REGIONAL LEADERS PROTEST CERRO VERDE MINE

C O N F I D E N T I A L LIMA 002437 SIPDIS SIPDIS DEPT FOR WHA/AND, WHA/EPSC, EB/OIA COMMERCE FOR 4331/MAC/WH/MCAMERON USTR FOR BHARMAN E.O. 12958: DECL: 06/19/2016 TAGS: EMIN EINV ENRG PGOV PE SUBJECT: REGIONAL LEADERS PROTEST CERRO VERDE MINE Classified By: Economic Officer Samantha Carl-Yoder for Reasons 1.4 (b) and (d) ¶1. (C) Summary. Cerro Verde Mine, a Phelps Dodge subsidiary located in Arequipa (southern Peru) was the target of a 3,000 person protest on June 15. Led by a coalition of 14 Arequipa regional mayors, the protestors complained that Cerro Verde contributed less to the mining canon in 2005 than in previous years, despite the high price of copper. Cerro Verde President John Broderick informed us that, per its stability agreement, the company can reinvest a percentage of its profits for expansion and social development projects, reducing the amount of canon-taxable profits. Broderick highlighted that 18 regions in Arequipa are eligible to receive canon funding; 14 of the 18 mayors (APRA members and Humalistas) were actively engaged in the protest. Instead of protesting, the remaining four mayors approached Cerro Verde to request partial funding for a water project. Cerro Verde will likely fund the project, demonstrating to the 14 mayors that you can obtain more through dialogue than through protests. End Summary. Protest at Cerro Verde -------------- ¶2. (C) Cerro Verde Mine, a Phelps Dodge subsidiary located in southern Peru, is one of the few mines in Peru that has flown under the radar and avoided being the center of protest. On June 15, Cerro Verde's luck changed, as a coalition of 14 regional mayors organized a demonstration of 3,000 strong, which included members of the Arequipa Workers' Association and the Supporters of the Cono Norte Region (Fredicon). (Note: The protest did not disrupt mine operations. End Note.) Protestors contended that Cerro Verde, which paid approximately $85 million in mining canon fees in 2005, underpaid the GOP. Led by Arequipa Mayor Yamel Romero (APRA),the mayors argued that Cerro Verde incorrectly reinvested its profits into expansion projects before it paid the canon. ¶3. (C) John Broderick, President of Cerro Verde, informed us that under its tax stability agreement, Cerro Verde has the option of reinvesting profits into its expansion and social projects (including building a new dam and water projects) before paying into the canon. Broderick opined that the 14 mayors were protesting because they expected the canon windfall to be higher and had already planned how they would spend the extra money. The Coalition of Mayors will travel to Lima on June 23 to meet with the Ministry of Energy and Mines (MEM) to request that Cerro Verde contribute more to the canon. Romero will also try to meet with President Toledo and President-elect Garcia next week to discuss the issue. MEM officials have already gone on record to the press, explaining that Cerro Verde has the right to reinvest profits into programs that will ultimately benefit the region. ¶4. (C) The Coalition of Mayors has publicly stated that the MEM has until June 26 to issue a "favorable" decision that will force Cerro Verde to contribute more to the canon. If no such decision is issued, they will call for a regional strike on June 27. The Coalition claims that they will call for an indefinite strike beginning on July 4 if MEM refuses to heed their claim. Motivation Behind the Protest -------------- ¶5. (C) Like most regions in Peru that have access to canon funding, the regional leaders of Arequipa are unable to use much of this money. In 2005, Arequipa accessed approximately 60 percent of the canon. Hence, Broderick noted, the reasons behind the protest were not financial, but rather political. He informed us that the coalition mayors represent regions that support both President-elect Alan Garcia and Humala. The leader of the coalition, Yamel Romero, is the APRA Mayor of Arequipa who has fallen from grace with many in the APRA party. (Note: Romero publicly criticized Alan Garcia six months ago, stating that he should step down as APRA leader E if he lost the Presidential election. End Note.) All 14 are up for reelection in the upcoming regional elections in November. Broderick opined that, by verbally attacking Cerro Verde and demanding that MEM alter the company's stability agreement, the mayors are courting the anti-system, leftist vote. Need to Get the Word Out -------------- ¶6. (C) On June 20, Cerro Verde officials will meet with the Arequipa local press to explain their side of the story. Broderick and his staff will present details of Cerro Verde's expansion projects, explain the canon process under the stability agreement, and also highlight the economic and social impacts of Cerro Verde's projects through 2020. Cerro Verde will attempt to focus people on the future rather than on the short term by explaining that if copper prices stay relatively stable during the next 14 years, Arequipa will receive approximately $1 billion in canon money from Cerro Verde alone. ¶7. (C) Cerro Verde also plans to launch a plan of attack from Lima. Officials will meet with the Minister of Mines next week to discuss the future of Cerro Verde operations and how the expansion of the mine will positively affect the region. Broderick believes that the MEM will uphold the stability agreement and will use information on how Cerro Verde projects benefit Arequipa to debunk the Coalition's arguments. Beatriz Boza, head of local NGO Ciuadanos al Dia, will also argue on behalf of Cerro Verde to the press, noting that Cerro Verde meets its canon obligations annually. ¶8. (C) Regional President Daniel Ballon, also a member of the APRA Party, privately indicated to Cerro Verde his irritation with the protest. Ballon, who is not friendly with Mayor Yamel, has publicly lauded Cerro Verde for its social programs and projects that create jobs in the region. Cerro Verde expects that he will make public statements in support of the company early next week. Not All Regional Leaders Agree -------------- ¶9. (C) Broderick pointed out that 18 regions in Arequipa are eligible to receive canon money, but that only 14 Mayors participated in the demonstration at Cerro Verde. The other four mayors, instead of protesting, sent a letter to the company noting that they would rather engage in a dialogue. In the letter, the mayors requested funding for a water project that will benefit 7 of the 18 regions. Broderick indicated that Cerro Verde will likely partially fund this project, which will demonstrate to the Coalition that dialogue is more effective then protests. Comment -------------- ¶10. (C) The protest against Cerro Verde came as a surprise, as it is one of the few mining companies that maintain excellent relations with the regional government and the public. In fact, Arequipa Regional President Ballon previously worked as the union president of Cerro Verde and is convinced that the mine provides enormous benefits to the region. The protest appears to be an effort at political jockeying in the face of upcoming elections. Arequipa, a region that strongly supported Humala in the presidential elections, is up for grabs and local leaders want to ensure their reelection. STRUBLE