In the Pan Amazon, environmental liabilities of old mining have become economic liabilities

Although new mines use state-of-the-art technology, the industry also has a legacy of ageing containment dams at older mines, particularly shuttered mines that no longer generate revenues to finance improvements in the technology surrounding tailings storage facilities (TSF). Their failure can result in the release of millions of cubic metres of toxic sludge into river systems. In populated areas, this can impact the water supplies of communities, wreak havoc on the local economy and endanger the health of thousands of inhabitants. In remote landscapes, a failed containment structure will contaminate (tens of) thousands of hectares of aquatic and riparian habitat, threaten wildlife and disrupt the livelihoods of Indigenous families.

Although mining companies have fully embraced the need to improve their environmental management, they tend to focus on new mines where state-of-the-art technology could be incorporated into the design of new projects, often with additional benefits that reduce operating costs and conflicts with nearby communities. Until recently, less attention was focused on the older and decommissioned mines and their associated environmental liabilities. That changed after two recent incidents in Minas Gerais (Brazil) where legacy dams constructed using a flawed engineering design failed with disastrous consequences.

The first event occurred at the Mariana iron ore complex in 2015 when a dam failed and released ~44 million metric tonnes of mud and effluent into the Río Doce. The operating company, a joint venture between two of the largest and most experienced mining corporations (Vale SA and BHP), agreed to a remediation plan estimated to cost R$6 billion (~US$1.2 billion). That is only a fraction of the financial cost of the disaster, however, because lost operating income forced the operating company (Samarco) to default on US$13.4 million in corporate bonds. Yet to be determined are costs associated with civil action in the UK and Australia where BHP is being sued on behalf of individuals impacted by the incident.

The second event was even worse. In 2019, the Brumadinho tailings dam collapsed at another Vale-operated iron ore mine, releasing twelve million metric tonnes of tailings that triggered a flood which swept across the mine’s operations center and adjacent agricultural landscape. The tailings facility, which had closed in 2014 after thirty years of operations, was classified as a low-risk small dam and, allegedly, was monitored twice a week for cracks and filtration. In February 2021, the government of Minas Gerais and Vale agreed on a remediation plan with an estimated cost of US$7 billion, while reaching individual settlements with families impacted by the disaster at a cost of $US 630 million. The Securities and Exchange Commission (SEC) sued Vale in April 2022 for deliberately misleading investors as to the safety of its tailings management systems.

Corporate shenanigans

The ongoing attempts by companies to isolate themselves from environmental liabilities highlight the legal challenges when those liabilities were created by corporate actors that no longer exist as legal entities. This behavior has long been practiced by both mining and oil companies that permutate their legal identity via complex transactions that exploit legal maneuvers available to companies that have participated in mergers, acquisitions or sale of corporate subsidiaries that exist as distinct legal entities.

For example, the Oroya metallurgical complex in Central Peru has operated as an industrial mill for more than a century. It was owned by a private company between 1920 and 1980, when it was nationalized and ran as a state-owned corporation until 1997. It was sold to the RENCO Group of the United States, which maintains that it has legal liability only for the period since it acquired the facility. In 2005, an environmental monitoring study revealed that 97 per cent of the children in nearby communities suffered from lead poisoning caused by inhalation of dust that originated in the Oroya tailings heap. Almost immediately, RENCO spun off its Peruvian operations into a separate corporate entity to protect the holding company from the financial liabilities of remediation, estimated at ~US$5 billion. The dispute revolves around a claim and counterclaim: the government maintains that RENCO failed to eliminate toxic emissions, while the company argues it is not responsible for clean-up obligations that the Peruvian state had explicitly assumed during the privatization process.

The lengthy legal contest highlights a reality of the mining business. Depreciating assets are spun off into subsidiaries, which are sold to low-cost operators seeking to extract the last bit of value from a mineral deposit. Legal action to hold a corporate entity liable for events occurring decades after the closure of a mine is not likely to succeed, a fact highlighted by companies in their declarations to the Security and Exchange Commission. The inability to make a defunct corporation pay for remediation forces the state to assume the full cost of remediation. Unfortunately, governmental budgets are constrained and solutions expensive. The most likely outcome is that elected officials will ignore the problem and let their citizens suffer the impacts of environmental degradation.

The same strategy is being used to escape (or limit) legal and financial liability in the Peruvian oil industry after five decades of negligence and mismanagement. The corporation that pioneered investments in Northern Peru in the 1970s, Occidental Petroleum, transferred operations in its principal concession to Pluspetrol in 2000. By coincidence, Pluspetrol had assumed operational control of an adjacent field in 1996 from the state-owned company Petroperu, replacing Occidental, which was a junior (rather than senior) partner. In both instances, Occidental was the operating partner and, presumably, liable for any accidents that might have occurred during its legal tenure.

Both concessions were located within the ancestral lands of the Achuar, who are equally displeased by the practices of Occidental, Pluspetrol and Petroperu. Occidental was sued by the communities in a US court and reached an (out-of-court) settlement; the company did not accept, however, any responsibility for oil spills in the concession they had operated for forty years. Pluspetrol operated both concessions for slightly more than twenty years and, allegedly, continued many of the substandard practices of their predecessors.

Like all oil companies, Pluspetrol operates via subsidiaries and joint ventures, a deliberate strategy to manage the risks associated with their business. Pluspetrol declared one of its Peruvian subsidiaries bankrupt in December 2021, a not-illogical corporate maneuver considering those oil fields were well past their productive prime. However, it also represents a brazen attempt to avoid legal liability by arguing that the operator is not responsible for the contamination that occurred previous to its tenure. In its announcement, the company blamed the Peruvian environmental supervision agency (OEFA) for holding it responsible for the contamination that occurred in previous years when other companies (e.g., Petroperu and Occidental) were operating the block.

Occidental and Pluspetrol will probably escape legal and financial liabilities; however, Petroperú has fewer legal options. As a state-owned company, it can neither pull up stakes and leave, nor declare bankruptcy, which is a political decision reserved for either the President or Congress (or both). Its legal liability is complicated by the Oleoducto Norperuano, a key infrastructure asset managed by Petroperú since its construction in 1973 – and the source of the vast majority of the oil spills that have contaminated the region. The regulatory agency that oversees the oil industry (OSINERGMIN) contends that Petroperú should not be held liable, however, because over eighty per cent of the incidents have been caused by sabotage.

The company’s fiercest critics are the Awajún and Huambisa ethnic groups, who occupy the land transected by the pipeline. Although they oppose the pipeline, they are not the primary suspects in the recurring sabotage that plagues the financial health of Petroperú and exacerbates the environmental liabilities that afflict their communities. Those criminal acts are assumed to be caused by individuals who benefit economically from clean-up efforts, including the service companies that are contracted to remediate the spills and provide compensation to impacted communities in the form of health care and basic infrastructure

Petroperú may get stuck with the tab, but it has effectively ignored almost all judicial or regulatory mandates to remediate the impact from more than a thousand spills that have contaminated forest and aquatic habitats across Northern Peru. The price tag for that remediation, if it ever materializes, has been estimated at US$1 billion; that number, although large, is probably an underestimate and the reality is likely to be at least one order of magnitude greater.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

To read earlier chapters of the book, find Chapter One here, Chapter Two here, Chapter Three here and Chapter Four here.