Once again, a social conflict erupts into violence in Peru

On Monday, four people were killed during protests on Monday against the massive Chinese-owned Las Bambas mining project in the Peruvian town of Challhuahuacho. The four protestors were shot and killed during fights between local protestors and the Peruvian police that also injured 14 other protestors and 8 police officers. The locals are protesting supposed changes to Las Bambas’ environmental impact plan, which supposedly had not been shared with the local community ahead of time.

In response, the Peruvian government declared a state of emergency in six provinces, sending the army to help the local police secure vital state infrastructure. Peruvian Prime Minister Pedro Cateriano told reporters that the government projects that the Las Bambas project will boost Peru’s GDP by 1.4% once it comes online in 2016. He added, “We cannot allow a group with political motivations to stand in the way of a project that has been in the works per normal for years.” Peruvian President Ollanta Humala called the project “the most important in the history of the country.”

The Peruvian Society for Mining, Petroleum, and Energy (SNMPE) called the violence in Apurimac against the Las Bambas project an act of sabotage intended to destabilize Peru’s democracy.

Other Peruvian outlets ran opinion pieces and contextual articles to explain the importance of the Las Bambas project to the Peruvian mining industry and the country’s economy, and to argue for what the government should do next.

Regardless, this most recent outbreak of violence at Peru’s most important mining project is a bad since for the country’s mining industry. First the Conga project was shut down because of violent protests, and then Tía María was put on indefinite hold earlier this year for the same reason. Peru needs to find a way to resolve these intractable social conflicts before they destroy the country’s economy.

Colombian government announces long-awaited reforms to oil industry

Experts on the Colombian oil industry have been calling for the government to stimulate the struggling sector, which has driven much of Colombia’s economic growth over the last two decades. The country’s oil sector is mired in a deep slump, because of the collapse in global oil prices and the lack of investment in exploring for new oil to replace Colombia’s dwindling reserves.

The Colombian government has decided to take decisive action to “restart the oil train.” Yesterday, the Ministry of Mines and Energy (Minminas) announced a plan to overhaul regulations for the hydrocarbons industry in Colombia, introducing changes to taxes, to contracting, and initiatives to boost investment. First, Minminas is going to design and introduce a model to assign and market seismic data on Colombia to reduce the uncertainty risk for oil companies interested in investing in the country.

Colombia will also introduce flexible contracting and bidding rounds to allow for projects to move more quickly and smoothly between the evaluation and exploration phases, for example. Colombia no longer auction off its fields in massive blocks at fixed times, but instead work much harder on promoting smaller auctions.

Minminas’ decisions were based on an extensive, long-term study of the Colombian oil industry, performed by McKinsey. Another of McKinsey’s recommendations was to change the model for calculating oil royalties to a more flexible model, allowing the sector to more quickly respond to collapses or rises in prices. If the reforms of the oil sector are successful, they should postpone a decline in the Colombian oil industry at least until 2030.

A resolution nears on controversy over Peru's Lot 192

Over the weekend, the Peruvian government announced several new developments in the lengthy controversy over the country’s most productive oil field, Lot 192. First, the government reached an agreement with local indigenous protestors who had seized the oil field demanding environmental cleanup and compensation.

The oil field was shut down for 13 days, resulting in losses of more than $4 million. The federal government’s negotiators, led by Housing Minister Milton von Hesse promised to invest 134 million Peruvian soles in projects during the next 2 years. Local leaders in the area are already calling on regional and municipal leaders to make similar contributions. The health ministry also agreed to do an epidemiological study on the region, and the Energy and Mines Ministry committed to bringing electricity to more parts of the region.

Also on Friday the office of Peruvian President Ollanta Humala finally released its response to the Peruvian Congress’ bill that sought to award the operation of Lot 192 to the Peruvian state oil company Petro-Perú. The oil industry had been eagerly awaiting the executive’s announcement to learn what would happen to Lot 192.

President Humala decided to observe the law, but he also suggested a few modifications: having the law go into effect after the country’s contract with Lot 192’s current operator Pacific Stratus Energy expires in two years, changing the award of the contract directly to Petro-Perú to allowing Petro-Perú to participate in the bidding process, and adding language that ensures the operation of Lot 192 does not affect Petro-Perú’s obligations to the Talara refinery.

Controversy over Ecopetrol contracting practices

Over the weekend, Colombian daily newspaper El Espectador ran an analysis piece on a little-discussed part of the Colombian oil crisis. The article began by describing the general state of “uneasiness” that Juan Carlos Echeverry, President of Colombian state oil company Ecopetrol, says permeates the oil industry. The Colombian oil sector has managed to reach its savings, investment, and cost-cutting goals, but the volatility in oil prices, but it hasn’t been enough.

The sector is facing a perfect storm of problems: the oil boom in the U.S., the Chinese economic slowdown, and OPEC’s stubborn unwillingness to lower its production quotas. Added to those international problems beyond Colombia’s control are persistent blockages and protests that prevented the extraction of 11 million barrels of oil, or 3% of Colombia’s overall oil production. According to El Espectador, at the root of this internal strife is questioning over the role of the committees for communal action.

El Espectador reported that the leaders of some of the committees were using their power and influence to extort local oil sector contractors for financial gain. Labor union leaders in Colombia are now putting pressure on Ecopetrol to change its hiring practices to end this exploitative and controversial contracting model.

In other oil-related news, late last week, Colombia, Argentina, Mexico, and Venezuela created an international oil sector trade union to share experiences and lessons learned to strengthen the region’s oil industry.

Southern Copper works to burnish its reputation in Peru

On Thursday, Oscar González Rocha, the president of Southern Peru mining company told reporters covering the Perumin mining convention about his company’s decision to help finance the construction of three high schools located in Moquegua, Tacna, and Arequipa. Southern Peru’s reputation has taken a beating in Peru because of the violent protests over the Tía María copper mining project.

The conflict over Tía María is just one of a series of social conflicts in Peru that has undermined the mining sector’s contributions to Peru’s economic growth. In talking about how the mining industry can contribute to Peru’s development, González Rocha said that, “There has to be a bigger relationship between the company and the government to invest above all in the health and education sectors.”

On the subject of Peru’s famous social conflicts, ex minister of Energy and Mines Jorge Merino believes that the government is to blame for the miscommunication at the heart of the country’s recent social conflicts. According to ex minister Merino, the mining industry has no trouble coexisting with the agricultural industry, and could actually benefit it, so it’s simply a matter of getting this message out.

Mining could help not just the Peruvian agricultural industry, but also help combat poverty in the country. According to Peruvian Central Reserve Bank President Julio Velarde, mining will contribute 8 points of GDP growth in the next decade, giving the government more revenue and reducing poverty.