Sunday, September 14, 2014

Gold mining arbitration to commence in Washington, D.C.

On El Salvador’s Independence Day, September 15, the country will face a major challenge to its actions in placing a moratorium on gold mining in the country.   Five years after it began, the international arbitration between Pacific Rim (now owned by OceanaGold) and the government of El Salvador starts its final hearing next week in Washington, D.C.  The legality of the mining moratorium and its impact on foreign gold mining companies will be judged by an arbitration panel of international legal experts.  The hearing will begin on Monday and last for six days through the following Saturday.     

Here is a primer to help you understand the proceeding which will be unfolding this week:
  
 


Who are the parties?

The official parties to the arbitration are the government of El Salvador and Pac Rim Cayman, LLC.   Pac Rim Cayman is ultimately owned and controlled by OceanaGold, an Australian gold mining company which purchased Pacific Rim Mining Corp. in 2013.    

Who are the lawyers representing each side?

Both sides are represented by large US law firms.  The government of El Salvador is represented by Foley Hoag LLP, a Boston based firm.  Pac Rim is represented by Crowell & Moring, LLP, a firm based in Washington, D.C.   Both firms are well-respected and expensive.

Who are the arbitrators?

The arbitration is being conducted under the auspices of the International Centre for the Settlement of Investment Disputes. From Wikipedia:
The International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration institution which facilitates arbitration and conciliation of legal disputes between international investors. The ICSID is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1966 as a multilateral specialized dispute resolution institution to encourage international flow of investment and mitigate non-commercial risks. Although the ICSID is a member of the World Bank Group and receives its funding from the World Bank, it was established as an autonomous institution by a separate treaty drafted by the International Bank for Reconstruction and Development's executive directors and signed by member countries.[1][2] The ICSID is contracted with and governed by its member countries, but has its own Secretariat which carry out its normal operations. The center facilitates arbitration and conciliation proceedings, allowing independent tribunals and arbitration mechanisms to hold proceedings under its rules, and all contracting member states agree to enforce and uphold arbitral awards in accordance with the ICSID Convention 
El Salvador is a party to the international treaty which created the ICSID.

The panel of arbitrators consists of three lawyers with extensive experience in international commercial arbitration.   The panel members are:
Click on their names to read their bios.

Why is this case in an international arbitration?

Pac Rim started this action under the DR-CAFTA trade agreement which has provisions allowing foreign investors in Central American countries to bring international arbitration claims against those governments if those investors are treated unfairly.  The arbitration panel rejected Pac Rim's attempt to use DR-CAFTA, because it found that Pac Rim was a Canadian company, and Canada is not one of the parties to DR-CAFTA.  There is a good overview and analysis of this decision at the Public Citizen Eye on Trade blog.  

There was another basis for the arbitration, however.   In 1999, El Salvador’s National Assembly passed an Investment Law, and that law has a provision allowing the country to be sued in international arbitration.  Article 15 of the Investment Law states: 

In the case of disputes arising between foreign investors and the State, regarding their investment in El Salvador, the investors may submit the dispute to: (a) the International Center for Settlement of Investment Disputes (ICSID), in order to settle the dispute by means of conciliation and arbitration, in accordance with the Convention on Settlement of Investment  Disputes  Among  States  and  Nationals  of  other  States  (ICSID  Convention)(emphasis supplied). 

The ICSID applied the plain meaning of this Salvadoran law which states that foreign investors can bring lawsuits against El Salvador in that forum.    This is the case which will be heard beginning September 15.

Provisions like the one in the Investment Law to permit international arbitration of such disputes are not uncommon.   Countries adopt such laws to encourage foreign investors who might be concerned with the fairness or the corruption in local court systems.   Investors feel more comfortable investing knowing that they have the option to choose a tribunal of supposedly neutral international arbitrators rather than the local judiciary.

The International Investment Law was adopted in 1999 during the right wing ARENA government of president Francisco Flores.   Flores is currently under house arrest in El Salvador for corruption charges related to his receipt of more than $10 million in funds from the government of Taiwan.


What are the issues to be decided?

Pac Rim is suing over the government of El Salvador's refusal to give it a permit to begin mining at its El Dorado site in north central El Salvador.   The refusal came after Pac Rim had spent years exploring and preparing the site and was ready to actually begin construction of a mine.  Pac Rim claims that it complied with all provisions of Salvadoran law and that this action which destroyed the value of its investment in the gold mine was illegal.   El Salvador asserts, in contrast, that Pac Rim had not fulfilled all the requirements to obtain an exploitation permit and that the actions of the country in placing a moratorium on new exploitation permits was legal and justified because of concerns and uncertainty over the environmental and social impact of permitting gold mining.   

The legal briefs filed by the parties in the arbitration go into hundreds and hundreds of pages of details about their arguments.  From Pac Rim’s Reply on Merits and Quantum:
In support of these claims, Claimant demonstrated its substantial and good faith investment  in  the  El  Dorado  Project  made  in  accordance  with  the  laws  of  El  Salvador  between 2002 and 2008: an investment that marked a significant step along a lengthy trajectory towards the development of a modern mining industry in El Salvador.  As borne out by hundreds of factual and legal exhibits, this trajectory marked a path that had been consciously chosen and consistently implemented by the Salvadoran State since its first days as an independent republic,  and certainly for many years before an experienced group of mining industry professionals came together to form the group of companies now known in this arbitration as Pac Rim…. 
Pac Rim’s investment in El Salvador included: expending tens of millions of dollars in-country, to the direct benefit of the local  economy;  completing  confirmatory  mineral  exploration  drilling  and  detailed  technical studies  which  demonstrated  the  economic  and  environmental  feasibility  of  mining  the  Minita deposit; doubling the mineral resources associated with the El Dorado Project; and harnessing the  success  of  its  high-quality  technical  studies  and  exploration  efforts  to  attract  international financing for development of the mine.   In addition, Pac Rim implemented a series of highly progressive  environmental  and  social  programs  which  were  calculated  to  ensure  that  the Department of Cabañas – as well as the [Government of El Salvador] itself – would receive direct and lasting benefits… 
Then, in March 2008, then President Saca declared a ban on all metallic mining projects in the country, abruptly and effectively nullifying the valid legal and regulatory regime upon which Claimant had relied in making its investment.   The result of this gross misuse of authority by the Executive Branch of Government is a “de facto ban” or indefinite moratorium on metallic mining in El Salvador, which continues to date, and consequently the destruction of Claimant’s investment, and the frustration of its legitimate expectations to develop active mining operations at El Dorado.  
From El Salvador’s Counter-Memorial on the Merits:
This case is about a Canadian mining company that purchased exploration rights in El Salvador when time was running short to apply for a mining exploitation concession. The company then decided to make a big gamble and failed. 
 Instead of accepting the consequences of its decisions, the company started this arbitration to try to force the Government to grant it a gold mining concession to which it never had any right. It is now trying to convince this Tribunal to order the people of E1 Salvador to pay for the company‘s failed gamble and, in fact, to pay it a windfall from the national treasury by awarding "lost profits" based on property rights the company never had…. 
What Pacific Rim still fails to understand is that it was obligated to comply with the laws of E1 Salvador and neither El Salvador nor any other country in the world has a legal obligation to change its laws to accommodate a foreign investor. As established in another ICSID case in which El Salvador was a respondent and prevailed, it is the foreign investor who has the legal obligation to make its investment in accordance with the laws of the host State. This self-evident principle is also recognized in the text of the Investment Law of El Salvador, the sole instrument under which this arbitration proceeds…. 
This case is simple.  In fact, the key issue to be decided in this arbitration has been defined and answered since 2010, when El Salvador filed its Preliminary Objections to bring to bring an early end to a claim that, in El Salvador’s view, is devoid of legal merit:  Pac Rim was not legally entitled to a mining exploitation concession and has no rights in the exploration licenses included in its claims. El Salvador breached no legal duty toward Pac Rim and is not liable for any alleged damages as a result of not granting the concession and not granting new environmental permits for exploration.

All the briefs and other documents filed in the case can be downloaded from this site maintained by the Salvadoran government


Can local environmental organizations participate directly in the hearing?

Environmental activists and the anti-mining movement do not have a voice at the hearing beyond the arguments which will be made by the government of El Salvador and its lawyers.   The Center  for International Environmental Law filed a friend of the court brief on behalf of the El Salvador National Roundtable on Mining, a coalition of environmental and civil society groups opposed to metallic mining in the country.  

The government of El Salvador supported the panel’s consideration of the Roundtable's arguments in a submission filed on September 2.   Not surprisingly, Pac Rim rejected all the arguments of the National Roundtable.

When will a decision be issued?

This is not a rapid process.   I would not expect a decision for several months.










Saturday, September 06, 2014

Coming of Age in El Salvador

Before he was a professor of social work, my friend Jim Winship did his coming of age in the US Peace Corps in El Salvador.  His work as a community organizer in the La Chacra neighborhood of San Salvador left an indelible mark on him.  More than 30 years later on a Fulbright fellowship, Jim Winship returned to El Salvador, where he began documenting the lives of young people in the country.   That passion has led to the publishing of his book, Coming of Age in El Salvador.


The book is divided into two main sections.   After an introduction to the geography and history of El Salvador, Jim presents the life stories of several young Salvadorans and their experiences transitioning into adulthood.   In the second half of the book, he uses those stories to help illuminate discussions of family, education, migration, violence and economic realities.  These are the forces which young men and women must navigate as they make their way from childhood into lives as adult Salvadorans.

At a time when there is much in the news about child migration from El Salvador and the rest of Central America.   Jim regularly returns to the topic of migration, which every young person seems to regard as an option which much be considered.   This is a book about the dreams of young people in El Salvador, and it is a book about the very real, and sometimes insurmountable obstacles to achieving those dreams.

I recommend this book for anyone with an interest in El Salvador and who wants to gain an appreciation of the lives of those young Salvadorans who represent the country's future.

You can read an excerpt including the book's chapter on migration here.  Options for purchasing the book are here.



Friday, September 05, 2014

Former President Francisco Flores surrenders


Former president of El Salvador Francisco Flores has been a fugitive from justice since it was revealed earlier this year that he would be charged with corruption in connection with the use (or misuse) of millions of dollars from Taiwan.  Today, he suddenly appeared in El Salvador and presented himself in court to face the charges against him.   As a provisional measure, the judge handling the case ordered Flores to be held under house arrest while he is prosecuted for corruption.

From Reuters:
Dozens of people had gathered outside the courtroom to protest the former president's alleged corruption, calling for his imprisonment. 
Prosecuting attorney Bertha de Leon told reporters the prosecution would appeal the judge's decision, arguing that Flores should be imprisoned after being on the run for months. 
"For us, the judge's decision is not technically correct; for us, the judge has ignored what needed to be done; he has ignored the circumstances and the facts, and has favored him with this decision," she said. 
Flores' alleged corruption came to light when former President Mauricio Funes, who ruled the country from 2009 to 2014, revealed that the United States was investigating Flores for suspicious movements into his bank accounts.  According to the allegations against him, the money Flores received came from former Taiwanese President Chen Shui-bian, who was found guilty of corruption in 2009 and imprisoned, originally for life before his sentence was reduced.
This case will be a test of whether El Salvador's judicial system is actually able to deal with serious charges of corruption by high government officials.   Flores political party, ARENA, is already distancing itself from any connection with the former president.  Orders by the judge that the case should proceed in secret and allowing Flores to remain under house arrest rather than in custody after fleeing the country are causing concern among civil society organizations.   But a successful and transparent prosecution following appropriate judicial procedures could be another step toward strengthening the rule of law in the country.    We will have to wait and see.
  

Thursday, September 04, 2014

Padre Toño pleads guilty


The Spanish priest known as Padre Toño was found guilty today of bringing contraband into prisons as part of a plea agreement with Salvadoran authorities.   The country's attorney general has been prosecuting the priest for alleged collaboration with the country's powerful street gangs.

Fox News Latino:has the details of today's developments:
A Spanish priest who pleaded guilty to aiding gang members in El Salvador was sentenced Thursday to 2 1/2 years in prison, but will not have to spend any time behind bars, a Salvadoran judicial spokesperson told Efe. 
"As the sentence is less than three years, it was changed to substitute measures," the spokesman said. 
The Rev. Antonio Rodriguez, a parish priest in Mejicanos, near San Salvador, was arrested July 29 on charges that he smuggled banned items to jailed gang members. 
Attorney General Luis Martinez said last weekend that the priest had agreed to plead guilty and cooperate with authorities.   Under the plea agreement, Rodriguez must stay away from prisons and have no contact with gang members, the judicial spokesman said. 
He is, however, free to travel abroad, the spokesman added.   Prior to his arrest, Rodriguez - known as Father Toño - ran a rehabilitation program for former gang members. 
The priest faces additional charges in a separate, ongoing case, the court spokesman said. 

Tuesday, September 02, 2014

Sánchez Cerén lacking popular support in early months of his presidency



El Salvador's second left wing president, Salvador Sánchez Cerén, is not enjoying the same high approval ratings which his predecessor Mauricio Funes enjoyed.    According to a poll released today by La Prensa Grafica, the new president from the FMLN only has a 40% approval rating among those polled.   In contrast, Mauricio Funes enjoyed an 84% approval rating, the highest among all Latin American presidents, at the same point in his administration.




Monday, September 01, 2014

Economic statistics -- poverty and the middle class both shrinking in El Salvador

In recent weeks, there has been a release of data about the economic well-being of Salvadoran households from the UN and from the government of El Salvador.   The data shows several things:

  • A slow but steady reduction in poverty
  • Significant differences between urban and rural areas
  • A growing vulnerable population who have escaped poverty, but have not achieved middle class status.
  • A middle class which is actually shrinking 
The first set of charts comes from El Salvador's annual national multi-purpose household survey.


Average monthly household income has increased every year since 2010 to $660 in urban areas, but only $361 in rural areas.




Poverty has declined to a level of 30% of households, with rates ranging from 26% in urban areas to 36% in rural areas.




Extreme poverty, which increased in 2011, has declined in the past two years, falling to levels of 7.1% nationally, 5.7% in urban areas and 9.8% in rural areas.




Average numbers of years of school completed reached 9.2 in urban areas, while only at 5.6 years in rural areas.



Illiteracy has declined to 7.6% in urban areas and 18.9% in rural areas.



The number of households with access to piped water has steadily increased to 94% in urban areas and 72% in rural areas.



While El Salvador has made progress in reducing the level of poverty in the country, the middle class has actually shrunk.   What has grown is an economic class which the UN Development Program calls the "vulnerable" class:   households which live just above the poverty line and are constantly vulnerable to the impact of a bad harvest or a natural disaster or illness.  


This chart from the UN Development Program, shows the distribution of economic classes in countries in Latin America, from poor (less than $4 per day) to vulnerable ($4 to $10 per day) to middle class.  In El Salvador, the middle class is only 1/6 of the population, while 83% of the country is poor or vulnerable. Only Honduras, Guatemala and Nicaragua have smaller middle classes.




Otto Rock produced this chart from the UN data showing which Latin American countries grew their middle class and which had a shrinking middle class.  El Salvador's middle class has actually shrunk by 1.8% between 2000-2012.

In an address after receiving the UN Human Development Report, president Salvador Sanchez Ceren, pointed to the increase in average household monthly income and the drop in illiteracy which he attributed to the free school packets program started under the administration of Mauricio Funes.   Sanchez Ceren went on to list all the ways in which his government hoped to promote improved economic and security conditions in the country.

When I look at these numbers, I find it hard to give any credit to any Salvadoran government for reducing the level of poverty.  The reduction in poverty is most easily explained by the impact of remittances.  Remittances from Salvadorans outside of the country dwarf the impact of any government anti-poverty programs.   The $4 billion in expected remittances for 2014 equals roughly $1.80 per day for every man, woman and child in El Salvador.    Remittances can't create a middle class, however.   Only investment in people and true job creation can do that.  




Saturday, August 30, 2014

Gangs announce a new phase of the truce

Communications issued by El Salvador's largest gangs this weekend declare that the gangs have decided to relaunch the truce process which started in March 2012, but seemed to have largely fallen apart two years later.

From Reuters:

Leaders of El Salvador's major gangs on Friday said their members would no longer attack police and the military in a bid to revive a tattered gang truce and slash high rates of violence that have rocked the Central American nation. 
Kingpins of five Salvadoran gangs, including Barrio 18 and its rival Mara Salvatrucha (MS-13), said the agreement was reached last Sunday to relaunch a March 2012 truce that cut homicide rates by 40 percent.
A report from al Jazeera described the communique from the gangs:
"We are all victims of the situation of violence that afflicts the country, and we can't see positive results if we do not promise our determined collaboration," said the leaders.   
It said gang members would also seek to avoid attacking "civilian victims," who are often executed to pressure family members into paying extortion money. 
The gangs have asked the government to "provide facilities" so that churches and civil authorities can facilitate dialogue to resolve conflicts between the groups. 
They said the terms of their original truce remain in effect, which include a cessation of hostilities between gang members and "action" against family members and trustees of the police and the prison system. 
The leaders also promised to suspend "forced recruitment" and stop "all forms of harassment" in schools and provide guarantees for the free movement of aid and medical groups in areas under the control of their members.
The reference to the government "providing facilities" so that churches and civil society can dialogue with the gangs would appear to be a reference to the initiative of the churches called "IPAZ" which I wrote about earlier this week.

There have not been any comments released from government leaders about this latest statement of intention from the gangs.  The outset of the original truce in March 2012 resulted in an immediate drop in the homicide rate in the country of more than 50%, although crimes such as extortion where the gangs make much of their income did not show a similar decline.  As a result, the Salvadoran public has been deeply suspicious of the so-called truce, and politicians at the national level in the country have distanced themselves from having anything to do with the truce.



Wednesday, August 27, 2014

Court reforming El Salvador's democracy

The Constitutional Chamber of El Salvador's Supreme Court continues to issue rulings which increase the ability of citizens to participate in the democracy and lessen the power of  party leadership.   In a unanimous ruling by all five judges on Tuesday, the Chamber held that El Salvador's Law of Political Parties is unconstitutional for failing to include provisions requiring transparency in the finances of the political parties and in failing to require representative democracy in party's internal elections to choose leaders and candidates for office.  

The National Assembly will now have two months to amend the Law of Political Parties to comply with the Chamber's ruling.   The ruling will not affect the choice of candidates for the March 2015 elections, however.

The  Constitutional Chamber, in a series of rulings, has strengthened the voice of individual voters by allowing them to vote for individual candidates for National Assembly rather than closed lists assembled by the parties, and by allowing independent candidates not affiliated with any of the parties.  The decisions have angered old guard party officials from both ends of the political spectrum, but they have grudgingly complied.   This latest ruling is likely to produce similar reactions.

This week's ruling came as the result of a petition filed by the Social Initiative for Democracy, a civil society organization promoting democratic processes in the country.

Tuesday, August 26, 2014

Pastoral initiative for peace



A group of churches in El Salvador yesterday made public their proposals to the government for working on the problem of gang-fueled violence in El Salvador.   Calling itself "IPAZ," the Pastoral Initiative for Life and Peace, the group of Protestant and Catholic churches propose a "tridimensional dialogue" between the churches, the gangs and civil society to seek an understanding for a reduction in the levels of violence and homicides.  IPAZ proposes to be the facilitator of this process.

The church leaders do not describe this process as a continuation of the so-called truce process, but instead an attempt to rescue those pieces of that process which had produced positive results.   They expressed a certainty that there were various gang members who truly did want to give up lives of crime.   IPAZ stands opposed to those who would say there can be no dialogue with the gangs.

IPAZ specifically does not call for the government to negotiate with the gangs or gang leaders.   But IPAZ does want the government to leave open the spaces in which dialogue between the gangs and civil society and the churches can occur.   As part of this openness, the churches need assurance that they will not be viewed as criminals for having a dialogue with the gangs in the fashion of the current prosecution of Padre Toño.

The churches do call for the government to be involved in prevention, rehabilitation, and reinsertion of former gang members back into society.  They urge the PNC to respect the human rights of citizens and communities when the PNC engages in anti-gang tactics.  IPAZ supports the government's recent move towards community policing.

IPAZ was founded in November 2012, at a point when the truce process had achieved a greater than 60% reduction in the level of homicides in the country.

You can read a document describing the constituent parts of IPAZ here.   The proposal the group made to the government can be found here.   Yesterday's statement to the press is available here.


Friday, August 22, 2014

Family of Padre Toño speaks out

In Spain, they are waiting anxiously for progress on the case of Spanish priest Fr. Antonio Rodriguez (Padre Toño), arrested in El Salvador for alleged complicity with the gangs.   The periodical El Pais has the story::

Father Toño has been accused of bringing prohibited objects such as cellphones into prisons and of having direct ties to various Mara leaders. Both investigations are in the preliminary stages. It could take up to six months for the authorities to make a decision. On Friday, Father Toño was transferred to a prison under the supervision of the Salvadoran police’s narcotics division after spending a week in hospital with low blood pressure. His lawyers intend to appeal the judge’s decision and the Spanish Foreign Affairs Ministry said it was keeping up with the case, though declined to share any details. 
[Father Toño's sister] Cristina has taken two trips to El Salvador to see her brother. She said Father Toño set up workshops, clinics equipped with machines for removing gang tattoos, and schools for children. “After giving mass every morning, there is always a line of people waiting outside to ask him for help. I remember once a woman told him that her 10-year-old son had disappeared. We spent two days going all over the place until we found the boy, his body all cut up.”... 
Antonio Rodríguez Tercero began attending the old Cristo de la Luz boarding school in Daimiel when he was six years old. “He only got out at weekends and he always brought me a carnation,” his mother, Carmen, says while wiping away her tears with a handkerchief. At 10 years old, he went to Zaragoza to join the Congregation of the Passion of Jesus Christ and stayed there until he finished his novitiate. He worked as a waiter to earn money to pay for seminary courses. He then moved to Madrid for two years before heading to El Salvador. “He wanted to follow in the footsteps of Monsignor Romero [a defender of human rights who was assassinated in the Central American country] and that’s why he chose that destination,” his mother says, her blue eyes shining like her son’s.
Read the rest of the article here.