Meet the Company Suing El Salvador for the Right to Poison Its Water


Salvadorans protest in favor of a ban on all mineral mining. (Photo: laurizza / Flickr)

An obscure tribunal housed at the World Bank in Washington, D.C. will soon decide the fate of millions of people.

At issue is whether a government should be punished for refusing to let a foreign mining company operate because it wants to protect its main source of water.

The case pits El Salvador’s government against a Canadian gold-mining company that recently became part of a larger Australian-based corporation. When OceanaGold bought Pacific Rim last year, it identified the Salvadoran mining prospects as a key asset, even though gold prices have sunk by more than a third from their 2011 high of more than $1,900 an ounce.

The case’s implications are chilling. If the company wins, this small country will have to either let the company mine or pay hundreds of millions of dollars.

This summer, we returned to northern El Salvador. That’s where the Pacific Rim mining company started to dig its exploration wells about a decade ago.

Near that disputed mining site, local resident Vidalina Morales explained how she and others came to oppose mining: “At first, we thought mining was going to help us out of poverty through jobs.”

But, she said, during a visit to a mine in neighboring Honduras, “we saw polluted rivers and people with bad skin diseases, and we learned about the social conflicts that mining brought between those working in the mine and those in the community.”

Morales and a majority of the local people became increasingly concerned about toxic cyanide from mining entering the watershed of the Rio Lempa. The huge river provides water to over half of El Salvador’s population.

And so, as Morales stressed, people said “yes to life and no to mining.”

This has become a national slogan. Nearly 90 percent of local landholders refused to sell their land to Pacific Rim, a requirement for a mining license in El Salvador. At least four local people who were against mining were killed under suspicious circumstances as the conflict over mining deepened. The killings only intensified the anti-mining resolve.

Then, in an act of democratic accountability, the Salvadoran government listened to its constituents and refused to approve the corporation’s inadequate environmental impact assessment. Indeed, three successive presidents of El Salvador have refused to approve this or any gold-mining license.

El Salvador’s government and people could not be clearer. They have rejected this ill-fated mine. Yet the saga continues.

Thanks to trade and investment laws that the United States has championed in recent decades, corporations can sue governments if they perceive that government actions threaten their future profits. They typically sue in a little-known tribunal with a very long name: the International Centre for Settlement of Investment Disputes, part of the World Bank Group in Washington.

And so Pacific Rim sued the Salvadoran government for over $300 million even though the company never had an actual license to conduct anything more than preliminary mining exploration.

A panel of three arbitrators will hear this case starting September 15. They aren’t required to follow legal precedents. Nor will the September proceedings be made public. One tribunal insider, lawyer George Kahale, recently decried the investment agreements that have empowered hundreds of corporations to pursue these cases as “weapons of legal destruction.”

The fact that this lawsuit is going forward, never mind that El Salvador could lose, baffles Vidalina Morales and her neighbors in northern El Salvador. It also troubles top government officials in San Salvador.

As they continually stressed to us, their country can’t afford the hundreds of millions of dollars it will be forced to pay if they lose the suit. Nor can their distressed watershed bear the costs of mining.

Robin Broad is a professor at American University’s School of International Service. John Cavanagh directs the Institute for Policy Studies.

  • dballance

    Well, the answer is simple. Don’t pay them even if the court rules in the favor of the mining company. Argentina is wisely doing its best to thumb its nose at the ruling of US judge who says they have to pay 100% of their bond debts to the holdouts that wouldn’t settle (7% of the debt holders. The rest settled). There’s no reason El Salvador shouldn’t do the same thing. Tell the mining company to go pound sand.

  • David Week

    Missing from the discussion in this article is that the Government of El Salvador AGREED to this arbitration. They signed the Dominican Republic–Central America Free Trade Agreement, which binds them to it. This might have been unwise, but it’s wrong to the paint El Salvador as some kind of passive victim here.

    Also missing in this article is any discussion of whether ICSID is in fact a more or less fair authority to hear a case: any case. You can access the proceedings of the case here by searching for case ARB/09/12. It has three judges. You can see who the judges are.

    On the other hand, El Salvador is rated by TI has having a corruption score of 38/100 . Its judiciary is in chaos because of interference of the corrupt elite that run the country:

    If my child was on trial, I know which court I would trust.

    Finally, El Salvador’s Gini coefficient is 48. A Gini of 50 is considered to represent “extreme inequality”. So the question is: of the 2% of GDP that might be paid to this mining company—who will pay? It most likely will be that same corrupt elite, who control the majority of the country’s wealth, and certainly don’t spend it on the poor.

    Thought it’s popular to mount a case against international mining company (baaaad) and the World Bank (oooooh), the authors end up supporting the corrupt elite who are the real exploiters in the poor. They signed the free trade agreement. They, as the local business community, will have been the primary beneficiaries. And now, perhaps, they will have to pay.

    What this article could have been is an investigation into the corruption and repression that can occur with an elite capture of a national government. Instead, it’s an apologetic.

    • Rene Guerra Salazar

      Missing in this comment is anything but a perfunctory understanding of El Salvador (never mind what’s just).

      In fact, under the first ever President elected on a left of centre ticket, El Salvador’s Legislative Assembly amended its foreign investment laws (though not retroactively) to avoid precisely the type of extortion to which it is being subjected by OceanaGold/Pacific Rim. Furthermore, the current government is expanding the previous administration’s redistributive social programs targeting the poor majority – everything from school uniform/lunch programs to the expansion of small farmer land tenure and credit programs. These efforts were recently recognized by the UNDP as exemplary for the region. The government has also pushed modest tax reforms aiming to reduce corporate and high income earner tax evasion. Why? Because it is the working poor and middle class that contribute a gross disproportion to the state’s tax revenues.

      In this context, what’s paying $301 million to some foreign company with a specious claim in some foreign tribunal? For a government trying to change the centuries-old modus operandi and finally trying to do right by its people, it’s plain to see that it’s a lot.

  • Robin Broad & John Cavanagh

    from the authors:

    There is much that could be said to dispute the first commenter. Our piece deals with
    some of this, but to repeat and/or expand:

    1.) As we mention in the piece, this World Bank Group’s ICSID tribunal is increasingly being accused even by some insiders as biased in favor of corporations. Among these is George Kahale III, a prominent international lawyer who argues before ICSID panels. Kahale recently went public to decry ICSID’s pro-corporate bias, saying that the ICSID dispute “system is broken.” [See:

    2.) The argument that the reason Pac Rim did not get license to mine is due to corruption and elite control in El Salvador does not hold water. El Salvador’s moratoria on gold-mining spans three different governments — Saca, Funes, and now Sanchez Ceren. As the 2nd commenter notes, it is incorrect to shuffle all three together in terms of level of corruption and/or commitment to the poorer majority of Salvadorans. However, part of what is so significant about El Salvador’s rejection of Pac Rim (and of gold-mining) is that it is a policy that has spanned administrations with very different political “persuasions,” from right to left.

    3.) Although Pac Rim is trying hard to convince ICSID tribunal members that a key reason it did not receive an exploitation concession rests in the fact that it did not play along with the corruption of the Saca administration (2004-2009), PacRim hardly was an above-board player in all this. Beyond not complying with the requirements needed to get a concession (as explained in our piece), Pac Rim clearly had its own plans to circumvent the democratic processes of El Salvador. For more details see:

    Robin Broad & John Cavanagh

  • enigma9
  • Luke Matthews

    so are you for or against mining in El Salvador, even though it might put the lives of 90% of the population at risk?

  • Andrew Cooler Can

    the deal can be voided because the gold miner did not fully disclose to the El Salvadorian the pollution it will create.