Chile’s Indigenous Rights Come at High Price for the Economy

Wilson Galleguillos watches the wind whip up dust clouds above the waste deposits of the Radomiro Tomic copper mine in northern Chile. He says the dust falls on the fields of Chiu Chiu, his village 3 miles away, and that the chemicals in it damage the harvest. Nestled in the valley of Alto Loa, this indigenous community of 300—descendants of the Atacameños, who lived in the desert valleys long before the Spanish arrived—couldn’t stop construction of the mine 20 years ago. Since Chile’s 2008 adoption of a global accord on indigenous rights, state-owned miner Codelco must consult with them over its planned $5.4 billion expansion. That means Codelco and other mining companies have to meet with indigenous communities to consider the impact a big project would have on their rights and customs.

It’s a messy process. Ideally, a consultation allows a company to proceed with its plans while making adjustments to spare the indigenous people, their customs, and their livelihoods. Although the law doesn’t require that the indigenous communities consent before the project gets under way, indigenous leaders can delay development by refusing to meet with the company or suing it for failing to consult in good faith. Says Galleguillos, a village leader and potter by trade: “I don’t even want to hear Codelco’s arguments. I am not going to compromise. I will sit and talk with them but only to say I want their project far away from here.” The consultation with Chiu Chiu is developing normally and hasn’t degenerated into a legal dispute, Jorge Lagos, head of Codelco’s environment and communities department, wrote in an e-mail.

Investment Hit

The negotiations as well as mounting environmental awareness have slowed or blocked more than $20 billion in power stations, gold and copper mines, and transmission lines, according to company statements and a study by Matias Abogabir, head of indigenous affairs during former President Sebastián Piñera’s administration.(Abogabir now advises companies on indigenous relations.) After a decade-long copper boom that made Chile the richest country in Latin America, the disputes have helped slow growth. “We’ve reached a stalemate that has a lot of costs for employment, growth, and welfare,” says Ricardo Katz, an analyst at business-sponsored research group Centro de Estudios Publicos.

Since the consultation rule was adopted, companies involved in 76 Chilean projects have had to take action, Abogabir says. Discussions about 45 of the projects got so acrimonious that they ended up in court, with the indigenous groups filing most of the suits. Usually they want the judge to order a new consultation or issue an injunction blocking a project.

Environmental Studies

The government conducts environmental impact studies on the same projects that the companies and indigenous communities are discussing. Both the consultations and the impact studies are regulated by the government’s Environmental Evaluation Service. Disputes over indigenous rights and potential environmental damage have delayed investments worth about 10 percent of gross domestic product, according to Bloomberg calculations.

The delays have hit the energy sector the worst, because dams and power plants are so extensive and potentially disruptive. Neltume, a $781 million hydroelectric plant, and Mediterraneo, a $400 million hydro project, have been bogged down in lawsuits filed by indigenous groups claiming the consultations were not done in good faith. In an e-mailed statement today, Endesa Chile said it reached an agreement with the communities for the construction of Neltume after more than 500 days of consultation.

The lawsuits have contributed to the cancellation of power projects, raising energy costs. Industry pays an average 15¢ per kilowatt hour in Chile; it’s 5¢ in Argentina, says the World Economic Forum.

Economic Cost

Mining is energy-intensive, so higher electricity costs shave as much as 1 percentage point off GDP growth, says Alejandro Alarcón, an economist at the Universidad de Chile. “The disputes are having an effect on everything from the price of bread to large investment projects,” he says. Rolando Humire, president of the Atacameño Council of 18 indigenous communities, says they are just demanding their rights. “People are no longer satisfied with a pair of pickup trucks and soccer kits that companies used to buy them off with,” he says. “People are far better informed about their rights, the duties of the state, and the abuses of the mining companies.”

Cristina Lobera, a farmer in Chiu Chiu for 45 years, pulls up a beetroot, whose stunted growth she blames on chemicals from Codelco’s tailings basin. By the time she’s done watering her fields and feeding her livestock, she says she has the taste of sulfur in her mouth. “If the project is built, it will be the death of Chiu Chiu and all the communities of Alto Loa,” she says. “Agriculture and tourism will disappear. What would we possibly live off?”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE