The Extractive Industries and Society xxx (xxxx) xxx–xxx

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The Extractive Industries and Society

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Original article

Unlocking Central America’s mineral potential: Leveraging transparency to

address governance challenges
⁎
Juan Carlos Quiroza, , Juan Cruz Vieyrab
a
Tepic 77-12, Roma Sur, Cuauhtemoc, Mexico City, 06760, Mexico
b
Inter-American Development Bank, Washington, DC United States

A R T I C L E I N F O A B S T R A C T

Keywords: This paper reviews governance challenges and opportunities in six Central American and Caribbean countries
Transparency (Belize, Dominican Republic, Guatemala, Honduras, Nicaragua and Panama) as they develop new extractive
Governance projects. Despite important differences, governments in these countries share the need to improve their capacity
Resource curse to manage and control growing mining operations and potential revenues. In this paper we argue that mineral
Mining industry
extraction faces challenges that go beyond traditional prescriptions to strengthen governance, such as en-
Central America
vironmental impacts and the cost born by local communities in terms of loss of land, water sources and culture;
the right to free, informed and fair consultation; and polarization among the different stakeholders. Yet, we
claim that transparency offers a starting point for governments to build trust and to demonstrate that they are
prepared to address concerns surrounding mining operations, managing potential mineral windfalls and taking
into consideration local community interests.

1. Introduction
The most important role of governance in the extractive sector is to
maintain, strengthen or restore trust between citizens, governments and
the private sector. A crucial incentive for countries to improve gov-
ernance is to increase long term support from different stakeholders for
extractive projects, attract qualified investors, and maximize benefits to
local communities and the entire economy.
By analyzing governance challenges in the extractive sector of a
group of selected countries in Central America and the Caribbean
(Belize, Dominican Republic, Guatemala, Honduras, Nicaragua and
Panama), we conclude that an effective way to move in the direction of
enhancing trust is not just to improve fiscal transparency but also
communicating in a more effective, efficient, and transparent way the
benefits and potential impacts (positive and negative) of extractive
activities. Targeted transparency policies in the sector can lead to
greater vertical and horizontal accountability, providing stakeholders
with timely access to the sector and project information that they need.
The six countries under review were selected based on the size of
their projects potential contribution to the economy and the issues they
raise (Soto-Viruet, 2013). The focus is on metal mining projects for
most countries, and on the incipient oil sector in Belize. The paper
discusses the evolution of the sector in these countries, highlights le-
gacies of specific mining projects, and provides a comparison of gov-
ernance indicators as an overview of the main risks these countries will
face as they develop this sector. Finally, this paper suggests specific
ways in which targeted transparency policies can serve as a first step to
address governance challenges.
These countries can be fitted into a regional comparison, but they
are quite diverse. In terms of population, Belize is the smallest, with just
over 350 thousand people, while Guatemala, the largest, has just over
16 million, followed by Dominican Republic with 10 million, Honduras
8 million, Nicaragua 6 million and Panama close to 4 million.1 In-
digenous groups are significant within most of these countries. Guate-
mala has the largest indigenous population, with approximately 5.4
million, followed by Honduras and Nicaragua with almost half a million
each, Panama with over 200 thousand and Belize with over twenty
thousand. According to the World Bank, these countries could be con-
sidered middle-income economies. Guatemala, Honduras and Nicar-
agua fall in the lower middle-income category with per capita product
of less than US$4000. Honduras and Nicaragua are also part of the
Highly Indebted Poor Countries (HIPC). Meanwhile, Belize and Do-
minican Republic are in the upper middle-income bracket with a per
capita income over US$4000 but lower than $8000. In 2015, Panama is

⁎
Corresponding author.
E-mail addresses: quirozjc@hotmail.com (J.C. Quiroz), Juancr@iadb.org (J.C. Vieyra).
1
World Bank, World Development Indicators (WDI), Total population, 2015.

https://doi.org/10.1016/j.exis.2017.07.007
Received 30 December 2016; Received in revised form 20 July 2017; Accepted 29 July 2017
2214-790X/ © 2017 Elsevier Ltd. All rights reserved.

Please cite this article as: Quiroz, J.C., The Extractive Industries and Society (2017), https://doi.org/10.1016/j.exis.2017.07.007
J.C. Quiroz, J.C. Vieyra
the only high-income country with a per capita GDP over $12,000
dollars.2
Although these countries are not traditional destinations for mining
or petroleum investments, there are several projects to develop large
untapped reserves of copper, gold, silver and nickel, which are potential
new sources of fiscal income and foreign direct investment. For ex-
ample, the six largest mines in these countries generated over US$1
billion in revenue in 2012 (Canadian Mining in Latin America), Belize
received US$230 million in taxes from oil production in 2006–2015 and
estimates of potential investment in the sector are close to US$20 bil-
lion.3 Individual projects such as Pueblo Viejo in the Dominican Re-
public and Cobre Panama represent the largest foreign direct invest-
ment for these countries in history.
2. Natural resource abundance and governance implications
In the last two decades, a considerable body of literature grew on
the observation that countries rich in petroleum and mineral resources
often show poor economic performance. There are several explanations
of this paradox stressing economic and political variables. Among the
best known is the “Resource Curse” or “Dutch disease,” or the fact that
mineral and petroleum revenues tend to appreciate real exchange rates,
which makes cheaper to import rather than produce local goods, with
the consequence of concentrating resources on extractive activities to
the detriment of the rest of the economy (Sachs and Warner, 2001). On
a purely market-based perspective, petroleum and mineral resources
generate extra rents in function of their market price.
However, volatility also presents a significant obstacle to natural-
resource based growth and has profound implications at several levels.
Commodity market prices have moved significantly over the long-run,
proving to be more volatile than manufactures (Jacks et al., 2011). This
is significant since countries that experience a higher volatility in their
economic fundamentals tend to have a lower growth (Ramey and
Ramey, 1995). Also, volatility presents countries with the challenge of
preparing budgets closely tied to wildly fluctuating commodities,
whose price often crash around times of crisis, leading to fiscal revenue
collapse (Gelb, 1988). Petroleum and mineral industries generate ex-
traordinary rents that are relatively easy to tax, providing incentives for
state capture by private interests. Among natural resources, oil and
other fuels have proved to be especially impactful for the macro-
economy (Ferderer, 1996). due to their volatility even in comparison to
other natural resources, and electricity. This has been more acute after
the oil shocks that started in 1973 (Regnier, 2007). In the period
2007–2015, oil prices have even proved to be twice as volatile as stock
market equities (Davig, 2016).
In terms of institutional performance and governance, countries
where oil is a significant driver of development tend to lead to poor
welfare delivery and corruption, lead to social settings where poverty,
inequality, unemployment and corruption are pervasive (Karl, 1997;
Shaxson, 2007).
Rulers can become independent from tax paying citizens, finance
government with rents, and foster corruption and lack of accountability
(Karl, 1997, 1999; Ross 1999, 2001; Eraga and Mesagan, 2016).
Early evidence suggested that natural resources can also fuel civil
war (Bannon and Collier, 2003; Ross, 2006). A recent stream of lit-
erature contends this fact explaining that there is not necessarily a
causal link between commodity volatility and conflict (Bazzi and
Blattman, 2014; Humphreys, 2005). Regarding oil and violence, some
authors contend that the evidence suggests that oil and political vio-
lence are uncorrelated (Cotet and Tsui, 2013), whilst oil rents tend to
stabilize centralized governments by deterring center-seeking wars
2
WDI, GDP per capita (current US$), 2015.
3
Estimates from ministries of mines and mining industry associations for Dominican
Republic, Guatemala, Honduras, Nicaragua and Panama.
2
The Extractive Industries and Society xxx (xxxx) xxx–xxx
(Paine, 2016).
During the 1990s, research on the negative effect of abundant mi-
neral resources concentrated on countries with a long history of mineral
and hydrocarbon extraction (Sachs and Warner, 1995). Gelb (1988) and
Karl (1997) put the focus on countries such as Algeria, Ecuador, In-
donesia, Nigeria and Venezuela, highlighting policy and institutional
failures in countries with abundant hydrocarbon and mineral resources.
With the new millennium, attention shifted to new producing countries
as the prices of oil and minerals recovered from a long period of stag-
nation, gaining relevance as potential drivers of growth and sources of
fiscal income. For example, in 2005 the New Partnership for Africa
committed G8 countries to increase efforts to improve governance in
the extractive industries (ECA, 2011).
Most policy prescriptions to counter the “resource curse” are based
on the observation that good governance (i.e. quality of institutions,
rule of law, accountability and control of corruption) can reduce the
potential negative effects of the extractive industries (Humpreys et al.,
2007). Good governance and management practices have allowed
countries such as Australia, Botswana, Canada, Chile and Norway to
benefit from resource wealth (Sala-i-Martin and Subramanian, 2003;
World Bank, 2004; IMF, 2007). Transparency in particular is seen as a
key variable to enhance the quality of government, helping reveal
dysfunctional processes and providing data to improve them (Bellver
and Kaufmann, 2005; Hale, 2008). Information about rules, plans and
projects can lead to informed consent, overview and opposition when
rights are affected, leading to sustainable governance in the extractive
industries (Florini, 2007; Kaufmann et al., 2009; Søreide, 2012; RWI,
2013). Transparency is also correlated to better economic outcomes and
reduced costs of capital (Esanov and Heller, 2011; Hameed, 2005;
Islam, 2003). These arguments have supported a growing awareness
from international organizations, civil society actors and advocacy
networks to push for participation and information in the extractive
sector, including the idea that companies need to earn a “social license”
to operate (Gunningham et al., 2004).
Practitioners have indicated that transparency provides exposure
and visibility to the extractive sector, for example through the adoption
of international Transparency Standards (Rustada et al., 2017). The
Extractive Industries Transparency Initiative (EITI), launched in 2002,
is an example of the centrality of transparency in the objective to de-
velop mining resources together with governance mechanisms. These
initiatives to turn transparency into accountability to solve governance
issues in the extractive sector have been organized in four types:
binding legislation, voluntary standards, stakeholder monitoring and
targeted policies, and benchmarking and assessment tool (Vieyra and
Masson, 2014).
Public policy for new producers should help address governance
challenges through transparency and accountability. With the objective
of earning and retaining public trust, attract qualified investors for the
long run, maximize benefits to local communities as well as the entire
economy, and build capacity in their institutions (Marcel, 2013).
3. Overview of the extractive industries development in the
region
Latin America holds the second biggest natural resources in the
world (Walter, 2017). Recent academic publications about the ex-
tractive sector in Central America have identified several elements that
complicate the potential contribution of mining to development. One of
them is the growing commodity demand and dependence on foreign
capital for project development that accrues most of the benefits to
global players while accumulating environmental and social costs at the
local level (Ciccantel and Pattel, 2016). A second element in the ex-
pansion of mining projects in the region is the combination of techno-
logical innovation that allowed mining companies to profitably extract
gold from lower grade deposits, but based on open pit operations and
cyanide use, which increase environmental liabilities and local
J.C. Quiroz, J.C. Vieyra
opposition due to water contamination and other low-cost strategies
driven by junior companies (Ciccantel and Pattel, 2016). In this context,
developing mineral resources needs to balance global demand with
regional and local concerns, and states need to redress the unequal
distribution of gains and losses (Dougherty, 2010). Oxfam has articu-
lated these concerns and the need for governments to focus on sus-
tainable development, arguing in favor of balancing foreign direct in-
vestment and fiscal revenue, with the potential for environmental
damage, and social and cultural loss (Power, 2009).
This region has faced macroeconomic volatility in the last two
decades. During this period these countries moved towards services and
export-oriented growth, but they suffered a decline of prices of export
goods, followed by economic expansion, then a shock due to historical
spikes in energy and food prices (ICEFI, 2012, pp. 28–30). The region
took a hit from the slowdown of the 2008 financial crisis and then,
starting in 2014, falling oil prices and increased remittances (due to a
stronger US dollar) improved economic prospects for these countries
again (with the exception of Belize) (IMF, 2016). This vulnerability to
volatility has encouraged governments to promote non-traditional
sectors of the economy and incentives to foreign investment, such as the
mining sector.
Countries in this study are part of a trend in the mining sector since
the 1990s. State ownership in mining operations dominated the in-
dustry in the 1970s. After more than a decade of falling prices and
losses, economic liberalization and elimination of barriers to foreign
capital in mineral extraction followed in the 1990s. Reforms updated
regulations and concessions, strengthened protection of mining rights
and private investment. A majority of countries privatized mines and
mining companies, and offered fiscal incentives to attract foreign direct
investment (Sanchez et al., 2001).4 However, weak government in-
stitutions limit countries’ capacities to efficiently monitor the sector and
to enforce adequate tax collection (Mehlum et al., 2002). Transitions to
democracy also promised greater stability and legal security, which are
important for long term extractive projects. Sanchez et al. (2001, p. 26)
puts it in the following terms: “political stability implies rules of co-
existence that do not undermine agreements built into the constitution
and that include mechanisms to guarantee investors’ rights. Ultimately,
4
This pattern of liberalization and privatization is observed in several countries, with
important exceptions and special cases. Argentina is the best-known case of a full pri-
vatization, with the sale of YPF in 1993. Other countries followed a mixed path: Brazil
turned Petrobras into a publicly traded company with government control over a majority
of shares in 1997; Mexico privatized all its assets in the mining sector in 1992, but kept a
firm government control in the oil sector and over Pemex; and Venezuela opened the oil
sector to private companies while keeping PDVSA under state ownership. This reflects a
backlash against privatizations from the 1980s and a continuing debate about state
control of natural resources and national sovereignty.
3
The Extractive Industries and Society xxx (xxxx) xxx–xxx
Chart 1. Contribution of resource rents to GDP.
Source: World Bank, World Development Indicators.
this is a question of the rules of the game respecting the rule of law, free
from arbitrary action by the authorities. Such conditions serve as a
framework for guaranteeing the legal stability of any mining rights
granted.”
The countries covered in this study also adjusted their legal system
to modernize regulations, promote private investment and provide
stability for owners of mineral rights. In Belize, the Petroleum Act was
passed in 1991, then revised in 2000 and 2003, to attract investments
for oil and gas exploration, an activity that had no precedent in the
country. In Dominican Republic, the 1971 mining law was updated
with a regulatory decree in 1998. In Guatemala, the first elected gov-
ernment after the civil war introduced a new mining law in 1998. In
Honduras, reform came in 1998 only to end in a ban on new conces-
sions in 2004. Nicaragua nationalized all mining activities in 1979, then
privatized the sector in 1994 and approved a new mining law in 2001.
In Panama, the mining code dating back to 1963 has been amended
several times, including in 1988 and 1996. In all these cases, legal
changes aimed at modernizing the mining sector, promoting private
investment and attracting foreign companies.
Despite reforms, the mining sector did not become a significant
contributor to economic growth. Between 2000 and 2014, extractive
sector rents5 contributed on average 3% to their GDP, compared to an
average contribution of 4% to the world and 8% to the Latin America
and Caribbean region in the same period.6 This contribution has been
volatile, e.g. in Dominican Republic, Honduras and Belize, or remained
flat as in Panama (Chart 1). Growth rate in the mining sector is volatile
due to the small number of projects. For example, Dominican Republic
is the country with the largest variations. In 2009 it shows a decline of
40% and then in 2011 it shoots up by 100%, only to fall, rise and fall
again in consecutive years. In this particular case, between August 2008
and March 2011 Xstrata halted operations at Falconbridge because of
skyrocketing energy costs, then in 2013 Pueblo Viejo gold mine began
commercial operations, driving with them the entire sector’s growth
rate (Chart 2). Another measure of the contribution of the sector comes
from the International Council on Mining and Metals’ (ICMM) Role of
Mining in National Economies (ROMINA) index, which tracks over 200
countries (ICMM, 2012, 2014, 2016).7 In the ICMM 2016 report our six
countries improved their rank relative to the 2014 index, reflecting an
increased contribution of mining in their economies: Dominican
5
Extractive sector rents are defined as the difference between the value of production
for a stock of minerals at world prices and their total costs of production and calculated by
the World Bank as the contribution of metal mining, petroleum, carbon and forestry.
6
WDI, 2015, total natural resource rents.
7
The ICMM index has four variables: 1. Mineral and metal export contribution; 2.
Increase/decrease in mineral and metal export contribution in 2009–2014; 3. Mineral
production value as percent of GDP; and 4. Mineral rents as percent of GDP.
J.C. Quiroz, J.C. Vieyra
Republic moved from rank 53–17 in 2014; Nicaragua from 32 to rank
23. Guatemala (40), Panama (49) and Honduras (50) improved their
rank from 61, 145 and 71 respectively (ICMM, 2016, pp. 10–15). This
shows that the contribution of mining to the economy is volatile and
that contribution can grow rapidly as a small number of projects have
an outsized impact on these countries.
In the majority of these countries mineral industries contend with
the legacy of troubled national histories that include civil war, conflicts
with indigenous populations, dictatorships and unstable democracies.
Regarding conflicts, the total numbers of wars (and also resource-re-
lated conflict) has generally decreased in Latin America in the last
decades: whilst secessionist wars are irrelevant in the continent, center-
based wars are also starting to have the same fate (Ross, 2014). Nar-
rowing down the lens to Central America, there is no solidly grounded
evidence positing natural resources as the main driver of conflict.8
The main pitfall that is pervasive to all these countries are low in-
stitutional capacities. Notably, the quality of institutions determines
how much natural resources can contribute to economic growth and to
a correct distribution of the resources within a polity. Thus, institutions
do not only mitigate the resource curse but also serve as resource-based
growth enablers to channel the extra rents that a natural resource bo-
nanza can originate, if managed and channeled correctly. A poor in-
stitutional setting pushes the income related to natural resources down,
whilst countries with an efficient and well-targeted tax-collection
system does the opposite (Mehlum et al., 2002). Moreover, on the
downstream side -redistribution-, welfare states in the region still have
big bills to pay. Despite a gradual shift of political regimes in the region
to democracy in the last 30 years, the adaptation toward more inclusive
and redistributive welfare settings has not been achieved yet (Menaldo,
2016). This does not help either to legitimize one of the main sources of
taxation – natural resources.
On another note, in addition to interruptions in the rule of law and
financial volatility, these countries have witnessed the rise of drug
trafficking and violence in the past decade (Villalobos, 2012; Selee
et al., 2013). In general, mining activities in these countries (with the
exception of Belize, where the challenge is to consolidate an incipient
oil sector) have taken up formerly abandoned or undeveloped mining
projects, which often come with legacies and conflict (Table 1).
4. Using governance measures to identify risks for extractive
projects
Mineral extraction in these countries faces various governance
8
This does not imply that there are no linkages between civil wars and natural re-
sources in Central America, but rather that the casual links between them have not been
unbundled.
4
The Extractive Industries and Society xxx (xxxx) xxx–xxx
Chart 2. Growth rate of mining sector.
Source: ECLAC, Statistics and Indicators, 2016.
challenges. Aggregated measurements of governance, such as the World
Bank’s World Governance Indicators (WGI), allow a preliminary as-
sessment. Although the WGI covers a wide range of governance issues
(its six variables are: voice and accountability; political stability and
absence of violence; government effectiveness; regulatory quality; rule
of law; and control of corruption), it does not include specific measures
of the extractive sector. However, the Resource Governance Index (RGI)
on hydrocarbon and mining industries has a significant correlation
between the quality of governance in the extractive sector and the WGI
indicators in 59 countries (RWI, 2013). The RGI results show that
countries in Latin America and the Caribbean have elements of trans-
parency and accountability in place. However, the region has a chal-
lenge in the implementation of legal principles and turning transpar-
ency into real accountability (Quiroz, 2014).
The WGI gathers surveys and studies on governance and quality of
institutions covering Central America and the Caribbean. For our six
countries, it includes over 60 sources of information on average.9 This
makes a comparison among these countries feasible and relevant, while
the WGI provide an indication of the risks facing the development of
petroleum and mining projects (Table 2).
By this measure, Panama shows the best average score for the six
variables. The rest falls below the world’s average. A comparison to the
whole Latin American region shows a similar result. Only Panama
scores above the regional average. The WGI components provide a good
sense of potential areas of risk for the extractive sector. The lowest
scores for governance in this group come for rule of law, control of
corruption and government effectiveness. These results give substance
to concerns about the region: that institutions are ineffective at enfor-
cing legislation and protecting third party rights such as indigenous and
local communities; that institutional weakness result in poor oversight
and potential damage to the environment and people’s health; and that
governments often fail to deliver benefits from mineral extraction to
local communities (CAFOD; Power, 2009).
Another problem related to these three variables is financial in-
tegrity. Several factors have contributed in recent years to an increase
in oversight and scrutiny of international and domestic financial flows.
First, the 2008 financial crisis gave birth to more strict banking reg-
ulations, particularly in the US (Dodd-Frank, Lowe, 2014). Second, in
2012 the Financial Action Task Force updated the International Stan-
dards on Combating Money Laundering and the Financing of Terrorism
& Proliferation, introducing more detailed and stringent requirements
for financial and non-financial activities. More recently, some
9
The WGI has close to 40 unique sources of data overall, but this total counts all their
uses in each of the six variables measured thus the total comes to over 60. The average
number of sources for the entire sample is 52. Only Belize has a significantly lower
number of sources at 32, explained by its small population.
J.C. Quiroz, J.C. Vieyra The Extractive Industries and Society xxx (xxxx) xxx–xxx

Table 1
Conflicts related to large scale mining projects, 2000–2016.
Source: Observatorio de Conflictos Mineros en America Latina (OCMAL). Database and documentation: www.conflictosmineros.net.

Description of conflict Country Company identified

1 Indigenous people at Sarstoon-Temash National Park right to prior Belize US Capital Energy Inc.
consultation
2 Metal Pollution at El Valle Dominican Republic Concesión San Rafael
3 Cotui community impact from Pueblo Viejo Barrick Gold mine Dominican Republic Barrick Gold Corporation
4 Cement plant at reserve los Haitises Dominican Republic Consorcio Minero Dominicano (CEMEX)
5 Mining operations expand into environmental reserve Loma Miranda Dominican Republic Xstrata Nikel-Falcondo
6 Marlin mine impact on water and agriculture Guatemala Glamis Gold Ltd | Montana Exploradora de Guatemala/Goldcorp
7 Indigenous communities opposed to Nickel mining at El Estor Guatemala Skye Resources | HudBay Minerals
8 San Juan Sacatepequez municipality demands prior consultation Guatemala Cementos Progreso
9 Escobal mining project in divided community with violent demostrations Guatemala Goldcorp | Tahoe Resources | Minera San Rafael S.A
10 Violent confrontation with Guatemalan police at mining site Guatemala Radius Gold Inc. | KCA (Kappes, Cassiday and Associates) |
EXMINGUA
11 Opposition to mining at Cerro Blanco due to impact on natural reserve Guatemala/El Salvador Goldcorp | Compañía Minera Entre Mares
12 Cyanide discharge at mine San Andres in Copan Honduras Minerales de Occidente (MINOSA)/Aura Minerals
13 Entre Mares mine pollution at Valle de Siria Honduras Glamis Gold Ltd | Goldcorp | Compañía Minera Entre Mares
14 Opposition to Oracle Energy mine for lack of prior consultation Honduras Oracle Energy Honduras
15 Nueva Esperanza people denounces dead threats Honduras Compañía minera Victoría
16 Heavy metals contamination at Mico river Nicaragua Central Sun Mining Inc. | DESMINIC
17 Larreynaga, Leon, denounces pollution by minerals Nicaragua Triton minerals Inc.
18 Social and environmental impact of B2Gold at Conchales Nicaragua B2Gold Corp.
19 Mining activities threaten Pavon Hill and Yaoska river Nicaragua B2Gold Corp.
20 Crucitas mine threatens River San Juan Nicaragua/Costa Rica Lyon Lake Mines | Infinito Gold Inc, | Industrias Infinito S.A.
21 Petaquilla minerals violates environmental legislation Panama Petaquilla Minerals Ltd | Teck Cominco Limited
22 Local opposition to metal mining in Chiriqui due to environmental impact Panama Aur Resources | Panacobre
23 Reactivation of project at Cerro Quema opposed on environmental impact Panama Bellhaven Copper & Gold Inc
24 Gold mining in Sona affects water sources Panama Oro Gold Resourses Ltd
25 Ngöbe people’s right to prior and informed consultation Panama Dominium Minerlas Corp.
26 Copper mine disrupts Mesoamerican Biological Pass Panama Inmet Mining Corporation | Minera Panamá
27 Remance mining project threatens water sources Panamá Greenfield Resources Inc.

Table 2
World Governance Indicators results, percentile ranks, 2015.
Source: World Governance Indicators.

Row Labels Voice and Accountability Political Stability and no Government Regulatory Quality Rule of Control of Average WGI
Violence Effectiveness Law Corruption

Panama 65 60 65 65 53 47 59
Dominican Republic 51 53 42 52 38 22 43
Belize 67 51 25 36 26 52 43
Nicaragua 35 46 21 37 28 19 31
Guatemala 34 24 25 48 15 26 29
Honduras 32 28 20 38 17 35 28
Group average 47 44 33 46 30 33 39
World Average 50 50 50 50 50 50 50
LAC average 60 58 53 54 49 53 55

international banks have severed ties to local banking institutions due the extractive sector should be further complemented with an analysis
to perceived regulatory risks, feeble institutional supervision and cost of of specific governance challenges at the country level. That is the main
compliance. This affects particularly smaller jurisdictions and countries focus of the next section.
with less developed institutional frameworks to supervise financial and
non-financial activities, such as the Caribbean and some countries in
5. Specific governance challenges at the country level
Central America (BIS, 2015; CGD, 2015). These problems hit financial
flows in general, and also the mining sector, by potentially increasing
The bulk of new mining operations are for gold extraction, followed
the cost of capital for new and ongoing projects (Bowers, 2016; Torbati,
by nickel and copper. Oil is the main operation in Belize and it also
2016; World Bank, 2015).
generates some activity in Dominican Republic, Guatemala and
In the remaining three variables of the WGI (political stability, voice
Nicaragua. Gold extraction, however, is the activity that has got more
and accountability, and regulatory quality), these countries score
attention as part of a global debate about its actual cost to the en-
slightly higher as a group but still below the regional average. However,
vironment (Perlez and Johnson, 2010; EPA, 1994). In this section,
in terms of political stability and voice and accountability, three
specific challenges to governance in the mining sector are discussed at
countries (Guatemala, Honduras and Nicaragua) have the lowest scores
the country level. This review covers common topics for all the coun-
of the group. This reflects both a recent history of civil war or political
tries: a brief summary of the mining sector’s situation, a sketch of the
conflict, and weak channels for expression and representation of poli-
main challenges for the mining sector, and how the institutional system
tical opposition. This is particularly important because large-scale
has processed demands. Each section provides a brief overview of the
mining projects are surrounded by deep polarization and have to face a
mining sector contribution to the economy, its history, and key chal-
complicated legacy around indigenous issues and development projects.
lenges related to legacy, environmental impact, community consent,
This brief overview on governance indicators and how they relate to
legal reforms and other relevant concerns.

5
J.C. Quiroz, J.C. Vieyra
5.1. Belize
The main challenge for Belize is to consolidate its oil industry. Since
Belize Natural Energy (BNE) discovered oil and started production in
2005, at least 19 companies carried exploratory work, but without
commercial discoveries. According to the Ministry of Energy of Belize
(MEB) six companies currently hold exploration licenses. BNE’s dis-
covery happened in a country without oil history or infrastructure.
Production moves by truck from oil fields to storage areas before
shipping. High oil prices encouraged exploration activity and produc-
tion from BNE led to an increase of oil fiscal revenue, from US$ 9
million in 2006 to a peak of US$55 million in 2011 (MEB, 2016a,b).
However, BNE’s production peaked in 2010 at just over 4100 barrels
daily and fell to just 1447 barrels daily in 2015. This brought fiscal oil
revenue to just US$1.6 million in 2015 and led BNE to halt new in-
vestments (Central Bank of Belize, 2015, p. 32).
In practice, BNE was a test case in the development of laws and
legislation, but the consolidation of the industry remains a question of
geology. Oil exploration and production gave rise to three main issues:
profit sharing with landowners, environmental impact of offshore
drilling (especially after the 2010 BP oil spill in the Gulf of Mexico), and
exploration permits on protected lands and indigenous rights. Initially,
the fiscal regime was seen as too generous for oil companies when
compared with other jurisdictions (Romero, 2006; Cultural Survival,
2017).
Unlike the rest of the countries studied in this paper, Belize has a
Parliamentarian system, where the leader of the party with the largest
vote becomes Prime Minister. This creates a strong executive and has
given the government flexibility to channel opposition to oil explora-
tion into a larger debate about the countries options for development,
between biodiversity and tourism vs diversification through the ex-
tractive industries (Carneiro, 2016, p. 66).
One of the first challenges was the definition of property rights. The
1981 Constitution did not include a provision covering underground
resources, which led the government to seek a constitutional amend-
ment to clarify the state’s ownership of underground resources in 2008.
The Supreme Court heard the challenge to this amendment by land-
owners and it ordered a referendum. In the end, the government got
approval of this amendment in 2009 and landowners received 5% of the
royalty paid to the treasury (Ramos, 2014).
A second contentious issue was offshore drilling. The 2010 BP oil
spill in the Gulf of Mexico galvanized a coalition of environmental and
community groups opposed to offshore drilling in the Mesoamerican
Reef Barrier, a World Heritage Site. Oceana, an international environ-
mental organization, and two local organizations (Citizens Organized
for Liberty through Action and the Coalition to Save our Natural
Heritage) challenged before the Supreme Court contracts for offshore
drilling signed by the government in 2004 and 2007. In 2011, after the
government declined to submit this issue to a referendum, this coalition
organized a “people’s referendum” to show an overwhelming opposi-
tion to offshore drilling. In April 2013, the Supreme Court declared
offshore contracts null and void, in a victory for the coalition
(Environment News Services, 2013). The government of Belize (GoB)
appealed the ruling, but dropped it in June 2015. Oceana has called for
a ban on offshore drilling, but the government has not committed it into
law (Oceana, 2013).
The third issue are indigenous rights and protected areas in the
southern part of the country, in particular concerning the Sarstoon
Temash National Park and the right to free, prior and informed consent
for indigenous Mayan people living there before any development
project (Cultural Survival, 2014). In 2007 and 2010, Belize’s Supreme
Court ruled that Mayan people in Toledo do have customary land rights
and directed the government to fully identify Maya lands, award clear
land titles and respect the right to free, informed consultation about
development projects (SATIIM, 2013). In April 2014, the Supreme
Court ruled against the GoB permit for US Capital Energy to conduct
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exploration activities in the Park (SATIIM, 2014). Finally, on December
2015 low oil prices and US$40 million spent without oil discoveries led
Capital Energy to announce it would let its contract expire in January
2016 (Ramos, 2015).
Concerns about low taxation rates originated from a Petroleum
legislation approved in 1991 and intended to attract new investments.
After the 2005 discovery, the Government of Belize increased the tax on
petroleum net revenue, in 2008 introduced a new tax rate based on
changes in market price of oil, essentially setting a different tax rate for
BNE and companies that have not discovered oil.10 These changes
moved the government take from an estimated 30% to 60%. The legal
sector remains friendly to oil exploration and investments though, and
its licensing process is in agreement with international practice. It
provides eight years to explore and 25 to undertake production. Li-
censes are allocated through open competitive bidding and direct ne-
gotiations.
The government planned to manage potential negative impacts of
oil revenue through a Petroleum Revenue Management Fund. However,
it never became operational due to low production levels. Another
Fund, the Environmental Management Fund was set up in 2009 to re-
ceive contributions from BNE and the government, to respond in cases
of environmental emergencies. In 2015, the combined impact of falling
oil revenues and exchange rate appreciation (due to currency peg to US
dollar) left Belize in a very difficult financial situation (IMF, 2016).
5.2. Dominican Republic
Dominican Republic’s mining projects can learn important lessons
from past legacies. Historical mining activities included production of
nickel at Falconbridge, gold and silver in Pueblo Viejo, and bauxite
deposits by ALCOA. During the dictatorship of Trujillo, metallic and
mineral production operated for exports and were developed as state-
owned operations. Afterwards some metal mines closed without proper
remediation (Barrick, undated).
Recent mineral operations have tried to address challenges faced by
old projects as well as fiscal incentives. The government has reformed
legislation, renegotiated fiscal terms, and involved companies to ad-
dress environmental concerns. It also engaged neutral actors such as the
United Nations Development Program (UNDP) local office in an at-
tempt to build public trust.
An example of this is the Pueblo Viejo (gold) mine. In 1999 this
mine closed without proper remediation, leaving behind pollution in
soil and water, as well as social liabilities (Barrick, n.d.). With support
from the World Bank, the government privatized the mine to restart
gold production. After two unsuccessful bidding rounds, Pueblo Viejo
was acquired by Canadian Placer Dome, which was then bought by
Barrick in 2006. This venture owned by Barrick (60%) and Goldcorp
(40%) invested $4 billion to reopen this mine, the largest direct foreign
investment in history for this country (The Economist, 2013). Produc-
tion restarted in January 2013. Reacting to public discontent with the
fiscal terms for this venture, the government renegotiated its contract
and in May 2013 announced amendments to increase government
revenue. The renegotiation agreed a 50/50 profit split of net profits for
the duration of the project, which would mean more than $10 billion in
fiscal revenue over its 25-year life cycle (Barrick, 2013; Medina, 2014).
Falcondo (ferro-nickel) faced similar opposition due to its environ-
mental and health impact (OCMAL). In July 2011 Falcondo, operated
by Xtrata (85%), restarted operations with 50% capacity. However,
plans to extend operations to Loma Miranda unleashed opposition
10
Royalties are set at no less than 7.5% for oil and no less than 5% for gas. Landowners
are entitled to 5% of government’s royalty. Petroleum activities pay 40% in business tax
instead of all business 25%. Government take is estimated from 30 to 60%. Tax surcharge
incremental for price over $90. Petroleum and Fiscal legislation applicable to the oil
industry are available at the Geology and Petroleum Department website: http://estpu.
gov.bz/index.php/geology-petroleum/gpd-legalregime.
J.C. Quiroz, J.C. Vieyra
based on its potential environmental impact. In May 2013 the UNDP
released a study stating that Xtrata’s project “does not meet the en-
vironmental and social demands, and therefore the demands of sus-
tainable development of the country” (UNDP, 2013). In October 2013
after continued opposition and a clash with protesters that left scores
injured (America Economia, 2013), the Senate approved a bill to create
a natural reserve in the area. This led Falcondo (owned by Glencore) to
announce the closure of the mine due to falling nickel prices (Arroyo,
2014). In August 2015 Glencore sold the mine to American Nickel Ltd.
The preparation to reopen this mine has included an extensive public
relations work to address social and environmental concerns and as-
surances by the new operator that it would not restart operations
without a social license.
Other mining projects in Dominican Republic include Cerro
Maimon, which produces copper and gold. In 2011 Perilya of Australia
(its majority owner is Zhongjin Lingnan Nonfemet) completed its pur-
chase of GlobeStar Mining Corp. of Canada, gaining control of the Cerro
Maimon mine (Perilya, Cerro Maimon; Brito, 2013). Perilya has worked
with local government and communities since 2005 to address en-
vironmental and social concerns. Neita is still in exploration phase. This
is Unigold’s flagship operation in which the IFC proposed investing $5
million.
Conflicts around mining have surfaced throughout the past decade,
prompted by environmental legacies and public criticism of incentives
to investment. The legal framework for mining rests on the
Constitution, a mining law from 1971 and a reform act from 1998. The
main governmental actor in this period was the Ministry of Industry and
Commerce, which had a mandate to promote investment not regulation
of the sector. The Dominican Republic only created a National
Geological Survey as recently as 2010. In July 2013 the government
published a new Mining Law creating the Ministry of Energy and Mines,
which started operations in 2014 (Dominican Republic, 2013).
One of the first activities of the MEM was to conduct seismic surveys
to determine hydrocarbon potential (Offshore Magazine, 2016). In
November 2016, the MEM unveiled its National Hydrocarbon Database
which it expects to be the base for further exploration and eventually
offering blocks in international auction rounds. Potential investments in
petroleum and mining would contribute to diversify away from tourism
and remittances as the mainstays of the economy (Dominican Republic
Ministry of Energy and Mines, 2016; MEM, 2016).
5.3. Guatemala
Guatemala’s mining sector has great potential but its development
has faced strong resistance (Dougherty, 2010). In the 1960s, when the
government granted a mineral concession for nickel, it deployed the
army to remove peasants from the land. The site was later abandoned
and communities returned. However, renewed exploration started a
conflict between indigenous groups and Canadian Syke Resources,
which got support from the army and national police. At another site,
GoldCorp Marlin’s operation faced roadblocks and clashes between
police and demonstrators, leaving scores dead (Power, 2009; Global
Witness, 2012). Nickel and gold are the main resources for Guatemala,
with 97% of mining value contributed by metals in 2014, which
amounts to nearly 2.2% to GDP in 2014 (Wacaster, 2014).
The 1997 Mining Law regulates extractive activities in Guatemala,
including a clear state ownership of underground resources. The
Ministry of Energy and Mines (MEMG) is the agency in charge of reg-
ulating the sector. Exploration activity is concentrated in the
Department of Guatemala and El Progreso. Then come Huehuetenango,
Zacapa and Baja Verapaz. Weak institutional capacity shows in the lack
of a fully funded geological survey department. The Ministry of
Environment and Natural Resources is in charge of environmental
regulation, in coordination with the MEMG. The 1997 legislation al-
lowed for 100% repatriation of profits by foreign firms and reduced
royalties to 1% of which 0.5% was allocated to producing
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municipalities.
The main contention around mining activities is the demand for
consultation rights for indigenous communities. This is compounded by
problems of violence, displacement, use of water, environmental im-
pact, lack of clear property rights and a weak judicial system. Together,
these problems lead some critics to question whether the benefits out-
weigh the costs of mining (Power, 2009, pp. 3–5).
Violence has flared regularly around mineral exploitation and in-
digenous communities, which account for a large part of Guatemala’s
total population. In addition to a troubled legacy from the civil war, the
mining law does not prescribe a specific consultation process. However,
the Constitution, the 1996 Peace Agreements and the ILO
Convention169 prescribe consultations (Flores, 2013).
One of the main disputes occurred between Mina Marlin (also
known as Montana) and indigenous communities in the vicinity. Gold
and silver production from this mine started in 2005 and peaked by
2011. In 2012 the open pit (and higher yield) operation ended, leaving
the underground operation only. Output fell by 20% (Wacaster, 2011).
During 2005 the Municipalities of San Miguel Ixtahuacan and Sipacapa
performed consultations that resulted in rejection of mining activities.
However, the Supreme Court ruled that such consultations were not
valid since mining is responsibility of the central government. Lack of
recognized ownership rights around the mining projects cut off com-
munities from the discussion and created incentives for lack of co-
operation with consultations (IACHR, 2015, p. 187).
Opposition to the Mina Marlin reached international instances. In
2005 the Sipacapa community submitted a complaint to the Office of
the Compliance Advisor Ombudsman (CAO) at the International
Financial Corporation (World Bank Group). The complaint argued that:
(1) water demand from the mine would deny access by communities to
their water supplies; (2) unsafe processing methods would contaminate
the environment and water supplies downstream; (3) violation of the
rights of indigenous people from failure to conduct prior informed
consultations about the development and its environmental and social
impacts; and (4) mine operations were increasing social conflict, vio-
lence and insecurity. The CAO response dismissed environmental risks,
but found enough evidence to “recommend enhanced participation by
local people in forwards-looking decisions related to future exploration,
royalties, environmental monitoring, and distribution of benefits […] to
promote dispute resolution,” as well as enhance the transparency and
perceived fairness of the procedures for allocation and response to
community solicitations for support (CAO, 2005).
This response failed to end opposition to Mina Marlin. Local and
international organizations presented this case to the Inter-American
Commission on Human Rights (IACHR) trying to stop operations. In
2010 the IACHR requested precautionary measures, including suspen-
sion of the mine’s operations, to prevent irreparable harm to the life,
physical integrity and environment of indigenous peoples in San Miguel
Ixtahuacan and Sipacapa, in connection with alleged environmental
contamination (AIDA, 2011; Zarsky and Stanley, 2011). The Govern-
ment of Guatemala responded that it would conduct a review process
under the country legislation. In June 2011 the government declared
the mine in compliance with the law and requested the IACHR to leave
without effect the suspension order. In December 2011 the IACHR lifted
the suspension request and Goldcorp set up corporate social responsi-
bility programs (Goldcorp, 2011, 2012). According to Goldcorp’s
website, the Marlin mine is expected to close operations when the un-
derground operation is over.
A second case of conflict is the Escobal project, owned by Tahoe
Resources in San Rafael Las Flores. In this case, local communities
challenged the constitutionality of the 1997 mining law and this par-
ticular contract before the Supreme Court, based on violations to col-
lective rights of indigenous peoples, including the right to prior consent
to projects in their territories. The case appeared before the Supreme
Court in June 2012, which upheld the constitutionality of the mining
law in March 2013. A shooting in 2013 led to criminal charges for the
J.C. Quiroz, J.C. Vieyra
head of the mine’s security. A petition to the Inter-American
Commission on Human Rights in September 2013 on behalf of local
communities claimed widespread opposition to mining activities in
indigenous territories (see also Mining Watch Canada, 2013a,b). In
2014, Escobal started operations, which have potential to become one
of the largest silver mines in the world according to Tahoe.
A common critique of mineral extraction is that companies receive
generous terms while the country gets few benefits (Zarsky and Stanley,
2011). Low royalties are marked as part of the problem: royalties
amount to 0.5% for the state, 0.5% for municipalities, plus taxes for
doing business, special taxes for land use and licensing (ICEFI, 2014). In
addition, institutional weaknesses contribute to public distrust when
mining companies get tax exemptions intended for manufacturing and
export-oriented investment (Solano, 2007). Skyresources and Goldcorp
have been identified as companies using the law on incentives to the
development of export-oriented activities (Ley de Fomento y Desarrollo
de la Actividad Exportadora y de Maquila) to earn tax exemptions for
gold exports. This practice, authorized by the Ministry of Economy,
caused public outcry because gold, as one report puts it, “is extracted
and not manufactured.” Companies like Goldcorp and Tahoe Resources
have announced voluntary contributions that duplicate the royalty rate,
but mining is still classified as a manufacturing activity by the Ministry
of Economy. According to Solano (2007), low royalties and tax in-
centives mean “Guatemala receives 12% of the mineral rent while
Chile, Peru, Bolivia and Colombia receive between 27 and 58%.”
In July 2013, President Perez Molina proposed a two-year ban on
new exploration and exploitation mining licenses as part of a plan to
introduce reforms to the mining legislation (Hufstader, 2013a,b; Els,
2013). In December 2014, the government increased royalties for
mining in general from 1 to 10% (ICEFI, 2014). Reforms landed in the
middle of a polarized public on mining projects and during a time of
political turmoil that led to Perez Molina’s resignation in 2015.
5.4. Honduras
The mining sector has experienced decline in real output in the last
decade. Although there were 400 mining concessions as of 2012, only
four mines were in production. These are Clavo Rico (gold), El Mochito
(zinc and lead, silver and gold as by-products), San Andres (gold) and
Agalteca (iron ore). Mining activities contributed around 1% of nominal
GDP in 2014 (Wacaster, 2014).
Political turmoil and opposition to mining projects have gone hand
in hand. The 1998 Mining Law was approved by congress. It gave au-
tonomy and authority to regulatory agency the Executive Directorate
for Mining Promotion (DEFOMIN by its Spanish acronym). Criticism of
this law focused on loopholes and tax incentives that benefited mining
companies (Power, 2009). Opposition grew until in 2004 a ban was
imposed on new concessions, as a result of a Supreme Court ruling
declaring the 1998 mining law unconstitutional. The government in-
tended to use this pause to reform the legislation on two points: in-
troduce a higher royalty rate and new regulations for operations.
Concessions granted before the ban were allowed to continue, but
under no clear legal regulatory framework. President Zelaya’s govern-
ment, elected in 2005, advocated a ban on open-pit mining for gold and
silver. With the 2009 coup that overthrew him, the sector was thrown
into further disarray (Power, 2009).
Environmental and indigenous groups strongly oppose mining ac-
tivities. The San Martin mine (Goldcorp), for example, faced allegations
of environmental damage and water pollution (CAFOD, 2010). Ori-
ginally owned by Glamis Gold, this mine started operations in 2000 and
Goldcorp (Entre Mares) took the concession in 2005. When it closed in
2009, reports from CAFOD (2010) detected high acidity in water
sources, which could be linked to cyanide “heap-leaching” methods to
extract gold from low-grade deposits in this mine in the Siria Valley
(Carroll, 2009). In 2010 the government sued the company for en-
vironmental damage and did not renovate its license, but the closure of
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The Extractive Industries and Society xxx (xxxx) xxx–xxx
the mine had started in 2008 as the commercial stage of the mine
peaked (OCMAL, 2016). Goldcorp’s website reported on its own re-
clamation activities and about the situation of the mine site after its
closure.
The San Andres Mine (formerly Minerales de Occidente and Aura
Minerals since 2009) has faced allegation of cyanide discharge in water
sources since 2003 (Cuffe, 2004). The Directorate of Mining Promotion
(DEFOMIN), the regulatory body also in charge of promoting invest-
ment in mining, certified that the mining complied with national leg-
islation. In 2010, Aura Minerals signed into the International Cyanide
Management Code, a voluntary initiative to certify safe use of cyanide,
and was audited two years later (ICMI, 2014). Community consultation
and indigenous rights are also part of the movement opposed to mining
activities. In April 2013, the Inter-American Commission on Human
Rights took a case to the Inter-American Human Rights Court about the
failure of the state to protect the ancestral territory of a Garifuna
community in the Atlantic Coast from occupation and dispossession,
and regarding the right to prior, informed consultation process for
projects in their territories (IACHR, 2013a,b). In late 2015, the Court
upheld the right of the Garifuna community to prior and informed
consent and order the state to repair violations of this right regarding
extractive projects and define the communal land (IAHRC, 2015).
In early 2013 a new government and congress approved a new
Mining Law, which signaled the end of the ban on new mining con-
cessions. However, activist opposed to mining continue to complain of
open-pit operations, lack of protection for water sources, mining in
populated areas leading to expropriations, weak and ineffective con-
sultation process after concessions are already granted, no provision for
environmental crimes and improper reclamation requirements, and
lack of transparency (Hufstader, 2013a,b; Mining Watch Canada,
2013a,b). However, a key piece of legislation such as the 2013 Mining
Law is revamping transparency and information disclosure in this
sector, in alignment with the requirements of the EITI. In fact, Hon-
duras is the only country in Latin-America where companies are legally
bound to disclose information for transparency purposes.
In addition, the new Mining Law considers the creation of the
Institute of Geology and Mines (INHGEOMIN) to replace DEFOMIN,
increases the canon and taxes, requires environmental impact studies
approved before concessions, puts a cap on the number of concessions
granted to the same company, sets limits on time length, and makes
concessions non-transferrable (Wacaster, 2014).
5.5. Nicaragua
In Nicaragua the civil war and US embargo during the 1980s led to a
steep decline in mining operations and investment. In 1980 the gov-
ernment decreed the nationalization of the mining industry, cancelling
concessions and creating the Corporacion Nicaraguense de Desarrollo
Minero. State management was reversed in 1994 with the privatization
of mines managed by the Corporacion Nicaraguense de Minas. At the
time, the Ministry of Economy and Development was responsible of
policy formulation and promotion of mining. Starting in 2004, the
number of mining concessions for exploration and production in-
creased, creating opposition among municipal governments due to lack
of consultation before authorization of concessions as well as potential
social and environmental impacts.
Two companies control mining exploitation, B2Gold and Condor
Gold. B2Gold, with assets including Triton at El Limon and DESMIC at
La Libertad, is the main gold and silver producer. These companies
currently produce gold and silver in their concessions: HEMCO
(Bonanza, Autonomous Region of the North Atlantic-RAAN); Triton
Minera (Mina Limón, León); DESMINIC (La Libertad, Chontales). In
2011, gold production increased 61% compared with the previous year
due to B2Gold ramping up output at La Libertad, which started pro-
duction in 2010 (Wacaster, 2013).
The mining law makes provisions for transfers to local communities.
J.C. Quiroz, J.C. Vieyra
The Treasury collects surface use taxes and transfers of 35% to muni-
cipalities with mining activities. In the Atlantic Autonomic Regions
20% goes to Regional Council and 35% to the municipalities (Ministry
of Energy and Mines of Nicaragua, 2001). In 2012 fiscal revenue from
metallic mining to local governments reached US$3.4 million. Royalties
paid on 3% of gold exports in 2012 amounted to US$12.9 million out of
US$431 million (Gutierrez-Elizondo, 2015). In 2012 and 2013 gold
exports totaled over US$800 million, of which the Government got
almost US$24 million in royalties (Alfaro et al., 2015).
Conflict has surfaced around environmental impact of extraction
activities. At the Libertad mine, traces of heavy metals were found in a
nearby river in 2005, which led to a complaint to the Ministry of
Environment (OCMAL). The Mina Limon faces a similar complaint from
2009 (OCMAL). In both cases, it is reported that the investigation on
environmental damage is lost in the administrative process (Polanco,
2013).
A second source of opposition to mining projects comes from small-
scale miners who fear displacement from large-scale projects. In parti-
cular, in 2013 B2Gold’s operations expansion project in Santo Domingo,
Conchales Department, led to protests starting in 2012 and clashes with
the police in early 2013 (Witte, 2013; Garcia, 2013).
The Nicaraguan government has also faced issues of community
consultation, self-determination, communal rights, and protection of
indigenous cultural patrimony. Yet they touch on mining as part of
larger issues. In September 2001, the IAHRC ruled in favor of the
Mayagna Indigenous community of Awas Tingni, in the Atlantic coast
(Miskito) of Nicaragua. This community had fought to protect its lands
and resources form a logging and mining company. In 2004, the gov-
ernment of Nicaragua gave title to the community of 73,000 ha of
territory, in the first case taken up by the IAHRC involving indigenous
people’s collective ownership rights (IIED, 2002, p. 35).
In 2007 a new mining law created a Ministry of Energy and Mines
(MEMN) as regulatory entity. It prescribed that the General Direction of
Mines keeps record of mining concessions in a public registry.
According to the mining law, the Ministry of Environment and Natural
Resources (MARENA) needs to be part of concession process. In 2011
reforms to mining law concentrated authority in the Ministry of Energy
and Mines, eliminating a consultative Mining National Commission,
which had representatives from private industry and environmental
groups. This reform concentrates roles and power in one single entity in
charge of granting concessions, regulating and monitoring compliance
with law, and responsible of soliciting exemptions on behalf of the in-
dustry from the ministry of finance. Although the special Mining law
prescribes that municipal governments should approve mining activ-
ities, critics argue that the process leaves ample room to improve the
quality of consultations and information shared with communities
(Polanco, 2013, pp. 49–51).
Through legal reforms, Nicaragua has adopted standards to improve
extractive industries management. However, the main gaps identified
by experts are in the implementation, enforcement and sanction of rules
on citizen’s participation, accountability and transparency (Polanco,
2013). According to a recent report, consultative mechanisms are in-
effective because there is no provision to make decisions mandatory or
sanction for failure to adopt consultative decisions (Polanco, 2013, p.
44). The government also has a predominant interest in attracting
foreign capital, which places regulation in a second place.
5.6. Panama
This country is a service-oriented economy and the fastest growing
country in the region (IMF, 2016). However, prospects for gold and
especially copper mining have the potential to become engines of
growth, as mines are located in low income, agricultural regions. The
main gold venture in the country is Petaquilla minerals, which started
producing at el Molejon in 2009. Gold production in this mine started in
earnest in 2011 but development was interrupted by bankruptcy in
9
The Extractive Industries and Society xxx (xxxx) xxx–xxx
2013 (Durling, 2016). In addition, copper reserves are one of the big-
gest non-exploited mines in the world. A copper mine developed by
Minera Panama, owned by Canadian Fist Quantum Minerals, is ex-
pected to start production in 2017 with an investment over $6 billion,
which would be the largest direct foreign investment in Panama (De la
Merced, 2013).
Development of this mine has faced strong opposition before. In the
1970s Rio Tinto won a concession to exploit copper reserves, but op-
position at the time focused on risks to public finances, environmental
damage and lack of transparency in contracts, as well as opposition to
military government. Opponents to the project were successful in
stopping it. With the return of democracy in the 1990s, governments
initially avoided promoting mining to minimize conflicts with local
communities (Mitchell, 1996).
The Varela administration, elected in 2014, has made mining a
pillar in his plan for economic growth (including logistics, farming and
tourism) (Durling, 2016). However, mining activities face opposition
coalesced around a strong alliance of indigenous organizations and
urban environmental activists. Indigenous territories in Panama re-
present 12% of total territory, with laws regulating mining activities in
indigenous territories that can be traced back to conflicts over territory
from the beginning of the 20th Century (Solis, 2012). Community
consultations are also required and environmental permits before ap-
proval of concession. However some groups claim (e.g. Aresio Valiente
Lopez, leader of Guna Yala people) that government does not take in-
digenous communities participation, ignore them in granting permits
and argue there is no social or economic improvement in the commu-
nities of the indigenous territories where a mining project is developed
(Valiente, undated). In April 2013, the IACHR took a case regarding
indigenous rights to a territory and free and informed consent before
development projects to the IACHR (2013a,b). In October 2014, the
Court issued a sentence asking the government to guarantee indigenous
and communal rights, to delimit indigenous territories and to repair
damages to this community (IAHRC, 2014).
Despite the existence of regulatory laws on these topics, Panama has
not ratified the ILO Convention 169 and there is no legislation on
consultations. A case where mining interests and community resistance
has clashed is in the Ngöbe community opposed to a mining license for
Dominium Minerals. They claim the license was approved without an
environmental impact assessment. This conflict has centered on the
2011 law on promotion of foreign direct investment and a demand from
this community to ban mining activities in its territory (Flores, 2013).
5.7. Summary of country experiences
There are three issues that encompass most of the objections about
mineral extraction projects. First, the impact of large-scale mines, in
particular from open pit mines and the use of cyanide and mercury in
gold extraction, with the consequent environmental and health hazards.
Second, the right to free, prior and informed consent for local com-
munities. This is a very contentious issue because even when legislation
prescribes consultation to local communities it generally lacks im-
plementation rules and sanctions when the right is broken. In addition,
indigenous peoples demand recognition for territories and prior con-
sultation rights about the social and environmental impact of large
projects. In Guatemala, the Peace Accords recognizes consultation
rights to indigenous peoples, and in the rest of the countries the
International Labor Organization’s Convention 169 and two landmark
resolutions from the IAHRC back this claim. Third, the issue of how
costs and benefits are shared among stakeholders: local communities,
national governments and private companies (Oxfam, 2009).11 Low
11
This report articulates most of the current concerns and the need for governments to
focus on sustainable development. It argues for balancing foreign direct investment and
fiscal revenue, with the potential for environmental damage, as well as social and cultural
J.C. Quiroz, J.C. Vieyra
royalties or a small contribution to the economy, portrait grabber
friendly institutions (Mehlum et al., 2002) which may predispose the
public against mining activities too. Polarization, historical grievances
and violent protest complicates assessments of costs and benefits, while
governments have failed to represent the different interests of its con-
stituencies.
These problems have surpassed the capacity of these countries to
process conflicts through existing institutions. Although formal com-
plaints against mining operations are common, their resolution by na-
tional courts seldom ends a conflict. International organizations, such
as the Inter-American human rights commission and court, provide an
additional level where disputes can be argued and adjudicated.
However, their resolutions need enforcement and legal action, two
areas where these countries show institutional weakness. In other cases,
countries have appealed to international agencies and initiatives to
build public trust (UNDP in Dominican Republic and EITI in Dominican
Republic, Guatemala and Honduras).
The countries reviewed here need to strengthen their institutional
capacity to regulate, monitor and efficiently tax the sector. In some
cases, investment promotion agencies and trade ministries have a role
attracting investment and promoting operations, which can influence
decisions about mining projects. This situation can give rise to a conflict
of interest, when agencies have the incentive to increase investment
rates or operations, even if that creates the risk of conflict with those
affected at the local level. The number of conflicts involving disputes
regarding environmental impacts also reflects strains of institutional
capacity. In some cases, the environmental agencies lack resources to
respond rapidly to complaints of pollution and in others local com-
munities have been involved in committees to monitor periodically
water quality.
However, one way governments can begin to address challenges
around mineral projects is by making the benefits and impacts (positive
and negative) of activities in the extractive industries more transparent
to all citizens. Here is when the concept of targeted transparency can
play an important role.
6. Taking a step forward: introducing targeted transparency
policies to the mining sector
While transparency has been recognized as a tool to prevent and
control corruption in the extractive industries, the challenges faced by
Central American countries are not limited to failures of access to in-
formation. They need more than publication and disclosure of in-
formation. Faced with the challenges outlined here (consultation rights,
indigenous peoples rights, environmental and social impact, contribu-
tion of mining activities to the countries), the governments in this group
need to approach transparency not only as a matter of access to in-
formation and opening official records to the public, but as a tool to
achieve concrete policy objectives and build public trust (Molina and
Vieyra, 2012).
Targeted transparency has been proposed as an alternative to con-
ventional public policies in public health, financial risks and environ-
mental issues. The crucial element of targeted transparency is to iden-
tify policy objectives and the “action cycle” in which information is
made available; users process and understand it; and this leads to a
response or change of behavior (Fung et al., 2007; Weil et al., 2013;
Molina and Vieyra, 2012). A targeted transparency approach needs a
clear diagnostic of who the information users are, their motives and
incentives, and the dynamics of the sector in which they operate. While
the government can build public trust when all the ministries and
agencies report about their activities, the operations they authorize and
(footnote continued)
loss. It argues that communities and local population are directly affected, while most of
the benefits are perceived to happen at the national level.
10
The Extractive Industries and Society xxx (xxxx) xxx–xxx
the payments the country receives for their minerals, targeted trans-
parency must identify the target population’s needs, incentives, and
capacities to understand and use such information with a clear policy
purpose (Molina and Vieyra, 2012). In the extractive projects discussed
here, targeted transparency can be a tool to help minimize risks, open
channels for participation and process conflict.
Communicating in a more effective, efficient, and transparent way
the benefits and potential impacts (positive and negative) of extractive
activities can be a first step in creating trust among actors that have
become polarized in their positions due to history and the legacies from
past projects. In this sense, transparency is also linked with the idea of
responsiveness in the extractive sector, especially with regards to local
actors (Ribot, 2004). The sustainability of the extractive industries re-
quires that governments respond to the expectations and demands of
citizens regarding investments made in this sector. When governments
are transparent about activities in the sector, they are better prepared to
asses where key weaknesses and risks are, for example in terms of po-
tential social conflicts, and how to equip themselves with the institu-
tional capacities needed to manage this sector.
The role of coordination and information management platforms
that cross-cut government agencies are crucial factors to ignite the
trust-building process among actors. Ministries of Energy and Mines
generate or collect information about mining operations, requests for
licenses, compliance with regulatory obligations as well as reports on
production volumes, value of production, exports, and projects.
Ministries of environment are responsible for compliance with en-
vironmental rules, status of environmental complaints and environ-
mental impact assessments. Ministries of finance are responsible of
information about the financial contribution of mining projects to the
treasury as well as data on investment levels and labor. Disclosure of
information is necessary for trust building and to evaluate their per-
formance, but government agencies are also key actors in the process to
identify information users, incentives and interests, action cycles and
policy objectives that distinguish targeted transparency.
Based on the country review done for this paper, there are three
areas where targeted transparency can contribute to conflict resolution
in Central American countries: (1) how costs and benefits are shared
both at the national and local level; (2) processing environmental im-
pact assessments; and (3) conducting a successful consultation process.
With regards to the sharing of cost and benefits between the na-
tional and local level,public information about transfers of resources
from the central government to local and regional governments can
increase vertical accountability to communities directly affected by
mining activities. Publishing information about projects funded with
such transfers can have a positive impact in preventing waste and
promoting efficiency of public investment. However, disclosure of in-
formation can face corruption and inefficiencies in resource manage-
ment, which has led to efforts to increase controls and accountability in
this type of initiatives. Evidence shows that Belize, Dominican
Republic, Guatemala and Honduras, are yet to better explain how re-
sources derived from the extractives industries contribute to local and
regional governments. In Honduras, for example, there are no man-
dated transfers from central to local governments but municipalities are
entitled to levied dedicated taxes from this sector. Central American
countries have an opportunity at learning from the example of
Colombia’s MapaRegalias portal (Arisi and Gonzalez, 2014).12
12
In 2013 the Government of Colombia, with support of the Inter-American
Development Bank, decided to use information and communication technologies (ICTs) as
a means of interaction with the public, not only to facilitate access to public information
and to promote transparency, but to promote citizen participation to the processes of
monitoring and controlling of public investment. This collaboration materialized in the
design and implementation of a software visualization tool (MapaRegalias), which pro-
vides complete traceability throughout the royalties cycle, from the source of resources to
the implementation of public investment projects financed with royalties (http://
maparegalias.sgr.gov.co).
J.C. Quiroz, J.C. Vieyra
The MapaRegalias portal was designed to provide information to
citizens in a simple and intuitive way following the introduction of the
reform to the General Royalty System13 in 2011. It shows information
on the amount of natural resources exploited in a geographic area and
the status of projects funded with royalties. Citizens can learn what
their municipality produces, how much money is generated, how it
funds the budget, which projects are approved and their progress. This
tool is oriented towards providing complete traceability of the re-
sources in the extractive sector, but also improving public policies. As
the portal generates consolidated reports to monitor and track budget
spending and project implementation at all levels of government, it has
contributed to put in place mechanisms to strengthen institutional ca-
pacities. It allows citizens and private companies to track information
by oilfields and mines, production by type mineral, and payments of
royalties. Additionally citizens can gather information on audit and
control activities in the extractive industries, and monitor projects in
their communities.
Another example of how transparency can help highlight how costs
and benefits are shared is the Extractive Industries Transparency
Initiative (EITI). This is a mechanism to process information, explain
data to the public and impact policy. The Dominican Republic,
Guatemala and Honduras are part of this initiative, the latter with
published reports. This initiative recognizes that publication of in-
formation is a first step and through a multi-stakeholder process seeks
to create trust and open communication channels between govern-
ments, companies and civil society. The final goal of disclosure is to
enable informed decision making and to support reform efforts. This
initiative can be targeted to national and local demands and provide a
way to disclose information demanded by users (represented in a multi-
stakeholder group), a medium to explain technical information to the
public, and an opportunity to improve relations between civil society,
companies and government agencies.
The second area where targeted transparency can be used is mon-
itoring environmental impacts. The objective of environmental impact
assessments and periodic monitoring of environmental conditions is to
minimize externalities such as pollution, deterioration of water, air and
soil, and health hazards. This has been a consistent demand against
mining projects in the countries reviewed here. Responses to environ-
mental impacts can improve with data from periodic measurements,
published in standard forms that include a scale from acceptable to
hazardous levels, in a process that involve companies and communities
in the monitoring effort. In some cases, community representatives al-
ready take part in testing water sources in mining projects in Dominican
Republic. Targeted transparency policies can provide a neutral tech-
nical partner to perform standard measurements of variables such as
presence of metals, water quality and other potential sources of pollu-
tion and health hazards. Involving communities and companies to en-
force health standards can serve to reduce this risk and to build a way
out of conflict over environmental impacts.
Our third example to embed target transparency are community
consultation processes which traditionally tend to be a source of con-
flict. This challenge is particularly visible in Guatemala, Nicaragua and
Panama. Consultation requires legal clarity on the process, timeline and
enforcement of a mandate. Minimizing risks of conflict require sharing
information about the licensing process, the rights and obligations of
concession holders, assessments of the impact on local communities,
and the role of government agencies. It also needs to communicate on
issues such as the extension of concessions, environmental obligations,
regulations, rights of communities around projects, technology used in
13
The Government of Colombia introduced a legal reform on the distribution of
earnings from the country’s extractive sector in order to increase efficiency and quality in
the investments of these resources. The General Royalty System is regulated by the
Legislative Act of 05–08 July 2011, and is complemented by a regulatory framework on
the implementing agency’s organization and its budget (https://www.sgr.gov.co/
Normativa/ActoLegislativoyLeyes.aspx).
11
The Extractive Industries and Society xxx (xxxx) xxx–xxx
mines and long term plans for the project. A clear diagnostic of the
communities affected, the different interests in play, their motives and
incentives, and the historical and cultural dynamics in which they op-
erate can help to process, communicate and explain information and
prepare the public for large-scale mining activities. In consultations,
social and environmental impact should be considered seriously and
not placed second to investment and potential revenue.
Even though targeted transparency offers a promising approach,
some issues may be beyond its scope. For example, indigenous rights,
collective ownership of territories and implementation of the right to
free and prior consent to projects are among the thorniest questions
faced by countries under review here. Some countries have legislation
that recognizes indigenous rights and collective ownership, or are sig-
natories to the ILO 169 Convention. Yet, when this issue enters the
national courts, it usually becomes a step before approaching interna-
tional human rights courts. Addressing them require wide ranging
changes in the legal framework, clarifying property and collective
rights and strengthening the rule of law.
While not all the problems faced by these countries can be solved by
a single policy, targeted transparency is a starting point to address long
standing conflict. Governments in the six countries under review face
competing interests when developing mining projects, from the goal to
increase fiscal revenue that could finance social expenditure and the
desire to attract foreign investment to spur economic growth, to op-
position to social, cultural and environmental disruptions.
Transparency can help to demonstrate that they are prepared to
manage the impact of mining operations, as well as able to ensure that
local communities have a voice, that new mining projects minimize
negative environmental impacts and that benefits reach those directly
affected. Governments in the region face many challenges to develop
new mining projects that can have a positive impact on fiscal income,
investment and growth, but realizing that potential requires addressing
persistent opposition. Transparency can be a first step to turn conflict
into constructive and objective debate, a cornerstone for multi-stake-
holder cooperation.
Funding sources
This work was supported by the Inter-American Development Bank
through the project “Transparency and Information Management in the
Extractive Sector (RG-T2841)”
Acknowledgements
The authors acknowledge and thank Harry Brown, Governance
Specialist, UNDP, Panama; Roberto de Michele, Principal Specialist at
the IADB; Alejandro Barón and Aida Aamot, Consultants at the IADB,
Roberto Herrera, former Honduras National Coordinator, Extractive
Industries Transparency Initiative (EITI); Miguel Martinez, Researcher,
Central American Institute for Fiscal Studies; Keith Slack, Global
Program Director, Oxfam America; and Marion Usher, Chief Financial
Officer, Belize Natural Energy; for the time and information provided.
While we benefit from their expertise, they are in no way responsible
for the contents or opinions expressed in this paper. The opinions ex-
pressed in this publication are those of the authors and do not ne-
cessarily reflect the views of the Inter-American Development Bank, its
Board of Directors, or the countries they represent.
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