Hunt Oil Company (US), SK Corporation (South Korea) and Repsol-YPF (Spain) that owns and operates the Camisea fields, and which supplies the terminal via a 450 km pipeline. 2 A technical evaluation agreement (TEA) is an agreement between companies and the host country that allows for the company to evaluate geological, geophysical, engineering and transportation issues surrounding a proposed concession. © 2011 The Author. Natural Resources Forum © 2011 United Nations


peoples in the Corrientes River basin (Orta-Martínez et al., 2007; Orta-Martínez and Finer, 2010). Block 67 (Perenco) has been controversial because it overlaps a reserve for “uncontacted” indigenous tribes proposed by AIDESEP, the largest national indigenous civil society organization. However, efforts to halt the development of block 67, which is planned to produce 60,000 barrels per day, have been unsuccessful, and in 2009 the Government declared block 67 to be a “project of national necessity and interest” (Perenco, 2011) Across Peru, the groundwork and basic infrastructure investments are being made amid near record-high oil and gas prices, meaning that the western Amazon is likely to become an important source of non-Middle East and Venezuelan oil and gas for importing nations in the region. However, it is natural gas which now dominates hydrocarbon production in the Peruvian Amazon, with major increases experienced since the US$ 2.7 billion Camisea I project came on-stream in 2004. Camisea is the flagship project in Peru’s new oil and gas frontier, located in the ecologically sensitive and relatively unpopulated lower Urubamba valley; its fields contain proven reserves of 11 trillion cubic feet (tcf) of natural gas. The Government accepted an offer from a consortium of foreign companies to pay a 37.24% share of the royalties (projected to generate an average of US$ 230 million a year), of which half would go directly to the Cuzco region, as well as US$ 90 million in tax revenue for the Government. Nonetheless, Camisea remains the focus of much critical attention, in part due to leakages caused by a poorly constructed pipeline, but also over the distribution of industry revenues. Between 2004 and 2009, Camisea I generated approximately US$ 1.13 billion in revenues for local governments. However, according to a report published by Oxfam in 2010, these local governments lacked both the capacities and capabilities to manage such large and rapid revenue flows, meaning that the provision of basic needs and poverty reduction for surrounding communities has not been achieved (Munilla, 2010).

4. Energy market reforms in support of transparency? It is often argued that President Garcia’s 2006 election contradicted the political “shift to the left” witnessed in neighbouring Ecuador, Chile and Bolivia (Crabtree, 2006; Seligson, 2007). Indeed his administration was characterized by policy continuity, building on the reforms that brought privatization and foreign investment to the country under Presidents Alberto Fujimori (1990-2000) and Alejandro Toledo (2001-2006). With regard to the development of Peruvian oil and gas, it was the Toledo administration, which in 2003, further reduced the size of the country’s oil and gas royalties as well as industry taxation in order to increase international investment, as © 2011 The Author. Natural Resources Forum © 2011 United Nations

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part of a broader policy goal of reducing the county’s dependence on imported energy. As such, fears have been expressed by civil society organizations regarding the way in which the Government’s decision to open up the Amazon to a new wave of oil and gas exploration will threaten indigenous communities and some of the world’s most bio-diverse forests. In response to this, oil companies and the Government point to tighter (voluntary and regulated) industry controls, and the use of new technologies that aim to reduce the risk of oil spills and other environmental risks. For example, the use of “onshore offshore” exploration and drilling technology involves equipment and personnel being transported by helicopters to remote jungle locations. To some extent this means that roads do not have to be built (at least during the exploration phase), thus limiting access to remote areas and the flow of internal migrants whose presence tends to create further ecological pressures, heavily dependent as they are on natural resource extraction, principally logging and mining. In this context, the international Extractives Industries Transparency Initiative (EITI) is often held up as an indirect means to improve the future welfare of communities and the environment exposed to an emerging oil frontier in the Amazon. The EITI was launched at the World Summit on Sustainable Development in Johannesburg, in 2002, by former UK Prime Minister Tony Blair who highlighted the need for “good governance” as central to achieving sustainable development. To this end, the EITI aims to verify and publish all payments made by extractives companies, on the one hand, and all government revenues derived from the oil, gas and mining sector on the other. Proponents argue that if full transparency is achieved, then this will improve a country’s credibility among foreign investors, while empowering civil society groups to accurately investigate and question their government’s management of natural resource revenues. As such, Hilson and Maconachie (2009) argue that the EITI is frequently held up by governments of developed countries, bilateral donors, and international organizations as the key policy intervention aimed at “resurrecting the stagnating economies of natural resource-rich Africa, Asia, and Latin America” (Hilson and Maconachie, 2009, p. 53). According to Transparency International and Revenue Watch, less than 10% of the estimated US$ 866 billion in global oil and gas revenues paid to governments in 2006 would have been enough to finance the cost of meeting the Millennium Development Goals for that year (Transparency International, 2008). Peru has been an EITI candidate country since 2007, and, according to Revenue Watch, “performs much better” than many oil-rich nations in terms of the transparency of energy revenues and how they are spent. Nonetheless, progress towards full EITI compliance has been slow, especially with regard to contract transparency and payments of corporate income tax and business contributions to social spending at the local level. In early 2010, Peru requested, and was

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granted, an extension on the deadline for completing the validation process for EITI membership. At the time of writing, the Peruvian Government had submitted a finalized validation report to the EITI which is currently under review. Renewed commitments to the EITI made by major extractives industries at a high-level conference in Doha in February 2009 suggested that, globally, the initiative had not stalled, despite economic recession and an increasing presence of non-western international oil companies (particularly from China) in Africa and Latin America which have thus far offered less support to the EITI than their North American and European counterparts. Interviews conducted in Peru suggest there is widespread support for greater revenue and industry transparency. Indeed, the existing Law on Responsibility and Fiscal Transparency (2001) and the Law of Transparency and Access to Public Information (2003) are helping to underpin current progress. Some oil and gas companies operating in Peru, mostly the larger ones such as Repsol-YPF have signed up to the EITI. However, the majority of exploration, test-drilling and production is being conducted by smaller independent companies, such as Perenco and Hunt Oil.3 While most of these companies state a commitment to corporate social responsibility (CSR), the fact that many remain privately held companies limits their legal obligations to publish facts and figures about their operations, thus creating problems for those that advocate greater transparency in Peru’s extractives sector. Given the rapidly increasing role and contribution of the oil and gas industry in driving economic growth, the issue of transparency in decision-making processes and operations, as well as revenues, has become a major issue in Peru. In addition to providing ammunition for opposition political parties and civil society organizations, the lack of transparency over how oil and gas concessions have been awarded and managed has intensified feelings of distrust within and between social and ethnic groups, business and government. In addition to improving revenue transparency, some progress has been made in Peru with regard to strengthening the capacity of local communities to engage effectively in natural resource extraction projects. For example, the

3

Texas-based Hunt Oil is typical of the kind of business investing in Peruvian oil and gas. The company is focusing much of its growth strategy in South America, with plans to expand exports (principally of natural gas) to markets in the US and Mexico. To this end, Hunt Oil is developing Camisea II, a US$ 3.8 billion LNG project, in which it owns a controlling stake (52%). This involves the development of gas fields in block 56 and uses much of the same infrastructure as Camisea I. Due to go into production later in 2010, the Camisea II consortium received a US$ 300 million loan from the International Finance Corporation (IFC) in 2008, leading many environmental and human rights groups to criticise the IFC’s due diligence process on the basis that it failed to ensure that all the “associated facilities” of Camisea I and II met with IFC standards, in line with World Bank rules.

Hydrocarbons Internship Programme, set up in 2005, is targeted at training young individuals from indigenous communities in order “to strengthen the participants’ skills and knowledge regarding hydrocarbon activities, the environment and legal regulations” (Cayo, 2006). The programme covers four themes: the hydrocarbons industry; legal regulations; the environment and social aspects; and the accounting for and the drafting of project plans. While such capacity-building initiatives are generally welcomed, the Government is being criticized for doing too little, too late. As Greenspan (2006) points out, Peru continues to lag in efforts to address the resource and capacity imbalances that exist between the State and indigenous peoples who have traditionally been sidelined in the decision-making process regarding natural resource extraction.

5. Community consultation and the significance of the conflict in Bagua, 2009 In Peru, there are clear grievances regarding the way in which the Government’s decision to open up the Amazon for natural resource extraction has been managed. This relates to a significant micro-level risk: conflict. While indigenous communities have title to some of the land in the Peruvian Amazon, the State has title to all below-ground natural resources, including oil and gas. In response to 12 days of nation-wide protests and demonstrations in August 2008, mostly by members of indigenous Amazonian communities, Congress voted 66 to 29 in favour of withdrawing Legislative Decrees 1015 and 1073. These would have allowed for the sale of indigenous lands if community assemblies provided a majority vote. They drew criticism from certain indigenous organizations and NGOs, on the basis that it would have divided communities and favoured large extractives companies at the expense of the longer-term interests of communities and the environment. Following the 2008 protests, the Government continued its efforts to reform the sale procedures of Amazonian lands, so as to encourage large-scale and foreign investment in natural resource development, including bio-fuels, logging, mining and oil and gas. Renewed protests focused on Legislative Decrees 1064 and 1090 regarding the access to, ownership of, and investment in, natural resources. This culminated in violence in June 2009 when 33 people were confirmed dead after the armed forces attempted to clear roadblocks set up by mostly indigenous protestors near Bagua in northern Peru (FIDH, 2009). President Alan García admitted to “a series of errors” by his Government in the handling of the Bagua protests, and pledged to suspend indefinitely Legislative Decrees 1064 and 1090 which had been approved by Congress as part of the Peru-US Trade Promotion Agreement, implemented in February 2009. While this was a blow to the Government’s energy policy and economic development plans, opposition to the broader agenda remains strong. © 2011 The Author. Natural Resources Forum © 2011 United Nations


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Table 1. Stated positions of oil and gas companies operating in Peru with regard to community engagement Stated company-wide commitment to obtaining Free, Prior and Informed Consent

Stated case/country specific commitment to obtaining community consent prior to operations

Stated aim of seeking “social license” or community acceptance/ agreement

Systematic dialogue, consultation, engagement and/or communication with communities

n/a

ConocoPhillips; Pluspetrol; Talisman Energy

Occidental Petroleum Corporation; RepsolVale

Chinalco; Hunt Oil; Maple Energy; PetrobrasTotal

No specific mention of community engagement Perenco Sapet (subsidiary of China National Petroleum Corporation)

Source: Adapted from Oxfam America (2009), reproduced with permission. Note: The data is based only on publicly available statements made by extractive companies operating in Peru and does not claim to be exhaustive.

At the forefront of the political conflict over hydrocarbon development is the issue of consultation with affected local communities, particularly in the Amazon. While Peru is one of just 18 United Nations Member States to have signed ILO Convention 169 on Indigenous and Tribal Peoples (1989), the bulk of grievances expressed by indigenous groups centre on accusations that the Government has violated ILO 169 regarding consultation procedures. The right of indigenous communities to free, prior and informed consent regarding major extractives projects was supported by the World Bank’s wide-reaching Extractive Industries Review published in 2004, but it has not been made a mandatory requirement of World Bank-supported projects, and so industry best practice still does not require companies to secure free, prior and informed consent before developing their projects (MacKay, 2004; Sawyer and Gomez, 2008). Table 1 categorizes the stated positions of some of the oil and gas companies operating in Peru with regard to community engagement. While many civil society organizations have appealed to ILO 169 in the wake of the Bagua conflict, the convention’s ambiguities regarding how and when consultations should take place limits its usefulness in practice, since it does not explicitly support the need for free, prior and informed consent. Nonetheless, ILO 169 serves as a guiding principle that various stakeholders have latched onto in an attempt to build and strengthen consensus. A related concern, highlighted by Greenspan (2006), is that the Ministry of Energy and Mines has traditionally been tasked with overseeing community consultation procedures in Peru. Critics point out the glaring partiality of this arrangement, whereby the Ministry tasked with promoting oil and gas development is also responsible for ensuring that indigenous communities are consulted beforehand. In response to the Bagua conflict, the Peruvian Government established the National Coordination Group for the Development of Amazon Peoples via Supreme Resolution No. 117-2009-PCM in July 2009. This was praised by James Anaya, the United Nations Special Rapporteur on the rights of indigenous peoples, as a constructive response to the violence, and drew broad initial support from within Peru. The stated aims of this group were to draw up an integral plan of sustainable development, as well as to investigate the Bagua conflict, discuss legislative © 2011 The Author. Natural Resources Forum © 2011 United Nations

decrees and propose alternative laws, and to agree on a consultation mechanism regarding the development of the Amazon region. The National Coordination Group consisted of four representatives of the Executive; regional government presidents of Loreto, Ucayali, Amazonas, San Martin and Madre de Dios; and ten representatives of Amazon indigenous communities (FIDH, 2009). On 29 December 2009, the Group’s Special Commission to investigate the Bagua conflict published its final report, which stated that the Executive made crucial errors and acted with heavy-handed haste in opposing the protestors. However, it concluded that there was no genocide or state-sponsored action taken against indigenous peoples, or by indigenous people against state forces (23 of the 33 dead were police). The report also states that the conflict was exacerbated by the political opposition as well as the actions of various NGOs, unions and religious leaders who sought to take advantage of the conflict by muddying the waters of debate. The Government’s position is that these opponents aimed to “obstruct potential avenues of dialogue and opportunities to build consensus”, a position which helped fuel the controversy. Indeed, the official coordinator of the commission, Jesús Manacés, refused to sign the final draft on the basis that it failed to identify key political, military and police decision-makers. He also maintained that it was biased against the views of the commission’s indigenous members and that the commission was not adequately resourced to fully investigate the events surrounding the conflict, thus undermining its credibility. In January 2010, shortly after the publication of the Special Commission’s report, the Peruvian ombudsman delivered her official report to Congress in which she also criticized the Government for failing to avert the conflict in Bagua. Further, the ombudsman’s report recommended that laws be passed to require formalized consultation procedures and prior and informed consent regarding changes affecting Amazonian territories. It also made the case for reviving the Commission for Andean, Amazonian and Afro-Peruvian Peoples (INDEPA) which was set up as an influential autonomous public body to report directly to the Presidency of the Council of Ministers, but which has been in limbo ever since the government tried to relegate it to a government sub-department in 2007.

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Following the “success” of the violence in Bagua in revoking the legislative decrees intended to reform the ownership and sale of Amazonian territories, regional indigenous organizations appeared emboldened to pursue a strategy of confrontation in order to gain greater control over the future development of oil and gas resources. For example, Hunt Oil found itself up against local opposition in the Manu region of Madre de Dios once exploration work began in block 76 in September 2009 — despite having previously secured approval from local communities (for an in-depth study of block 76, see Haselip and Martínez Romera, 2011).

6. Grievance-based conflict risk Perhaps the first thing to say about grievance-based conflicts is that they are mostly associated with the extraction of point-source natural resources (as opposed to distributed and easily accessible resources such as alluvial gold and diamonds) which require major infrastructure and the use of large-scale and capital intensive technology, such as with the oil and gas industry. As such, local communities have little control, or means of participation in the extraction of these resources. This influences the measures — legal or illegal — that local communities or dissidents can take in pursuing real or perceived injustices or wrongs caused by the actions arising from the project(s). This scenario tends to exacerbate local frustrations which can lead to grievance-based conflicts, up to and including civil war (Collier and Hoeffler, 2004; Murshed and Tadjoeddin, 2009). In this context, grievance can be understood as “motivation based on a sense of injustice in the way a social group is treated, often with a strong historical dimension” (Murshed, 2002, p. 389). Although the most extreme examples of grievance-based conflict are to be found in sub-Saharan Africa (Collier, 2007; Soares de Oliveira, 2007), the Andean nations of Ecuador, Peru and Bolivia have all witnessed cases where local communities have little control or means to partake in the decision-making process or management of natural resource extraction (Bebbington et al., 2008; Kimerling, 2007; Solimano, 2005). Grievance can take many forms and manifest itself in different ways, for example, between and among local communities; between those communities and companies; and/or between communities and government. Such grievances are exacerbated by a perception that local communities receive a disproportionately low share of the benefits from exploration and extraction but are expected to bear the brunt of the social and environmental costs. Indeed, Carstens and Hilson (2009) argue that grievance-based natural resource conflicts are “generally manifestations of community agitation over the impacts of an extractive industry’s operations” (p. 302), citing the environmental damage, land expropriation and “perceived unacceptably

low levels of economic development” as the key motivating factors. They point out that responses can range from peaceful demonstrations to the abduction of expatriate workers. It has also been observed that most grievancebased conflicts are characterized by the formation of social groups or a shared identity (Murshed and Tadjoeddin, 2009). As previously discussed, one of the fundamental causes of conflict in the Peruvian Amazon has been the government’s failure to insist upon free, prior and informed consent with local communities living within proposed oil and gas blocks, prior to their sale. To date, formal consultation has only taken place after the fact. This inevitably leads to distrust and resentment, as experienced with the Achuar living in Block 64 in Loreto and the Amarakaeri in Block 76. Greenspan (2006) reports that varying understandings of the term “consultation” among stakeholders in Block 64 and a lack of clarity over indigenous representation have “increased tension between the Achuar and Occidental Petroleum, creating a major barrier to future dialogue and/or negotiation” (p. 4). These experiences are a major factor in shaping the politics of grievance surrounding oil and gas projects elsewhere in Peru. In addition to complaints over how major oil and gas projects are proposed and managed per se, there is also significant evidence, in Peru, that these projects stand to exacerbate existing grievances over the control of natural resources in general. This is exemplified in the case of the Amarakaeri Communal Reserve (ACR) in Madre de Dios, south-east Peru. Figure 1 highlights the various and often competing natural resource uses within and around the ACR. Here, conflict is driven by a number of factors, including indigenous and settler community grievances over the imposition of a large oil and gas exploration concession (Block 76), as well as encroachment by commercial logging and gold mining. The local communities surrounding the ACR fear that if commercially viable quantities of natural gas are found within block 76, then this will lead to major population inflows which would lead to an encroachment or clamp down on existing extractive activities in and around the ACR where indigenous and settler economic interests (mainly logging and gold mining) have been largely unregulated (Haselip and Martínez Romera, 2011).

7. The outlook for overcoming conflict surrounding Peru’s Amazonian oil and gas industry While Peru is unlikely to be more than a marginal player in global oil and gas markets, the Government’s decision to increase large-scale development of domestic resources, largely for export, poses a range of non-market risks for Peruvian society and the environment. Although Peru’s proven and probable oil and gas reserves are small © 2011 The Author. Natural Resources Forum © 2011 United Nations


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Figure 1. Natural resource exploration and extraction in and around the Amarakaeri Communal Reserve in Madre de Dios, south-east Peru. Source: Álvarez et al. (2008).

compared to other countries, they are mostly located in areas of high biological diversity and are significant enough to provide relatively large revenue streams for Peru. Experience in Peru, as elsewhere, has shown that there is a need to question the tacit assumption that in order to avoid conflict, it is sufficient to engage foreign expertise, deploy the latest technology, and provide promises to ensure compliance with the highest global standards of environmental and social performance. Here, it is important to bear in mind that the State is effectively absent in many of the more remote areas of the Amazon where oil and gas companies are already working on their concessions. Combined with the limited capacity of most indigenous organizations and environmental NGOs, this means that there is virtually no oversight of the impact assessments and operations conducted by oil and gas companies. © 2011 The Author. Natural Resources Forum © 2011 United Nations

In Peru, it appears that the recent liberal administrations (Toledo 2001-2006, Garcia 2006-2011) hoped that this lack of regulatory oversight would be compensated for by their faith in dealing with oil companies from mostly OECD countries, almost all of whom state their adherence to the principles of CSR. Companies that finance community projects as part of their commitment to CSR can easily come to dominate the local economy and politics. This is especially the case in small and remote communities, both indigenous and settler, where the activities of oil companies have often mimicked, in a very practical sense, the traditional role of the State in financing the construction of roads, schools and medical posts, thus strengthening their influence. However, CSR refers to voluntary codes of conduct which vary greatly and, as yet, are not subject to national or international oversight or regulation or formal

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legal compliance. Common appeals to CSR also fall short, in some cases, based on the presence of smaller privatelyheld oil companies that are not subject to oversight or demands by public shareholders, such as Hunt Oil mentioned earlier. More broadly, the Peruvian Government’s position vis-àvis the expansion of Amazonian oil and gas resources is derived from an optimistic view of export-led revenue generation as a means of inducing economic growth and development. In this respect, Peruvian policies since the early 1990s have been typical of those supported by the Washington-based international financial institutions. That said, the Government has come under pressure from domestic consumer and development lobby groups to prioritize the local market for natural gas. In addition, the Garcia Government came under pressure from the political opposition to set a price floor for exported natural gas, so that prices paid on the domestic market are not higher than those for export. Now that the opposition is in power, following the election of Ollanta Humala to replace Alan Garcia in June 2011, this particular issue is likely to be a test of the new administration’s commitment to protecting the “national interest”. Although Peru’s Amazon regions have traditionally been marginal to national politics and decision-making, the fact that they are rapidly becoming an engine of economic growth means that the Government is no longer able to treat them as a political backwater. Within the Amazon regions, it is the indigenous communities that are most active in opposing the development of oil and gas given the industry’s poor record on consultation and transparency, as well as the historical failure to demonstrate how the industry stands to benefit these communities in the short and long term. The dialogue initiated through the National Coordination Group for the Development of Amazon Peoples, after the Bagua conflict, should have left indigenous organizations in a stronger position, aimed as they were at creating formalized negotiations with the Government. However this particular forum disbanded after it published its report on the causes of the Bagua conflict, about which the Government and indigenous groups continue to argue. Consequently there remains a lack of political dialogue between indigenous groups (principally AIDESEP, whose leader, Alberto Pizango faces criminal charges for allegedly leading the Bagua protestors into armed conflict with the military) and the Government, regarding longer-term solutions to the operation of extractive industries and the achievement of “sustainable development” in the Amazon regions. On this issue, some legal progress has been made. In 2007, AIDESEP brought a case against the Ministry of Energy and Mines on the basis that Peruvian legislation was not in line with the commitments that the Peruvian State agreed to undertake when it signed ILO Convention 169 in 1993. This case failed to find support in various courts,

including the Supreme Court in 2009. However AIDESEP’s final appeal won a favourable ruling, in 2010, at the Constitutional Court, which required the Government to produce special legislation that ensures that indigenous peoples are consulted regarding extractive projects, according to the principles and rules established in paragraphs 1 and 2 of Article 6 and paragraph 2 of Article 15 of ILO Convention 169 (Tribunal Constitucional de Peru, 2011). In 2011, this resulted in Supreme Decree No. 023-2011-EM, which requires the Government and extractive companies to conduct consultations with indigenous communities prior to the signing of contracts and was signed by President Garcia just before leaving office.4 AIDESEP’s political agenda to ensure free, prior and informed consent is thus gaining ground, although Decree N° 023-2011-EM falls far short of the need to secure any kind of “consent” and, in cases where objections cannot be reconciled, it enables the Government to justify any given project on the grounds of being in the “national interest”. As such, it will remain in the hands of individual oil companies to conduct their impact assessments and negotiate with local communities directly, thus exposing them to local opposition and protests without recourse to formal and legally-sanctioned procedures. Here, the historically low levels of trust that exist between indigenous organizations, the Government, and oil and gas companies stands to undermine the need for negotiation and consensus-building. During the Garcia administration (2006-2011), negotiations with indigenous organizations only took place after acts of violence had occurred. President Humala, apparently modelling himself on former President Lula of Brazil (as opposed to President Hugo Chavez of Venezuela), is in a good position to reverse this trend and trade upon his strong political support from within the indigenous community in order to broker a new extractives regime endorsed by a range of stakeholders, and one that will minimize the risk of conflict. However, it is highly unlikely that his administration will endorse the principle of free, prior and informed consent regarding extractives projects, given the power this would transfer to indigenous communities that claim ownership of vast tracks of otherwise unproductive Amazonia. In conclusion, Peru has the ability to manage its macrolevel resource curse risks through increased revenue transparency, sound fiscal management and the minimization of “rent-seeking” behaviour. However, it is likely to prove far harder to tackle the micro-level risks, in particular the risk of social conflict caused by local grievances about the way in which oil and gas projects are proposed and managed. That said, successive Governments have been keen to follow international leadership on “good 4

“Reglamento del Procedimiento para la aplicación del Derecho de Consulta a los Pueblos Indígenas para las Actividades Minero Energéticas.” Available at: www.cepes.org.pe/apc-aa/archivos-aa/ 4a15e4303d8c04dde2018292e444138c/jueves_2.pdf. © 2011 The Author. Natural Resources Forum © 2011 United Nations


governance”, in large part because the country depends almost solely on foreign capital and expertise to develop its oil and gas resources. But reliance on CSR initiatives and voluntary transparency agreements is unlikely to offset opposition to the recent history of economic liberalism or address pressing development needs, including job creation and poverty reduction for those at the bottom. Here, the Humala administration can learn the lessons arising from the Camisea project. While significant proportions of the natural gas revenue stream have been directed to local governments in a relatively transparent manner, shortcomings in the way these funds have been distributed and managed serve to underline the importance of ensuring institutional “readiness” and capacity-building in order for these resources to have a positive impact on the ground.

Acknowledgements This research was carried out while the author was employed at the Department of Geography, University of Reading, UK. The author is grateful for a fieldwork research grant provided by the University of Reading’s Faculty of Social Science and School of Human and Environmental Science, and for the comments provided by seven anonymous reviewers. The author is also indebted to the late Mike Haselip for providing invaluable feedback and rigorous grammatical corrections on an earlier draft.

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Appendix. Select list of interviews conducted in Peru, July-August 2009 Interviewee

Association

Aldo Apasa Leon Arturo Chavez Salazar Cesar Gamboa Dan Sullivan Eduardo Huamani Eladio Neira Epifanio Baca Flavio Américo Hurtado León Isrrail Aquise Lizarbe Luis Eduardo Cisneros Luis Masahuari Miguel Davila Oseas Barbarán Padre Cesar Luis Llana Secades Pedro Gamio Aita Rob Williams Romeo Corisepa

Grupo Propuesta Ciudadana, Lima Community worker, Shintuya, Manu, Madre de Dios Community relations manager, Hunt Oil Exploration and Production company of Peru, Manu Derecho, Ambiente y Recursos Naturales, Lima Geophysical consultant for Hunt Oil, Manu, Madre de Dios Governor of the province of Manu, Madre de Dios Educational director, Shintuya, Manu, Madre de Dios Mayor, Province of Manu, Madre de Dios Asociación Interétnica de Desarrollo de la Selva Peruana (AIDSEP), Lima Sociedad Peruana de Derecho Ambiental, Lima Local resident, Shintuya, Manu, Madre de Dios. Local resident, Manu, Madre de Dios Confederación de Nacionalidades Amazonicas del Peru (CONAP), Lima Dominican Priest, Shintuya, Manu, Madre de Dios Former deputy minister of Energy (2006-8), Lima Frankfurt Zoological Society, Cusco Shintuya resident and employee of the CREES Foundation, Manu, Madre de Dios

© 2011 The Author. Natural Resources Forum © 2011 United Nations