Peru’s new consultation law is likely to delay planned investments in mining and energy projects.

BY CARLOS CAICEDO
Exclusive Analysis

On February 15, the authorities said they would initiate a dialogue with indigenous groups over the auction of oil block 192, in the Loreto region. This is the first formal consultation with local communities as mandated by the consultation law approved by Congress in September 2011. The law was endorsed by President Humala as a way to mitigate protests over natural resource projects. Block 192 would prove a litmus test for the consultation law.

The law's practical application is likely to become a serious hurdle for the development of new projects in the extractive industries. There is no clarity on which communities should be considered as indigenous people. The government has yet to publish a database, which will be used to decide what communities would be consulted.

LAST WORD

A related concern is the sense of empowerment that the consultation law would provide to indigenous communities. The consultation law establishes that the last say on mining and oil projects rests with the government. However, vocal indigenous organizations such as AIDESEP have rejected the law arguing it falls short of what indigenous communities expect. AIDESEP was behind the violent 2009 Bagua protests in the Amazon region, which resulted in 40 deaths and the seizure of oil pumping stations.

There is increasing risk that some of the investment in mining and energy projects, estimated at $68 billion over the next decade, will be delayed due to disputes on consultation. The government is auctioning 36 new blocks this year; 29 of these concessions, most of them located in the Amazon, will be subject to the consultation law. Consultation is slated to last 120 days maximum; however, this appears unrealistic, particularly in those projects likely to face strong resistance. Protests over environmental concerns pose a high risk to mining projects.

Carlos Caicedo is head of the Latin America division at Exclusive Analysis, a UK-based global risk consultancy recently acquired by IHS.