Moment of truth for Peruvian smelter—and town


The cherry tree outside Maribel Chávez’s office set fruit this year for the first time she can remember. She credits the event to the shutdown over a year ago of a multi-metal smelter and refinery here that for nine decades has been both an economic mainstay and a serious health and environmental threat.

The complex, owned by Doe Run Peru, a subsidiary of privately held U.S.-based Renco Group, was idled in June 2009 after banks cut off the credit the company used to purchase mineral concentrates from providers. While operating, the main stack of the huge complex, located in this town 175 kilometers (109 miles) east of Lima in a valley surrounded by barren hills, belched as much as 600 tons of sulfur dioxide daily. Studies repeatedly found high levels of lead in the blood of La Oroya children and pregnant women. Though the air is now cleaner, a sense of uncertainty hangs over the town. The company continues to pay over 2,500 employees 70% of their wages while the plant is idle, but workers, local officials and merchants wonder if the complex’s days are numbered. “This has been a dark year for both the workers and the townspeople,” La Oroya Mayor César Gutiérrez says. “Many people have moved away.”

Before the plant suspended operations, the town had a population of about 32,000, according to City Manager Melitón Ricaldi. That figure could be as low as 20,000 now, Ricaldi says, adding that lost tax revenue has cut into the city’s social services budget. Poverty has increased, and banks report a 40% jump in delinquent loans, he says. Local officials are seeking a special disbursement from the Economy and Finance Ministry to help cover the shortfall.

Everyone points to a different culprit. The mayor blames the company, saying it has “constantly lied.” The company blames the global economic crisis, recalcitrant creditors and the cost of meeting government demands for environmental improvements. Workers blame government environmental requirements, too, saying they have jeopardized jobs.

The smelter has a history of environmental problems dating back to the 1920s. When Doe Run bought the plant in 1997, it was given 10 years to reduce sulfur dioxide and heavy metals emissions and effluents and upgrade the copper, lead and zinc processing facilities to reduce pollution. The deadline was extended to Oct. 31, 2009, but when mineral prices plunged during the 2008 world economic downturn, Doe Run asked for another extension.

‘Unrenewable’ deadline

In Sept. 2009, after months of negotiations, the government set a new, 10-month “unrenewable” deadline for arranging financing and restarting operations. Doe Run would have another 20 months to meet the last of its environmental commitments—to install a sulfuric-acid-capture plant and improve emissions control at its copper-processing facilities.

The first deadline passed on July 27 with no financing agreement, and in his State of the Nation address on July 28, Peru’s Independence Day, President Alan García announced the plant would be closed. The company, however, claimed it had 30 months in all to meet its commitments and the government backpedaled. Some analysts suggested the government was hesitant to take any action against Doe Run that could be construed as a violation of Peru’s free trade agreement with the United States.

For now, the plant remains quiet and the town’s future is uncertain. Doe Run owes some US$120 million to its creditors. The creditors consist mainly of Peruvian mining companies that supplied it with concentrates and have refused to consider new contracts until they are paid. On Aug. 16, the government announced the start of legal proceedings, requested by Doe Run creditors, that would lead either to the restructuring or liquidation of the company.

In an Aug. 5 press release, Doe Run said it was negotiating with Swiss-based commodities trader Glencore International for financing that would allow it to restart operations. A source familiar with those talks says that as a condition of the deal, creditors would have to drop demands for restructuring, but that so far the creditors have not agreed.

Some workers proposed a sale or government takeover. But María Chappuis, former director of the Energy and Mines Ministry’s mining office, questions the wisdom of such a move when a new, state-of-the-art complex, she calculates, could be built for $200 million. That’s less than the company’s $270 million debt ($120 million to creditors and $150 million Doe Run Peru says it owes the Renco Group). The cost of outstanding environmental commitments could amount to another $100 million, and the company is disputing a government claim about past-due tax payments.

Retraining debated

The Labor Ministry has proposed retraining Doe Run employees for other types of work, particularly in mining. But workers are holding out hope that operations will resume, according to Maribel Chávez, who heads the La Oroya office of CooperAcción, a Peruvian nonprofit organization that works on issues related to communities and mining. For his part, Mayor Gutiérrez says retraining won’t work. “It will leave us with a ghost town,” he says. “I don’t think we will allow that.” Many workers, especially those not native to La Oroya, already have left to seek jobs elsewhere, he says.

Gutiérrez suggests La Oroya become home to an industrial park with ore processing, hide tanning, furniture manufacturing and other activities. No specific plans exist, however. Nor do studies gauging the smelter’s local economic impact and the feasibility of achieving comparable impact through diversification.

Whether or not Doe Run restarts operations, La Oroya still needs environmental cleanup. Gutiérrez says the local government has over $10 million for soil remediation, but adds there is no point in starting the work until Doe Run completes environmental upgrades. “If the plant starts up tomorrow, the soil will just get contaminated again,” he says. As long as the cleanup is on hold, however, residents are likely to continue to show high blood lead levels. Says City Manager Ricaldi: “The soil has always caused the greatest harm to health.”

- Barbara Fraser

María Chappuis
Mineral economist
Lima, Peru
Tel: +(511) 435-8822
Maribel Chávez
Outreach Coordinator, CooperAcción
La Oroya, Peru
Tel: +(51 64) 39-1392
César Gutiérrez
La Oroya, Peru
Tel: +(51 64) 39-1120
Melitón Ricaldi
City Manager
La Oroya, Peru
Tel: +(51) 190-436-750