Doe Run Peru halts operations, government considers $75 million bailout

Doe Run Peru, which halted 95 percent of its operations at the La Oroya poly-metallic smelter after a consortium of banks led by PNP Paribas cut its credit lines, is hoping that the Peru government will agree to a $75 million bailout.

An affiliate of the Renco Group, Doe Run issued a statement last Wednesday, confirming that its operations were only a hair shy of a complete halt. When the consortium of banks led by PNP Paribas withdrew a $75 million revolving line of credit, Doe Run became unable to buy the concentrates it needs for its smelter.

“Three weeks ago, the supply of concentrates was stopped, severely restricting operations at the metallurgical complex at La Oroya and creating the risk of an imminent halt to all work,” Doe Run reported in a press release.

The metallurgical complex of La Oroya is comprised of smelters and refineries to process copper, lead, zinc and silver, as well as several sub-products. It is one of the few complexes that processes so-called bulk concentrate.

The Peruvian government is now trying to determine whether a $75 million bailout is a step in the right direction, and whether to grant Doe Run an extension to meet terms of an environmental cleanup plan for La Oroya, a city which has been dubbed “Slow Chernobyl” for the appalling environmental impact of contamination generated by the U.S.-run smelter.

In La Oroya, located 180 kilometers east of Lima and 3,300 meters above sea level, a poly-metallic smelter and refinery complex has been spitting out clouds of toxic lead, copper, zinc and sulphur dioxide-filled smoke for more than 80 years. In the valley, where the surrounding limestone mountains have been stained black and burned bare of vegetation by acid rain, 99 percent of children have dangerously high blood lead levels.

According to the Blacksmith Institute, a New York-based environmental organization and U.S. think-tank that listed La Oroya as one of the world’s most polluted places in 2007. Lung ailments are widespread, and high numbers of premature deaths have been linked to the smelter’s 1.5 tons of lead and 810 tons of sulphur dioxide daily emissions.

“Halting all operations is part of a strategy being used to keep dodging the environmental cleanup plan,” Washington Mori, the Executive Secretary of the Environmental Dialogue Association of Junín, told CNR radio. “Now, turning to the state (for help) is another ruse. Over the past four years, Doe Run has generated $150 million in profits. Why not use 50 percent of the profits made over the past two years to fulfill their engagements toward the environment?”

In August 1997, soon after Peru passed its first national environmental laws, Doe Run – a subsidiary of the Renco Group owned by Ira Rennart – purchased the Empresa Minera Metal Oroya S.A. for $125 million, plus $120 million in upgrades. Industrias Peñoles, Mexico, pulled out three months after winning the privatization bid for the refinery, held in April that year by the Peruvian government.

At the time, the government recognized the complicated aspects of the privatization due to environmental and social concerns – the environmental damage in La Oroya was so severe that Rio Tinto, a large British mining company, decided it was not worth buying. The privatization package required that the new owners would have to invest at least $132 million over the first five years and up to $330 million over ten years to bring the refinery complex up to environmental standards required by law.

As part of the purchase agreement, Doe Run agreed to comply with a 10-year environmental cleanup plan, known locally as the Environmental Suitableness and Management Program, or PAMA.

But in 2004, after an environmental study and government inspection records indicated that since Doe Run began running the plant concentrations of lead, sulfur dioxide, and arsenic in La Oroya’s air increased, the corporation asked the Peruvian government for a four-year extension to the smelter’s environmental management plan.

On Aug. 13, 2008, as residents covered their mouths with handkerchiefs to be able to breathe, the El Sindicato monitoring station — located nearest the smelter — registered a sulfur dioxide concentration of 27,000 micrograms per cubic meter of air. The sulfur dioxide levels rose from the former record benchmark of 22,000 parts per cubic meter registered by the El Sindicato monitoring station on Aug. 4, 2008 and 17,000 parts on July 21, 2008 according to the Peruvian environmental Web page Eco Portal.Net.

Peruvian law stipulates sulfur dioxide levels within a set legal limit of 364 micrograms or less per cubic meter of air.

Sulfur dioxide emissions from the U.S.-run Doe Run smelter sometimes reach 10 times the amount considered acceptable by the World Health Organization, or WHO, and the annual mean concentration exceeds this level by a factor of two or three.

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