Page last updated at 21:31 GMT, Monday, 6 April 2009 22:31 UK

Peru faces water versus oil dilemma

By Dan Collyns
BBC News, San Martin, Peru

The Ahuashiyacu waterfall is one of more than 10 in the Cordillera Escalera
The choice is between drinking water or oil exploration, campaigners say

"Peru, a mining country" is a government slogan which can be seen emblazoned on official buildings and heard repeatedly on state media broadcasts.

It is all part of an aggressive drive by the government of President Alan Garcia to attract private investment and boost the economy.

But it is not just trying to attract mining companies, the country's traditional engine of economic growth.

Companies looking for oil and gas are also welcome, particularly in Peru's huge Amazon region, which occupies more than half the country.

Exploration halted

"San Martin, Green Region" is the slogan of one of those Amazon provinces that takes a different view.

Cesar Villanueva, regional governor of San Martin region
It's literally a water bank for the entire population here
Cesar Villanueva, San Martin's regional governor

It is the size of Costa Rica and an island of verdant, undulating tropical forest and open pasture land.

"In a country as large and geographically diverse as Peru, there should be enough room for more than one vision," says lawyer Octavio Alvarado, who with his colleague Jaime Bustamante, came out as victors after opposing a government-backed plan for oil and gas exploration in a sensitive environmental area of San Martin.

Last month, Peru's top court ruled that oil exploration should be halted in the protected Cordillera Escalera mountains while the government approves the regional development plan.

Health at stake

In a country where the faith in the independence of the judiciary is only gradually being restored, the Constitutional Tribunal's ruling was unexpected.

Lawyers Bustamante and Alvarado standing in front of the Cordillera Escalera
Lawyers Bustamante and Alvarado says the government's model does not work

The ruling set an important precedent as it was based on the international human right to drinkable water.

"It also pointed out something extremely important," says lawyer Jaime Bustamante, who worked pro bono on the case for more than two years.

"You can't jeopardise the health of future generations for the immediate gain from natural resources. Until now that has been a rare concept in this country."

Untouchable area

The oil concession in question, Block 103, is held by a consortium.

Canadian oil company Talisman Energy is the largest partner with a 40%. Spain's Repsol and the Brazilian state company Petrobras have a 30% share each.

Girl in the native community of Alto Shambuyacu
More than 70% of the Peruvian Amazon is divided into oil and gas concessions for exploration or exploitation
The Peruvian government says it plans to be self-sufficient in oil and gas by 2011
In 2008 Peru produces nearly 50m barrel of crude oil
Official figures says there are around 100 mining companies running more than 600 operations in Peru, in an area which covers 0.56% of national territory

At more than 8,780 sq km, it is about the size of Puerto Rico.

One-sixth of it belongs to the conservation area of the Cordillera Escalera, the only area the court ruling states cannot be touched.

Environmentalists say apart from the mountain range being home to rare wildlife, such as the spectacled bear, it is also a major source for the rivers in northern San Martin.

Situated on the eastern side of the much larger Andes mountains range, it is the first high ground to be hit by clouds that drift westward across the Amazon basin from the Atlantic Ocean on the other side of the continent.

That means a lot of rain, so the hills soak up the water like a sponge and literally seep water.

Drilling for oil in any part of the Cordillera Escalera could contaminate the entire watershed, say environmentalists.

"It's literally a water bank for the entire population here," says San Martin's regional governor, Cesar Villanueva. "We cannot allow it to be touched."

Clean water

But the case more is more complex than it appears.

A local request to declare in range a protected area was filed in 2000, but not approved by the government until 2005.

In the meantime, the government granted the oil exploration concession.

Now that Master Plan faces several legal challenges, not least from Peru's recently-created environment ministry, which may have the final word on the region's development plan.

Environmental groups in San Martin fear that they will approve exploration, and have protested in the streets.

They say 280,000 people use water from the range.

"This fight has not ended, it's just begun", says Mr Villanueva.

"The companies and the state will try to make us respect the concession.

He insists he is "not against investment per se", but stresses that companies working here "must respect the environment".

"We have to defend life and that means the right to have access to clean water," he declares.

Active conflicts

The two lawyers believe this case goes right to the heart of the Peruvian government's model of development and proves that its one-size-fits-all approach does not work.

Environmental groups in San Martin have taken to the streets to try to stop the mining firms

Last year was a boom year for Peru's economy, which grew 9.84%, the fastest in Latin America and one of the strongest in the world.

The growth rate was achieved in large parts because of record high minerals prices during the first half of the year.

But that wealth has failed to reach people living in the mineral-rich Andes where the mining takes place and where poverty levels can exceed 70%.

The lack of "trickle down" has led to growing frustration and sometime violence.

Peru's Ombudsman's office counts more than 70 active conflicts around mining operations.

Corporate rights

San Martin's economy is almost entirely agricultural.

This ruling has very little impact on our operations
Phoebe Buckland, Talisman

To date, there is no mining or oil and gas extraction, yet it has levels of infant malnutrition and poverty far lower than regions that receive royalties, known as the canon, from mining and oil companies.

A study by a Lima's Agricultural University showed the economic benefits of maintaining the source of clean water outweighed those it could potentially receive from royalties if it allowed oil and gas exploitation.

The canon is allocated on a region-by-region basis according to the amount of minerals or hydrocarbons extracted.

Pedro Solano, of the Peruvian Society for Environmental Law, says he hopes the ruling sets a precedent, putting the environment and the right to water above economic concerns.

But he is worried that the central government may overrule the region's development plan because it undermines its authority.

"We also have to recognise the rights of the company, which signed a legal contract with the state to carry out its work", he insists.

Little impact

The lead company in the consortium, Talisman Energy, appears confident the tide will eventually turn in its favour.

It bought its share of the oil block from Occidental Petroleum last year.

"This ruling has very little impact on our operations," says Talisman official Phoebe Buckland in Ottawa, Canada.

The company was aware of the legal challenge when it acquired the concession, block 103, along with another, block 64, deeper in the Peruvian Amazon, but had no immediate plans to begin exploration, she says.

But Talisman's block 64 operation has also met with resistance.

It is situated on ancestral land claimed by the indigenous Amazonian Achuar people.

The same group successfully brought oil wells run by another oil company Pluspetrol to a standstill in 2006 as it contaminated their rivers and caused grave health problems.

Water or oil

Within block 103, there are also several native communities that live below the Cordillera Escalera.

At dusk in one of those villages, Alto Shambuyacu, the residents enjoy a game of volleyball.

"We didn't know there was oil here," observes community leader, Victor Salas in his native Quechua.

"Nobody came to inform us.

"But we do know that water is a vital element for life. We know that it's worth more than oil, even more than gold, and it's our job to take care of the water and the mountains here."

"That's why we've asked the authorities the same question many times. What can we do as a community if there is an order from the state that oil exploration will begin here?"

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