GOP APPROVES DEFERMENT DOE RUN/LA OROYA CLEANUP

UNCLAS LIMA 002230

SIPDIS

STATE FOR WHA/AND, WHA/EPSC AND EB/IFD/OMA
STATE PASS USTR (BHARMAN)
COMMERCE FOR 4331/MAC/WH/MCAMERON
DEPT PASS TO INT/USGS/RESTON FOR DMENZIE/AGURMENDI

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: SENV ECON EMIN EINV ETRD SOCI PGOV PE
SUBJECT: GOP APPROVES DEFERMENT DOE RUN/LA OROYA CLEANUP
PLAN

REF: LIMA 953


1. (SBU) Summary: On May 29, the Ministry of Energy and
Mines (MEM) granted final approval, but with conditions, to
Doe Run Peru's extension request for its sulfur dioxide
(SO2) environmental cleanup plan at the La Oroya smelter.
Doe Run will have three more years to complete three SO2
treatment plants, but it will have to post a $28.6 million
bond. While Doe Run is not happy with additional financial
requirements, the positive decision puts to rest a highly
politicized technical request for the U.S. firm.
End Summary.


2. (U) On May 29, 2006, Minister of Energy and Mines (MEM)
Glodomiro Sanchez approved Doe Run Peru's request to extend
the compliance date for meeting sulfur dioxide (SO2)
emissions standards at the La Oroya smelter (Reftel).
Under the revised Environmental Compliance Plan (PAMA),Doe
Run has until October 2009 to complete construction of
three new sulfuric acid plants at its La Oroya complex,
located 150 kilometers northeast of Lima. According to Doe
Run's plans, the first plant -- a refurbished existing
facility -- should be completed by end-2006. The other two
plants will be new, with refurbishment and construction of
one of the new plants already under way. As part of the
MEM's resolution, Doe Run Peru will have to post a
performance bond of just over $28.6 million, 20 percent of
the estimated project cost.


3. (SBU) Doe Run and MEM officials informed the Ambassador
and Emboffs that the final MEM decision was the product of
lengthy negotiations. The MEM scaled back its remediation
requests in light of high cost. Over the past few months,
Doe Run responded to 90 MEM "clarifications" to its initial
extension request, and 23 additional clarifications to Doe
Run's responses. World Bank-affiliated outside experts
were able to moderate some of the MEM's additional
requests.


4. (SBU) The decision imposes financial conditions on Doe
Run, however, that may be difficult for the company to
meet. Doe Run has to post a 20 percent bond to cover a new
reactor (furnace) as well as the acid plants. Doe Run is
building the reactor for business efficiency reasons, not
as a PAMA environmental requirement. Therefore, the
company has taken the position that the reactor cost should
not be a part of the bond. The additional bond cost could
force Doe Run to require salary deferment or other labor
concessions that would be unpopular; so far the La Oroya
labor force and the townspeople who indirectly depend on
the Doe Run complex have been fervent supporters of the
PAMA extension request, despite NGO criticism. MEM also
requires that Doe Run set aside funds at the beginning of a
given month to fund construction for that month (as opposed
to paying expenses as they accrue). (Note: There appears
to be some discrepancy over whether last minute
negotiations produced a true meeting of the minds as
reflected in the MEM announcement; in any event, Doe Run
and the MEM will continue implementation talks that will
refine their agreement. End Note.)


5. (SBU) Doe Run's application to amend its PAMA referred
only to the sulfuric acid plants project, as the other
components of its original PAMA remain unchanged. These
include meeting local standards on heavy metals emissions
by the end of 2006 (particularly lead),water quality,
industrial effluents and sewage. (Note: High lead
emissions, characteristic of the high-energy smelting
process, have been a problem at the La Oroya site since its
startup in 1923. Doe Run acquired the complex in 1997, and
NGOs have focused on the health effects of lead emissions
ever since. End Note.)


6. (SBU) The refurbished zinc roasting plant will more
efficiently capture sulfur emissions and convert them to
sulfuric acid, which can either be more safely disposed of
or sold. The two new plants will convert sulfur emissions
from copper smelting operations into sulfuric acid. Heavy

metal emissions are already extensively treated.


7. (SBU) Comment: While Doe Run is not pleased with the
increased financial burdens, the MEM's approval of the PAMA
request puts to rest one of Peru's high profile
environmental issues. NGO complaints have centered on the
perception that Doe Run has not done enough to reduce heavy
metal emission. They had urged the MEM to deny the PAMA
request for an extension of sulfur treatment plans.
Presidential candidate Ollanta Humala has mentioned Doe Run
(without seeming to know the details of the PAMA request)
as an example of the need for Peru to require foreign
mining companies to be more responsible.


8. (SBU) Doe Run had been concerned that the intense media
focus on Doe Run (including by commentators who may desire
to work for the MEM in the next administration) would make
MEM Minister Sanchez punt the decision into the next
administration. There is a sound logic to granting the
PAMA request, as the three-year extension will allow Doe
Run to spend more money and build state of the art
treatment facilities. The MEM Minister's timing in
announcing his decision was probably wise; so far there has
been little media reaction to the decision, as the national
media is focused on the presidential election on June 4.
End Comment.

STRUBLE