SCENARIOS-Possible outcomes for the Doe Run Peru crisis
27 Aug 2009 16:50:16 GMT Source: Reuters
By Dana Ford LIMA, Aug 27 (Reuters) - Operations at Doe Run Peru's La Oroya smelter have been halted since June because of financial trouble and disagreements over whether the company's deadline to complete an environmental cleanup program should be extended. [ID:nN24134137] Hounded by its creditors, the company sought protection in a government-monitored restructuring process, which is still pending. The town of La Oroya, next to the smelter, is one of the world's most polluted places and the current cleanup deadline is October. The dilemma has reached crisis proportions for the government of President Alan Garcia. Workers are threatening to block roads and opposition candidates are already using the issue to garner support for runs at the 2011 election. Here are possible outcomes to the crisis: CLEANUP DEADLINE EXTENDED, OPERATIONS RESUME The government could give the company more time to complete its cleanup, or PAMA. Doe Run Peru has asked for an extra 30 months. If an extension were granted, banks might resume lending, which would allow Doe Run Peru to restart operations at the smelter and let thousands of workers return to the factory. Banks that were worried about low metals prices last year might be more willing to lend now that prices have recovered. If the environmental extension were granted, the U.S.-based parent company of Doe Run Peru could also decide to forgo bank loans and inject its own cash into the smelter, allowing it to buy concentrates for its furnaces and restart operations. Doe Run could also cancel its filing for creditor protection as it focuses on reopening the smelter. "We want an extension of PAMA because it is key to the restart of the jobs site. The banks aren't going to lend money without it," said Royberto Guzman, head of the Doe Run union. But delaying the cleanup could anger environmentalists and some residents who want the government to take a tougher stand against pollution and pour its energies into improving the conditions of community members sick from decades of contamination. NO ENVIRONMENTAL EXTENSION, JOB LOSSES The government could continue to reject pleas to give Doe Run Peru more time to complete its environmental remediation program. Banks would deny new loans to Doe Run Peru and its parent company might refuse to inject cash into it. Operations at the smelter would remain paralyzed, essentially putting out of work 3,500 employees. Another 16,000 people have jobs indirectly tied to the smelter. Angry workers have threatened to block key highways in central Peru and would almost certainly do it. The failure to save thousands of jobs would hurt President Garcia, whose approval rating is already below 30 percent. The crisis could also become a campaign issue in the 2011 elections, when he cannot run. Left-wing and right-wing politicians are already gearing up for the race. A permanent shutdown of the smelter would also force dozens of Peruvian mines to find new buyers for their concentrates. RESTRUCTURING PROCESS STALLS If an environmental extension is not granted, the focus will shift to the government agency that oversees restructurings, Indecopi. The agency has until late October to tell Doe Run to work out its own problems, or appoint a committee of creditors to decide the company's fate -- a process that could take months. Delays would frustrate unemployed workers and suppliers demanding payment, and the government would still not have a clear fix for the crisis and the environmental cleanup program. CREDITORS DECIDE THE COMPANY'S FATE Creditors could try to restart the company or sell off its assets to collect on debts they are owed. Doe Run Peru currently owes some $110 million to its suppliers. Doe Run Peru typically buys concentrates from several dozen Peruvian miners including El Brocal <BRO.LM> <BROi.LM>, Volcan <VOL_pb.LM>, and Buenaventura <BVN.N> <BUEv.LM>. Jose Miguel Morales, a lawyer for some of Doe Run Peru's creditors, said suppliers want the government to grant an extension and want the company to put up new funds of its own. "We want La Oroya to be open, we want the workers to work and, above all, we don't want pollution," he said. (Additional reporting by Patricia Velez; Editing by Kieran Murray and David Gregorio)
A Guatemalan soldier prepares to patrol at the Laguna del Tigre national park in Waka Peru August 26, 2009. Less than a third of the park, which borders Mexico, remains untouched ...
