Mining Company Sues El Salvador for Permit

For many of us the thought of a “gold rush” is something only heard about in reference to the 1800s or in history textbooks. However, for the Salvadoran people of San Isidro, it is their reality. A Canadian mining company, Pacific Rim, acquired the rights to a gold vein in the northeastern part of El Salvador in 2002, and promised to make its mining activities as environmentally friendly as possible. As has occurred in other parts of Latin America, however, this unfortunately has not been the case.

On June 19th, the World Affairs Council and the Seattle International Foundation hosted a conversation on the current issues facing development in Latin America. The focus, perhaps inevitably, was on building capacity in Central America. Watch this space for our eventcast and video from the event. As we see in the example below, there is much to be done around economic, political, and structural reforms in Central America today.

The government of El Salvador granted Pacific Rim an Exploration Permit (EP) in 2002, with the intention of ensuring that environmental promises would be upheld. Pacific Rim promised that the water needed for gold mining would only come from rain, and not the local Rio Lempa River, which is a major source of water in the region. They also promised that the cyanide used to extract the gold from the rocks would be disposed of naturally, dried by sunlight in big double-lined pools. Under the provisions of the EP, Pacific Rim could set up a provisional mining operation in the region to assess the value of the gold vein, before re-applying for an Extraction Permit, to actually remove the gold.

Pacific Rim Mining determined that the gold vein was worth hundreds of millions of dollars, but under pressure from environmentalists, the government of El Salvador rejected Pacific Rim’s application for an extraction permit in 2005. Community leaders from San Isidro complained that the Rio Lempa River was starting to dry up and there has been an increase in violence towards staunch mine opposition leaders in the community. While Pacific Rim claims that the river was only used temporarily to set up the mining operation and the increased violence is due to long standing gang issues in the area, nothing has been proven one way or the other.

In 2009, the Pacific Rim Mining Company sued the government of El Salvador for $77 million in lost profits under the Central American Free Trade Agreement (CAFTA). While Pacific Rim is not a member of CAFTA, the company filed the lawsuit under an American subsidiary. Pacific Rim cited the 2000 landmark case in Mexico, where the Mexican government was sued under the North American Free Trade Agreement (NAFTA) and had to pay $15.6 million to a California company, as precedent.

On Friday, June 1, a World Bank Panel ruled that the lawsuit against the Salvadoran government could proceed under the country’s investment law, but not under CAFTA. Mining companies and environmentalists alike have been closely following this case, to determine the future of mining operations in Central America. Environmentalists had hoped that the World Bank would throw out the case altogether, but instead the World Bank’s International Center for Settlement of Investment Disputes will rule whether the Salvadoran government had the sovereign right to revoke the Pacific Rim extraction permit.

This case is part of larger trend of international investment lawsuits where oil, gas and mining companies seek to recover losses from developing countries under free trade agreements. Cases like the Pacific Rim case have occurred in Ecuador, Malaysia and Chile in the last decade or so, and in each instance the company was awarded millions of dollars from the country’s treasury.

Environmentalists have wanted to slow the spread of mining in Central America, which has one of the highest rates of deforestation in the world. This case will likely determine not only El Salvador’s environmental laws, but also set the precedent for all future mining operations in the region.

Blog post by Emily Phillips