Lima, Peru — Venezuela’s President Hugo Chavez once said that China’s Chairman Mao and South America’s independence hero Simon Bolivar would have been the best of friends had they met, a lively acknowledgment of the communist nation’s growing economic ties with the mineral-rich Americas.
But for the people of the impoverished Pacific mining port of Marcona in southern Peru, China feels more and more like the enemy.
The Marcona iron ore mine, run by the state-owned
A strike in July, the third in the past year, underlined the company’s troubled relationship with its workers and the government, which accuses it of not meeting its investment and social obligations. Shougang officials in Peru were not available for an interview.
In 1992, when Shougang bought the iron ore mine from the government-run
“China is a socialist nation. We thought they’d respect the workers,” says Shougang Hierro Peru’s union leader Hugo Sosa.
Shougang agreed to invest US$150 million over three years in 1992, and under its contract, was also made responsible for housing, water and electricity supplies, prompting hopes of access to proper drinking water for a third of residents who went without.
Shougang quickly disappointed, however. It spent only US$35 million in that time, preferring to pay a US$14-million fine, according to Peru’s state-run investment promotion arm, ProInversion.
Following negotiations with the government, Shougang pledged another $88 million between 1995 and 1999, putting its total spending at US$137 million over seven years.
Production increased. According to Peru’s mines ministry, iron ore output rose 22% to 4.2 million tonnes in 2004. Workers say Shougang has improved productivity per worker by 60% since 2000 and by 20% in the past year alone.
But, say the government and unions, that has come at the cost of safety. Union leaders tallied 450 accidents last year at the pit, which left 22 workers disabled. Five workers have died in accidents in the past three years, including one in July, the majority from electrocution.
“I’ve got lead poisoning, breathing problems and serious headaches because we work unprotected,” says one worker who only gave his first name, for fear of repercussions. “I work at the pellets machine, it’s terribly hot, the health risks are huge,” he adds.
A Shougang official in Beijing told Reuters recently: “The company has done a lot to improve safety closely related to operations,” but declined to give any details.
Workers complain their wages are the lowest in Peru’s mining industry, which drives the country’s economy and accounts for more than half of its total exports. Many of Shougang’s 1,800 staff say they work long hours under the threat of losing their jobs for about US$14 a day.
Shougang said in 2003 that its salaries are only below
Peru’s National Society of Mining, which represents mining companies operating in the country, says the average daily wage of a Peruvian miner is US$33.
Meanwhile, Marcona’s municipality says Shougang has ignored requests to improve water and electricity supplies for the town, despite its contractual obligations. “We have two hours of water in the day and two hours of water at night, but that is only for 65% of the town,” says Julissa Castaneda, head of administration at the town hall. “Blackouts are frequent.”
Peru’s ProInversion said in a recent report: “The company has given a minimum level of priority to living areas and has avoided spending on areas which are not used for housing, considering the expenditure unproductive.”
Peru’s mines minister, Glodomiro Sanchez, says he is aware of the problems and has warned Shougang it must change its ways, but declines to say whether he has threatened to end the company’s contract.
“Shougang cannot say that paying income tax and royalties is enough,” says Sanchez. “They are not and the company will damage the whole iron ore operation if they don’t make the necessary changes.”
Shougang Hierro Peru is not short of cash, however. Its profits doubled to $22 million last year and have continued to surge this year, due to higher production and high international metals prices.
Marcona’s minerals are also important for China. The mine is just 20 km from one of Peru’s few deep-water ports, allowing Chinese ships, which buy almost all of Shougang’s production, to dock easily. While the mine’s output only accounts for 2% of China’s total iron ore imports, the pit has another 30 years of life and production is expected to increase.
China is the world’s biggest steel market and its steel output is forecast to grow at least 10% this year to more than 300 million tonnes.
Peru’s government may be partly to blame for not forcing Shougang to abide by its contract, but the experience is nevertheless sobering for South America, as it vies to capture China’s huge capital investments to fuel its white-hot economic growth.
Chinese Vice-President Zeng Quinghong made a tour of Latin America in January to secure supplies of raw materials for sectors ranging from manufacturing to construction, following on from Chinese President Hu Jintao’s trip last year.
Residents of Marcona say China needs to follow the example of North American companies such as
Indeed, Peruvians hold the now defunct U.S. Marcona Mining Co. in high esteem, as it first developed the iron ore mine from 1946 to 1972.
“They built schools, the port and the hospital. They treated us well,” says Ivan Valdivia, a union leader and local town councillor.
— The author is a freelance journalist based in Lima, Peru.
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