Conflict with Local Communities Hits Mining and Oil Companies Where It Hurts


By Stephen Leahy – Inter Press Service (IPS) –

Date of publication: 
18 May 2014

UXBRIDGE, Canada – Conflicts with local communities over mining, oil and gas development are costing companies billions of dollars a year. One corporation alone reported a six billion dollar cost over a two-year period according to the first-ever peer-reviewed study on the cost of conflicts in the extractive sector.

The Pascua Lama gold mining project in Chile has cost Canada’s Barrick Gold 5.4 billion dollars following 10 years of protests and irregularities. No gold has ever been mined and the project has been suspended on court order.

And in Peru, the two billion dollar Conga copper mining project was suspended in 2011 after protests broke out over the projected destruction of four high mountain lakes. The U.S.-based Newmont Mining Co, which also operates the nearby Yanacocha mine, has now built four reservoirs which, according to its plan, are to be used instead of the lakes.

“Communities are not powerless. Our study shows they can organise and mobilise, which results in substantial costs to companies,” said co-author Daniel Franks of Australia’s University of Queensland, who is also deputy director of the Centre for Social Responsibility in Mining.

“Unfortunately conflicts can also result in bloodshed and loss of life,” Franks told Tierramérica.

The study is based on 45 in-depth, confidential interviews with high-level officials in the extractive (energy and mining) industries with operations around the world.

“Conflict translates environmental and social risk into business costs” was published May 12 in the Proceedings of the National Academy of Sciences (PNAS). A special report “Costs of Company-Community Conflict in the Extractive Sector” based on the study is also available.

“We wanted to document the costs of bad relationships with communities. Companies aren’t fully aware and only some investors know the extent of the risk,” Franks said.

“If companies are interested in securing their profits then they need to have high environmental and social standards and collaborate with communities,” Franks said in an interview.

Investing in building relationships with communities is far less costly than conflict. Local people are not generally opposed to development. What they oppose is having little say or control over how development proceeds, he added.

“We want development that benefits indigenous people and doesn’t just benefit someone’s brother-in-law,” said Alberto Pizango, president of the Interethnic Association for the Development of the Peruvian Rainforest (AIDESEP), an indigenous rights organisation in Peru representing 1,350 Amazon jungle communities.

“Indigenous people have something to say about harmonious development with nature. We don’t want development that destroys our beloved Amazon,” Pizango told Tierrámerica from Lima.

Pizango has been actively resisting the government of Peru’s selling of petroleum concessions to foreign companies on lands legally titled to indigenous people.

The struggle turned violent outside the northern jungle town of Bagua on Jun. 5, 2009, when armed riot police moved to evict peaceful protesters blocking a road. In the clash 24 police officers and 10 civilians were killed.

Pizango and 52 other indigenous leaders were charged with inciting violence and 18 other crimes. They went on trial May 14 in Bagua.

The indigenous people were protesting 10 legislative decrees they considered unconstitutional, which were put in place by the government to foment private investment in native territories.

“We had no choice and thought our protests were fair and that we were right. But it was too high a price. We don’t want to see that again. We want to move from the ‘big protest’ to the ‘big proposal,” said Pizango, who faces a life sentence if he is found guilty.

The study published in PNAS shows that the violence in Bagua could have been avoided if companies and the government acknowledged indigenous rights and worked with local communities.

“It is with great sadness I say this has yet to happen in Peru,” said Pizango, who was not even in Bagua when the violent clash occurred.

Meanwhile, Peru’s Environment Ministry has asked Pizango and AIDESEP to assist in the planning of the big U.N. climate conference to be held in Lima at the end of the year. The indigenous leader hopes the event will show the world that native people can protect the forest and the climate.

Repairing relationships between communities and companies and governments is difficult, said Rachel Davis, a Fellow at the Corporate Social Responsibility Initiative at Harvard University.

“It is much harder for a company to repair its relationship with a local community after it has broken down; relationships cannot be ‘retro-fitted’,” said Davis, a co-author of the study.

Franks compares this to a divorce, pointing out that only rarely do partners remarry.

Leading mining corporations have apparently begun to understand this, and are implementing the U.N. Guiding Principles on Business and Human Rights and adopting the International Council on Mining and Metals Sustainable Development Framework, Davis said in a statement.

But this is not the case in the oil and gas sector. “Their culture is very different. They’re not used to dealing with communities,” said Franks.

The study shows that environmental and water issues are the biggest triggers of conflicts. Activities like hydraulic fracking for unconventional gas and oil are on the rise and are affecting water. Big conflicts are coming, he predicts.

“It’s a good report but doesn’t address the broader economic and political pressure to push projects through quickly,” said Jamie Kneen of MiningWatch Canada.

Shareholders want big returns on their investments and governments want their royalties sooner rather than later. All of this makes corporations less willing to compromise or to take the time to find alternatives that might be acceptable to local people,” Kneen told Tierrámerica.

“Companies know there will be problems with local communities. Companies often gamble that any conflict will not get too high a profile and try to hide this risk from investors,” he added.

Not all conflicts are resolvable, Kneen said. “Some communities will never accept any risk of contamination to their water.”

This story was originally published by Latin American newspapers that are part of the Tierramérica network.


The reports can be downloaded from:-

Local Protesters Are Killing Big Oil and Mining Projects Worldwide

Jason Koebler –

12 May 2014

Multinational corporations are infamous for pushing native people off their land in order to open a new gold mine, extract oil, or otherwise extract local resources. For decades, backlash has been thought to be both limited and ineffectual, but new evidence suggests that protests from local people are effective, extremely costly for the companies, and often lead to substantive changes to or total abandonment of a project.

Researchers at the Centre for Social Responsibility in Mining interviewed employees at several dozen major international corporations who are involved with extractive activities, and found that companies are increasingly having to deal with the social and environmental impacts of their work, and that it’s hurting them where it hurts most: their bottom lines.

The researchers, led by Daniel Franks, took a look at 50 planned major extractive projects (oil drilling, new mine construction, that sort of thing) and found that in fully half of them, local people launched some sort of “project blockade.” In 40 percent of the projects, someone died as a result of a physical protest, and 15 of the projects were suspended or abandoned altogether, according to Franks’ study, published in Proceedings of the National Academy of Sciences.

“There is a popular misconception that local communities are powerless in the face of large corporations and governments,” Franks said in a statement. “Our findings show that community mobilization can be very effective at raising the costs to companies.”

The reason these projects, such as the Minas Conga gold mine in northern Peru and Lanjigarh bauxite mining project in Orissa, India, were abandoned wasn’t borne out of some sense of social responsibility to not pollute the environment or to not push people off their land. It was because the protests and resulting government backlash was so great that it became financially unviable to move forward.

Delays, even early in a project, can be extremely costly—at a major mining project, $20 million per week in lost revenues and lost investment isn’t uncommon. According to the study’s respondents, a nine-month delay at a Latin American mine cost a company $750 million; protests that shut down power lines at another operation cost $750,000 a day. Even before drilling or extraction has started, lost wages and startup delays can cost $50,000 a day when programs are forced to a standstill after they’ve started.

Perhaps not surprisingly, protests were most successful when they took place early on, during feasibility and construction phases of a project.

“This [is] in part because the project is smaller in scale and therefore easier to contest, but also because at later stages of the project cycle, capital has been sunk into an area, changes become costly to retrofit, revenues begin to be generated, and there are increased incentives for companies and governments to ‘defend’ their projects,” Franks wrote.

Social media and internet access are allowing indigenous and local groups to organize more quickly, to learn from others who have had successful protests, and to connect with nonprofits and humanitarian groups that can help push their stories out to the entire world.

“There’s been a big change in the mentality of indigenous people—things like Facebook are allowing them to not be as naive,” Kelly Swing, a Boston University researcher who works in an area of the Ecuadorian Amazon that is currently fighting back against proposed oil projects, told me. “They look at what has happened in, say, Peru, and see that their culture has gone to hell in a handbasket. All of a sudden, gifts the companies offer, like boats and education and modern medicine aren’t the panacea they used to seem.”

Companies, for their part, are learning how to anticipate these sorts of hangups, and some of those interviewed (all identities and specific responses were kept confidential) said that local backlash can be predicted and quantified before it happens.

“Several interviewees were strongly of the view that the triggers for and underlying causes of company-community conflict, and its costs, are predictable, and that approaches, procedures, and standards are available to companies to avoid conflict and develop constructive relationships with community actors,” Franks wrote.

At many companies, Franks wrote, the higher ups who approve major projects are completely oblivious that their work might have some sort of social or environmental impact. To combat this, companies hire “translators” who are able to identify potential social problems and put them in a language executives can understand: money.

“Translation requires individuals within organizations who can work across functional, organizational, and conceptual boundaries, and who can work in more than one ‘language’ and interpret how social and environmental risk is translating into costs for business. The need for internal ‘translators’ suggests that corporate decision-makers do not currently have the necessary models to internalize externalities and translate social risk inward,” Franks wrote.

Franks wrote that there’s some evidence that companies really do want to make sure local people are treated correctly—that, as he found, concerns such as drinking water contamination, environmental destruction, and public health risks, are not brushed aside. Then again, he noted that “some see stakeholder-related concerns as optional ‘add-ons’ to broader regulatory processes for operating projects.”

The challenge for those “stakeholders,” then, is making sure that, no matter what, they make a project so difficult to complete that those “add-ons” become so costly that the project dies. It seems like, in an increasing number of cases, that’s actually happening.


UQ study tells mining companies that they face losses if they don’t engage with communities

John McCarthy, The Courier-Mail –

12 May 2014

MINING companies will have to come to grips with dealing with community and social protests or face costs in the millions of dollars, according to a University of Queensland study.

The research, from the Centre for Social Responsibility in Mining, cited one multi-billion project where the costs caused by protests amounted to $20 million a week in delayed production.

The reaction against major developments is not just a product of wealthier countries with resource projects in Latin America also facing damaging impacts from community pressure.

But the report said a Credit Suisse report from 2012 also indicated the impact from governance, social and environmental risks across the Australian stock market was $21.4 billion, of which resource projects accounted for $8.4 billion.

One company reported to the study’s authors that a community conflict cost the company $100 million a year.

The report said Credit Suisse also put a 2.9 per cent discount on the shares of AGL because of risk of approval delays following protests against its Gloucester coal seam gas project in NSW.

The report coincides with significant social unrest in NSW against coal seam gas and continued community anger in Queensland against coal mine development and CSG.

Mining companies have been forced into lengthy and costly legal battles by activists and landholders in Queensland, particularly in relation to the Abbot Pt port expansion scheme.

It said in one case that emerged from interviews with executives, the cost of delay had been integrated into the project’s construction costs “which included a 50 per cent margin to cover delays arising from community conflict’’.

“Even at the exploration stage, costs can accrue,’’ the report authors said.

“Interviewees estimated that around $10,000 is lost for every day of delay in lost wages and the costs of maintaining an exploration camp.’’

That jumped to $50,000 a day for advanced exploration projects forced into a “stand-by’’ mode as a result of community conflict.

The study highlighted a case in which a company had undertaken an internal review to understand non-technical risks, including community conflict.

“More than $6 billion was attributed to non-technical risks over a two-year period, representing a double digit percentage of the company’s annual profits.’’

The Queensland Resources Council endorsed the report’s findings and claimed project developers were “dealing increasingly with activist groups who are not interested in engagement’’.

“They are interested only in blocking projects altogether,’’ QRC chief executive Michael Roche said.

“Prominent among these groups are signatories to the anti-coal and anti-gas strategy document Stopping the Australian Coal Export Boom that advocates use of the courts to ‘disrupt and delay’ resource projects.”