Peruvian Environmental Requirements Applicable to the Mining Industry

Craig D. Galli & Guillermo J. Ferrero
Parson Behle & Latime

Introduction
This article briefly describes the environmental regulatory requirements applicable to the mining industry in the Republic of Peru. An examination of Peruvian environmental law provides a notable example of innovative regulatory approaches taken by some developing countries that present both opportunities and challenges to North American companies doing business abroad.

General Regulatory Framework

Peru’s Constitution
Peru’s 1993 constitution and implementing statutes provide broad rights pertaining to environmental protection. Peru’s constitution provides that "every person has the right . . . to enjoy a balanced environment suitable for the development of life." Constitución Política del Perú de 1993, Art. 2(22). In addition, the State is charged with the "obligation to promote the conservation of biological diversity and protected natural areas." Id., at Art. 68. The right to live in a "balanced environment" constitutes a basic human right protected by Peru’s constitution.

The Environment and Natural Resources Code
Despite the broad environmental rights and protections set forth in Peru’s constitution, Peru has not adopted comprehensive command and control legislation to protect air and water, or to govern hazardous waste management. Peru enacted its most comprehensive environmental legislation – Código del Medio Ambiente y Recursos Naturales, Decreto Legislativo 613 ("Environment and Natural Resources Code") – in September 1990. Several provisions are of particular significance. First, the statute elaborates on the environmental rights extended to Peru’s citizenry. See, e.g., Environment and Natural Resources Code, Decreto Legislativo 613, Art. I (stating: "Every person has the irrevocable right to enjoy a healthy, ecologically balanced environment suitable for the development of life, and for the preservation of the country and nature. All have the duty to conserve this environment. It is the obligation of the State to maintain the quality of life at a level compatible with human dignity. Correspondingly, the State shall prevent and control environmental contamination and any deleterious process or degradation of natural resources that could interfere with the normal development of all forms of life and of society."). It also contains a broad citizen suit provision giving every person a right to bring a judicial action "in defense of the environment and natural and cultural resources. Actions can be brought even in cases in which the plaintiff or claimant’s economic or personal interest is not affected." Environment and Natural Resources Code, Decreto Legislativo 613, Art. III. The provision effectively eliminates the "standing" defense available to defendants under U.S. environmental laws.

The Environment and Natural Resources Code, Articles 62 through 69, apply specifically to mineral resources. Of particular interest, Article 63 requires approval from the "competent authority" prior to construction of waste disposal areas based on a showing that water and the general environment will be protected. The applicant must demonstrate that "technical conditions will guaranty the stability of the system," and provide information regarding the "technical operation of the system," and the "technical measures for closure of the deposit."

With respect to tailings impoundments and areas designed to accept mine wastes, Article 64 requires consideration of "appropriate measures," including reclamation, to avoid significant environmental damage after cessation of mining. Article 65 imposes the obligation to install, maintain and record information regarding the efficiency of "equipment to control contaminants." Under Article 66, water utilized in mineral processing must be "totally or partially reutilized when it is technically and economically feasible." In addition, open pit mines shall be designed with measures that "guaranty the stability of the terrain." Article 66 also requires that operations using explosives minimize the impact of noise, dust and vibration on population centers. Article 68 requires that mineral concentration, refining and beneficiation operations comply with standards for the security and treatment of wastes, and the control of discharges into the environment. Article 69 mandates that the competent authorities perform periodic monitoring of mining and metallurgical activities in order to evaluate environmental impacts and to adopt appropriate preventive and corrective measures.

Under Article 114, infractions of the Environment and Natural Resources Code can result in certain administrative sanctions (including fines), the "prohibition or restriction of the activity causing the infraction," and the "imposition of compensatory obligations." It is still unclear whether the latter will develop into a Superfund-like scheme. However, the potential exists, since the Code recognizes the "polluter pays" principle. Environmental and Natural Resources Code, Decreto Legislativo 613. Art. 1.6 ("The cost of prevention, monitoring, restoration and compensation for the environmental damage shall be charged to the person or entity causing the damage").

Administrative Penalties
On September 2000, the Ministry for Energy and Mines ("MEM") enacted a schedule of administrative penalties applicable to violations of environmental requirements within the jurisdiction of MEM. Pursuant to Ministerial Resolution No. 353-2000-EM/VMM an individual or company can be assessed a penalty of between approximately US$8,600 (10 UIT) and US$515,000 (600 UIT). The amount of the penalty is assessed based on the extent of the environmental damage and whether the regulatory authority discovered the violation. In addition, the provision imposes penalties for violating commitments set forth in environmental impact studies as well as violating regulatory requirements. Since its enactment, MEM has imposed severe fines of up to US$600,000 pursuant to this authority.

Environmental Crimes
Under the Peruvian Penal Code, a person can serve up to three years in prison for violating environmental protection standards that cause or could cause "alterations in the flora, fauna or hydrobiologic resources." Penal Code, Decreto Legislativo 635, Art. 304. More severe punishment may be imposed for environmental crimes which result in "severe" impacts to natural resources that serve as the basis of economic activity, or that cause human death. Penal Code, Decreto Legislativo 635, Art. 305. On its face, the statute does not have a scienter requirement. This is because Article 12 of the Penal Code provides that scienter or intent ("dolo") normally must be expressly required under the statute in order to impose liability without a showing of scienter. Negligent or reckless actions ("culpa") are punishable only when the Penal Code expressly allows. Environmental crimes, as any other crime, are subject to this rule, and expressly imposes liability for criminal negligence in only two instances relating to environmental contamination (Art. 304º) and illegal disposal or trade of wastes (Art. 307º). The criminal judge may also impose injunctive relief (preliminary or final) to suspend the contaminant act or activity. See Penal Code, Decreto Legislativo 635, Art. 314. Whether these provisions will be widely utilized by prosecutors remains to be seen.

Environmental Authority
In December 1994, the Consejo Nacional de Ambiente ("CONAM") [National Environmental Council] was created. That agency is considered under the auspices of the President of the Cabinet but with some "functional" autonomy. It is charged with coordinating the regulatory activities of the various ministries and departments, setting appropriate standards, establishing criteria for the preparation and approval of environmental impact studies, adjudicating civil and criminal environmental enforcement actions, and handling all appeals regarding environmental matters. Because some of the above duties appear to conflict with the regulatory authority of the "sectoral" ministries, such as the Ministry of Energy and Mines, the scope of authority and pre-emptive effect of CONAM actions remains unclear. See Decreto Legislativo 757 (regulatory authority governing the mining and energy sectors resides with MEM). Within MEM, the Directorate General for Environmental Matters has permitting and enforcement authority over the mining industry. To date, CONAM’s most significant activity relates to the development of Environmental Quality Standards ("ECAs") for air and water. These standards are different from the maximum permissible limits since they represent non-binding environmental policy goals. Once the ECAs are approved, MEM will likely review current MPLs in order to make them consistent the ECAs. Permits and other approvals may also need to be amended to conform to the new standards.

Environmental Management of Existing Mining Operations
Under the environmental management and adaptation program, concession holders of existing mining operations must have submitted a Evaluación Ambiental Preliminar ("EAP") ("Preliminary Environmental Evaluation") to the Ministry by March 1995. This document, which must be prepared by an auditor certified by the Ministry, sets for the results of one year of air and water monitoring, and identifies the environmental impacts and proposes possible solutions. See Decreto Supremo 59-93-EM, Art. 5. By June 1995, MEM theoretically should have already reviewed these evaluations and reported the results to the mining companies submitting the evaluations. Each company then had 12 months to present for approval a Programa de Adequación y Manejo Ambiental ("PAMA") ("Environmental Management and Adaptation Program"). The PAMA must establish the technical controls for achieving environmental objectives and corresponding time frames to achieve compliance. Yet the high rate of mining companies failing to meet their PAMA commitments may indicate the long distance many mining operations will have to go to meet modern standards. Thus far, MEM has been reluctant to shut down or impose significant sanctions on mining operations that have failed to satisfy their PAMA obligations.

Environmental Impact Studies
As of April 1993, an environmental impact study ("EIS") is required after completion of the exploration stage of a project and before construction of a new mine. The duty to prepare an EIS falls upon the concession holder. A 50% increase in production or in the size of a beneficiation plant also triggers the EIS requirement. See Decreto Supremo 016-93-EM, Arts. 7, 20. The EIS must be prepared by a consultant duly certified by the Ministry. Id. Art 21. Each EIS must include an alternatives and cost-benefit analysis. Decreto Supremo 016-93-EM, Anexo 2. According to MEM sources, approximately 60 EISs were filed in 2000. The impacts and control sections of the EIS must generally describe with specificity the measures to control air and water pollution, suppress noise, protect sensitive ecosystems and properly dispose of waste, which may then be incorporated into the permits issued by other authorities. With respect to mitigation, a description of air emissions controls, water treatment and reclamation is also required.

In January 2001, MEM published guidance on the management of relations between companies and local communities ("Guía de Relaciones Comunitarias"). It describes the Social Impact Study – SIS ("Estudio de Impacto Social") now required as a part of the EIS. The SIS consists of an analysis of the impacts on persons, interpersonal relationships, economy and culture in the communities living in the area of influence, resulting from the mining operation. The plan also includes mitigation measures to reduce such impacts.

Regarding public participation in the EIS approval process, the law requires a single Public Hearing and makes the EIS a "Public Document" (the applicant must make it available to the public). Notices are published in national and regional newspapers for anyone to attend the hearing. If feasible, the hearing could take place in the closest town to the project. Following a presentation by the applicant, there is a question and answer period. The actual importance of the Public Hearing has been widely criticized as nothing more than a public relations opportunity for the mining company, rather than allowing the public to "participate" in the EIS approval process. Some companies have gone beyond legal requirements. For example, Compañía Minera Antamina S.A. (a US$2.3B project in the Andes) adopted the basic principles of the Indigenous and Tribal Peoples 169^th Convention of the International Labor Organization. The Company made presentations throughout the region, collected observations, provided answers and in some cases actually amended the EIS to address concerns raised by indigenous peoples.

Environmental Requirements for Exploration Activities
Decreto Supremo 037-98-EM established a tiered system imposing environmental requirements for exploration activities. A company must file an affidavit with an Environmental Evaluation ("EE") for the following categories of exploration activities:

• Category A: Exploration activities with minimal or no surface alterations, such as geological studies, topography, and recollection of samples. The applicant must file an affidavit describing the activities.
• Category B: Exploration activities that result in discharges or waste disposal, that could impact the area to no more than 10 hectares. The company must file an application form attaching a description of the activities, a description of mitigation activities and reclamation plans.
• Category C: Exploration activities that result in discharges or waste disposal, that could impact the area and the ones that require more than 20 platforms or construction of more than 50m of tunnels. The latter require an EE. MEM published a guidance document describing the contents of an EE.

See Ministerio de Energía y Minas, Guía Para Actividades de Exploración de Yacimientos Minerales en el Peru (May 1995).

Environmental Standards

Liquid Effluents
Ministerial Resolution No. 011-9-EM/VMM, established the Maximum Permissible Levels ("MPL") of Liquid Effluents for Mining and 6 Mineral Processing Units ("Niveles Máximos Permisibles para Efluentes Líquidos Minero-Metalúrgicos"). Permissible levels were established for "Value at Any Time" (instantaneous) and "Annual Average Value" for pH, total cyanide, suspended solids and dissolved metals (lead, copper, zinc, iron and arsenic). In addition, the Ley General de Aguas, Legislative Decree 17752 ("General Waters Law"), as modified, set water quality limits based on the different water uses (e.g. human, industrial, and agricultural). A huge controversy surrounds limits for nitrates, cyanide and nickel since these are well below international limits. For instance, all limits were initially established in mg/l. When these were changed to mg/m³ the limit for nitrates was changed directly from mg/l to mg/m³.

Air Emissions
Ministerial Resolution No. 315-96-EM/VMM, established the Maximum Permissible Levels for Sulphur Dioxide, Particulates, Lead and Arsenic Present in Gaseous Emissions Generated by Mining-Metallurgical Units ("Niveles Máximos Permisibles de Anhídrido Sulfuroso, Partículas, Plomo y Arsénico Presentes en las Emisiones Gaseosas Provenientes de las Unidades Minero-Metalúrgicas"). Emission levels were set for sulphur dioxide, particulate matter, lead and arsenic.

Use of Guidance Documents
MEM, with funding from the World Bank, has retained several well-regarded North American environmental consulting firms to prepare various guidance documents. To date, approximately 16 guidance documents have been published covering, among other topics: water quality monitoring, air quality monitoring, closure plans, environmental impact studies, environmental management and adaptation programs, environmental inspection and auditing for mining operations, tailings management, water quality management (including acid rock drainage), reclamation/revegetation, and environmental controls for exploration projects. Most recently, in January 2001, the MEM published guidance on community relations ("Guía de Relaciones Comunitarias").

While these guidance documents, in large part, provide detailed, useful good environmental management practices, they arguably have the force of law. Article 4 of Decreto Supremo 059-93-EM provides that the PAMA requirements shall be satisfied in accordance with the guidance documents published by the Ministry. Article 7 of D.S. 53-99-EM provides that the structure of EIS, EIAP and EA must follow the corresponding guidance documents. To date, it appears that MEM has not sought to enforce the management practices contained in the guidance documents as binding legal requirements.

Environmental Stabilization
Persons acquiring previously contaminated property in every country face the issue of whether the person could be held liable for the costs of cleaning up contamination left from a previous owner. In the United States, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes strict liability on current owners unless the current owner satisfies the "innocent purchaser" requirements or some other applicable defense. EPA has also issued undertaken a "Brownfields" initiative to provide greater certainty to those acquiring contaminated property. In addition, fairly well understood mechanisms exist for transferring environmental permits to subsequent owners/operators of industrial property. Accordingly, the risk associated with acquiring previously contaminated mining property in the United States is fairly well understood. However, Peruvian law is unclear as to the obligations of purchasers of previously contaminated mining property. Article 19 of Decreto Supremo 016-93-EM provides that if a mine operator "transfers or cedes [renounces the right to operate] the mining activity, the purchaser or new concession holder shall be obligated to perform the previously approved PAMA and/or EIS." However, the law is silent as to who is responsible for complying with environmental requirements with respect to the cleanup of contamination originating from: (i) inactive mining activities which ceased prior to any purchase or acquisition by another party; (ii) inactive mining activities which ceased operations prior to the effective date (April 1993) of the PAMA requirements; and (iii) active or inactive mining activities which cause or have caused contamination to migrate onto adjacent property.

Peruvian law does provide a legal mechanism for resolving some, but not all, of this regulatory ambiguity. Article 4 of Decreto Supremo 016-93-EM empowers MEM to execute "environmental management stabilization agreements with the holders of mining concessions in connection with the preparation and submission of [an EIS] or [PAMA] by the concession holder." Article 4.2 of the Model stabilization agreement provides:

It is understood that the laws, legislative decrees, law decrees, supreme decrees and other legal requirements referenced in this Agreement have been complied with according to the provisions in existence at the time of the approval of the ‘PAMA,’ and that the same do not interfere, limit or reduce the rights of the Titleholder to enjoy the benefits allowed by legislation in effect at the time of approval of the PAMA. The Titleholder, for whose benefit this Agreement constitutes a guarantee, is not exempted from complying with the obligations set forth in the legislation in effect on the date of approval of the PAMA and other requirements subsequently enacted as long as the same do not violate the guarantees granted in this Agreement.

Ministerial Resolution No. 292-97-EM/VMM, Art. 4.2 (Jul. 7, 1997). This provision, while not a model of clarity, is understood to mean that a mine operator subject to new environmental requirements enacted after the date of the stabilization agreement must comply with such new requirements unless a showing can be made that compliance would "interfere, limit or reduce the rights of the" operator to continue operations while taking the incremental steps to achieve full compliance set forth in the PAMA.

MEM has entered into a number of environmental stabilization agreements with new operators of existing mining operations subject to the PAMA requirements where the initial PAMA requirements could not be met but were amended. The stabilization agreement "stabilizes" the commitments contained in the amended PAMA. In addition, MEM has also entertained the possibility of negotiating environmental stabilization agreements with companies that acquire previously contaminated property and submit a comprehensive baseline study which documents the nature and extent of the contamination. Likewise, the Code of Civil Procedure, Art. 82 ("Código Procesal Civil") recognizes the Environmental Citizens Suit ("defensa del interés difuso") which acknowledges standing to any citizen acting on behalf of the society to defend the environment and the natural resources, and any person, even if he has suffered no direct damages, may sue the owner of a contaminated property, demanding to cease the contaminating activity and requiring its clean up.

Finally, the owner of the contaminated property, may then sue the seller for "saneamiento" (principle of contracts law), and recover any damages paid to remedy the contaminated property, by way of indemnification or contribution, if at the time of the transference, the transferee didn’t know or could not reasonably know of the contamination. However, the "saneamiento" only provides a mechanism for the transferee, in limited cases, to obtain indemnification from the transferor for damages paid to a third party or costs incurred in cleaning up of the contaminated property, but grants no "shield" or "protection" from environmental liability before third parties or the government (as the case would be with an "innocent purchaser" defense). See Civil Code, Title XV (amended 1984).

Opportunities and Challenges
Peru, with its vast natural resources, continues to welcome foreign investment and provides multinational mining companies a tremendous opportunity notwithstanding current political instability. Even with the depressed price of metals, Peru continues to attract top tier companies interested in exploration, acquisition of existing mining operations, and privatization of government-owned mining and smelting operations. Officials within the Ministry of Energy and Mines generally have a high degree of practical understanding regarding the operation of the mining industry and the needs of sophisticated mining companies. Challenges exist regarding the acquisition of existing operations which, for the most part, have substandard environmental controls and often have caused contamination of waterways, groundwater, soils and airsheds. The law regarding ultimate responsibility for remediating for past contamination remains vague, as is the case in most Latin American countries. In addition, non-government organizations ("NGOs") within Peru continues to grow with the support of international NGOs with an interest in Peru. Because the law provides for citizen suits with no standing requires, environmental litigation by NGOs will likely increase in the future. Companies interested in commencing operations in Peru should consider the concerns of NGOs and indigenous peoples, and implement state of the art environmental controls that are now being required under Peruvian law.