Peru must pick job losses or pollution at smelter

LA OROYA, Peru Thu Aug 27, 2009 1:32pm EDT

1 of 6. Workers of the Doe Run Peru smelter wait for a gathering in the Andean city of La Oroya, east of Lima in this August 18, 2009 picture.

Credit: Reuters/Pilar Olivares

LA OROYA, Peru (Reuters) - Thousands of workers are demanding Peru's government save their jobs at a shuttered metals smelter high in the Andes, even if it means delaying a cleanup at the plant that has turned their town into one of the most polluted places on earth.

"We don't want the plant to close, it should stay open, but we also don't want pollution," said Monica Ayala, 40, who lives in front of the smelter and says her three children cough up dark soot.

Union members from Doe Run Peru's La Oroya factory say they will block highways in central Peru starting on Monday unless President Alan Garcia acts decisively to end a months-long crisis at the world's most diversified metals smelter.

The future of the smelter and about 20,000 local jobs that depend on it hinges on a tussle between Garcia and Ira Rennert, the New York billionaire who owns the plant, over a contentious environmental cleanup.

The controversy could play into the hands of opposition candidates from the left and right ahead of Peru's elections in 2011, when Garcia cannot run.

Doe Run, which says it has spent $307 million scrubbing the smelter and may need to spend $150 million more, blames the government for going too slowly with its share of environmental work.

The president, whose popularity is below 30 percent and faces a sharp economic slowdown, would anger environmentalists if he were to allow more delays on the cleanup of the plant, which they have complained about for years.

Operations at Doe Run Peru began unraveling late last year after metals prices dropped by half on the global economic crisis and banks canceled its credit lines. Its furnaces were shut by June and last month it filed for creditor protection.

Workers and many La Oroya residents want Garcia to extend a deadline requiring the company to finish cleaning up its smelter by October. That would help Doe Run regain access to financing.

"We are asking for a reasonable extension," said Nazario Flores, a lawyer for the Comite de Defensa de La Oroya, a community group. "If the plant is permanently paralyzed, there will be chaos here.

The plant opened in 1922, and Doe Run bought it from Peru's government in 1997. The smelter has been the main source of pollution in a town ranked as one of the 10 most contaminated on earth, according to the Blacksmith Institute, an environmental organization.

Many townspeople have high levels of lead and arsenic in their blood.

"Obviously, so long as the cleanup that we are committed to isn't complete, we share some responsibility. But this has to be seen in light of all the work we have already done," said Jose Bengoa, vice president of operations for Doe Run Peru."

"Things have gotten better in the last 12 years, and nothing was done during the preceding seven decades."

HISTORY OF DISTRUST

In a bid to save cash, the company halted spending in December on the last phase of its environmental cleanup program, which aims to further cut smokestack emissions.

Its smelter eventually ground to a halt after $110 million it owes to mining companies piled up and it ran out of cash to buy mineral concentrates for its refinery.

To start producing again, it needs a cash infusion from its owner or a loan from a bank, but neither will put up money until the government extends the cleanup deadline.

Garcia's government says it would only give Doe Run more time if Rennert puts 100 percent of its shares in escrow as a guarantee that he will finish the job.

That has created a stalemate, with the company and workers pushing the government to ease up. Even local activists who have complained about pollution for years say their town's economic engine must restart. Some call it "a necessary evil."

Doe Run says it needs a 30-month extension to build and pay for a sulfur dioxide capture system for its copper refinery, or half that time if it gets a bank loan.

Since buying the plant, Doe Run Peru says it has slashed lead and arsenic emissions into the air, and industrial water discharges into a nearby river, by about 80 percent.

Still, after decades of pollution, residents are distrustful.

"We're considered a problem because we complain," said Meliton Rivera, 42, who lives across the river from the plant. "The lead comes straight from the smokestack."

Two of his four children have elevated levels of lead and arsenic in their blood and are slow learners. Thin air and toxic fumes make breathing a chore in the town 12,300 feet in the Andes.

GARCIA CAUGHT IN A JAM

For miles around the plant, high levels of lead can be found 4-5 inches into the topsoil, the company said citing government studies. Children are exposed to it when they play in the dirt, while chickens and lambs people raise in their backyards ingest it, health officials say.

The company says the government is responsible for cleaning up contamination that was emitted before Doe Run bought the plant. Pollution has accumulated since early in the last century on the canyon walls surrounding the town.

As the impasse over the extension drags on, Garcia has faced muted calls to nationalize the company, though doing so would clash with his pro-market policies.

He has criticized left-wing leaders in Venezuela and Bolivia for taking over private companies. Nationalizing Doe Run would saddle his government with more environmental liabilities.

Granting Doe Run a financial bailout would invite criticism that he is pampering Rennert, whose 66,000 thousand square foot mansion in the Hamptons is one of the largest houses in the United States. Rennert's holding company has rebuffed requests to inject more money into Doe Run Peru.

After Rennert bought the plant, Peru prohibited him from taking profits out of it until all environmental compliance rules were met. Doe Run officials say the smelter lost money for years before the boom times of 2006 and 2007, as archaic equipment was updated.

Rennert's holding company Renco declined to comment.

Even after Doe Run does finish its smelter cleanup, residents fear La Oroya's hills will still be contaminated.

One pessimist is Sofia Eunicia Quinta, 32, a mother of four. One of her children has 43 micrograms of lead per deciliter of blood, four times the level considered safe.

"The truth is there is no solution here," she said. (Additional reporting by Patricia Velez and Teresa Cespedes in Lima; Editing by Kieran Murray and David Gregorio)