US embassy cable - 05GUATEMALA1751

C O N F I D E N T I A L SECTION 01 OF 03 GUATEMALA 001751 
 
SIPDIS 
 
PASS OPIC FOR BARBARA GIBIAN 
 
E.O. 12958: DECL: 07/18/2009 
TAGS: EINV ENRG EMIN PGOV EAID SENV SNAR PHUM ELAB GT 
SUBJECT: POLITICALLY DRIVEN LOCAL REFERENDUMS SEEK TO BLOCK 
MAJOR U.S. INVESTMENTS; GOVERNMENT HOLDING FIRM 
 
 
Classified By: EconCouns Steven S. Olson for reason 1.4 (d) 
 
Summary 
------- 
1.  (C)  Referendums organized by two municipalities in 
different parts of Guatemala attempted to demonstrate massive 
local rejection of a large gold mine and a hydroelectric 
project.  Organizers then declared that the people had spoken 
and demanded that the projects be stopped.  The process of 
conducting the referendum appeared seriously flawed in each 
case, and neither was able to produce a simple majority of 
voters, even by the organizers' estimates.  Both investment 
projects involve U.S. interests and enjoy the government's 
strong support.  A local NGO that receives significant 
European funding and promotes a radical environmental agenda 
was deeply involved in both cases.  Most elite opinion 
concludes that the referendums are legally meaningless, even 
if they had been credibly conducted.  Many conclude that 
radical politics, not the investments themselves, is the 
issue, and some ponder parallels with Bolivia.  We describe 
the two projects briefly -- they are in our minds clearly 
good for the country.  The government recognizes the dangers 
to future investment if the two projects were to fail but is 
cautious to avoid being tarred as "against local democracy." 
End Summary. 
 
2.  (U)  Guatemala's press, op-ed writers and others of the 
political class have been discussing the significance of two 
recent "popular consultations," a sort of referendum governed 
by the Municipal Code, convoked by the mayors of Sipacapa and 
Rio Hondo to protest major investments by foreign companies. 
The two towns are geographically and demographically distant, 
with Sipacapa in the indigenous highlands of San Marcos and 
Rio Hondo in the ladino lowlands of Zacapa, but there is no 
question among observers that the two events are linked. 
Organizers claim that the referendums demonstrated 
overwhelming local opposition to a gold mine (Sipacapa) and 
hydroelectric project (Rio Hondo), but the processes for 
gauging opinion were suspect and participation was sparse. 
One common denominator has been the involvement of local 
environmental NGO Madre Selva, which receives significant 
financing from foreign sources, thought principally to be 
European.  It is also listed as a "partner" of Oxfam America 
on the latter's website. 
 
Sipacapa and Glamis Gold's Marlin project 
----------------------------------------- 
3.  (U)  Canadian-American Glamis Gold's Marlin project, 
operated by Glamis subsidiary Montana Exploradora, lies 
almost entirely within San Miguel Ixtahuacan municipality, 
though a small portion of its mining license extends into 
neighboring Sipacapa.  Current plans call for extraction only 
in San Miguel, which will receive a 1% royalty on the value 
of gross production of gold and silver under Guatemala's 
modern mining law.  Sipacapa is not legally entitled to 
anything, but Glamis has volunteered to provide it an 
additional 0.5%.  The entire area is desperately poor and 
unfit for commercial agriculture.  In terms of modern jobs, 
the mine is a godsend.  Glamis has an approved environmental 
impact assessment and reclamation and remediation plans, much 
of which are validated by reputable international 
specialists.  It has identified a water source in deep wells 
that, to date, have shown to be entirely independent of 
surface water supplies used by area inhabitants.  Glamis 
plans to invest at least $140 million in the project and has 
identified proven and probable reserves of 2.3 million ounces 
of gold and 36.3 million ounces of silver. 
 
4.  (C)  Sipacapa municipality has 13 villages with 5,720 
registered voters.  Slightly under half (a reported 2,600 
people) participated in the June 18 referendum.  Eleven 
villages reportedly voted "against mining," while one was in 
favor and one declined to participate.  Two journalists who 
witnessed some of the voting told us separately that 
assembled villagers were lectured by referendum organizers on 
the dangers of mining and then asked to agree or disagree 
through a show of hands.  Montana Exploradora claims that 
threats had been made against any who supported the project. 
San Miguel Ixtahuacan, where the mining will take place, has 
not sought to organize its own referendum, though its mayor 
suggests that good relations may depend on continuing 
largesse, including a new stadium and hospital for his town. 
 
Rio Hondo's hydroelectric project 
--------------------------------- 
5.  (SBU)  The Rio Hondo project is a 32 MW high head 
generating facility that brings water through a penstock 
(pipe) down a 1 kilometer vertical drop into a powerhouse and 
then returns the water to its original stream bed.  It 
requires a relatively small dam and reservoir (1.5 million 
cubic meter capacity covering about 16 hectares) in the 
ecologically sensitive Sierra de las Minas protected area. 
The project has the support of the mainstream environmental 
organization Defensores de la Naturaleza because of the 
operator's commitments to protect the watershed and keep 
illegal loggers out.  The operator, Alaska Power and 
Telephone subsidiary Hydrowest, has already planted over one 
million trees in areas were illegal logging had been taking 
place.  Guatemala has modified its renewable energy 
legislation for the specific purpose of encouraging 
investment in clean low-cost energy in order to avoid 
emergency bids for thermal generating capacity as happened 
when the country faced brownouts in the early 1990s. 
Detractors of the Hydrowest project allege that it will 
pollute water and make it unavailable for consumers in the 
drought-prone Rio Hondo region.  Hydrowest and GoG officials 
counter that the project stores very little water, is 
therefore little different from a "run-of-the-river" project, 
creates no pollution, protects the watershed, and provides 
some limited defense against flash floods. 
 
6.  (C)  Rio Hondo's July 3 referendum permitted Madre Selva 
and the likeminded to declare that an overwhelming 97% of 
voters disagreed with the Hydrowest project, and they 
demanded respect for "local democracy."  However, 
participation as reported by the partisan organizers was only 
28% of registered voters.  President Berger's son told 
EconCouns afterwards that he had driven through the area the 
day of the referendum and had come across busses in another 
municipality, Teculutan, recruiting voters for the 
referendum.  Guatemalan associates of Hydrowest have been 
telling us for several years that they believe that 
opposition to the project comes from the mayor, who wants a 
payoff, and illegal logging interests.  More recently, we 
have heard rumors that major narcotics trafficking interests 
from nearby Zacapa (presumably the Lorenzana family) have 
joined the opposition. 
 
Government is Standing Firm 
--------------------------- 
7.  (C)  EconCouns has maintained contact on this issue with 
Presidential Commissioner for Investment and Competitiveness 
Miguel "Mickey" Fernandez, his deputy Emmanuel Seidner, 
Presidency Manager (and former Minister of Energy and Mines) 
Roberto Gonzalez, and current Minister Luis Ortiz.  They have 
formed a working group together with Presidential 
Coordination Secretary Eduardo Gonzalez and Solicitor General 
Roberto Molina to ensure that Madre Selva and its friends 
fail in their efforts to stop the two projects.  They believe 
the government's legal case is unassailable, as the national 
government's authority for energy and mining is embedded 
firmly in the Constitution and must be defended at all costs. 
 They also believe it would be a disaster for the investment 
climate if either project were blocked, and they draw 
comparisons to what has happened in Bolivia.  They are 
currently exploring having the courts reaffirm that, under 
Articles 65 and 66 of the Municipal Code, a "consulta" is 
binding only on issues within the scope of municipal 
decision-making.  Mining licenses and energy project approval 
are the purview of the national government. 
 
Invoking ILO Convention 169 on Indigenous Rights 
--------------------------------------------- --- 
8.  (SBU)  To sidestep the clear delineation of authorities 
in Guatemalan law, referendum organizers have seized on 
Guatemala's obligations under ILO Convention 169 to consult 
with indigenous and tribal people on the use of their land. 
Madre Selva and others have been careful to restrict their 
specific arguments to Sipacapa, where the population is 
predominantly indigenous (Rio Hondo's is not).  Former 
president Alvaro Arzu told the Ambassador July 11 that he 
insisted on the reservation that ILO 169 would not take 
precedence over the Guatemala Constitution or law when 
Guatemala acceded to the Convention.  Since then, the 
Guatemalan Congress has never enacted legislation 
implementing the vaguely worded ILO 169 or regulating how 
these "169" consultations should take place.  The GoG has not 
argued that it undertook any sort of consultation in the 
spirit of the ILO 169 prior to issue Glamis its mining 
license.  Glamis, which has conducted extensive outreach in 
San Miguel Ixtahuacan and created a foundation to finance 
development projects and vocational training, notes that it 
purchased freehold title to the land where it intends to 
mine, paying more than the going market price, so the issue 
of indigenous or tribal lands doesn't arise. 
 
Comment 
------- 
9.  (C)  We were not witnesses to the voting at either site, 
but we conclude that it was more along the lines of 
nationally scripted street theater than a demonstration of 
considered local sentiment.  Most Guatemalans seem to have 
reached the same conclusion, and the issue has largely faded 
from news reporting.  However, it has inspired continuing 
discussion in op-ed columns on the purpose and powers of 
representative government and the role of NGOs.  Elite legal 
opinion has pretty well concluded that the state is 
constitutionally empowered to approve the Montana and 
Hydrowest projects and that the referendums could not change 
anything, even if they had been conducted credibly.  We 
certainly see no backpedaling by the Berger Administration, 
though there has been restraint so as not to be cast as 
"opposing local democracy." 
 
10.  (C)  It remains to be seen how recent events will play 
internationally, where the press has given this issue some 
attention.  Some NGOs with the best of intentions were caught 
up in the moment.  CARE, for instance, helped organize the 
Sipacapa referendum but pulled back as best it could after 
Montana complained and we provided some background on how the 
project and protests had evolved.  The idea of more local 
awareness and participation is obviously attractive and 
difficult to be "against," no matter that it may be 
manipulated.  It would be unfair, however, were the 
impression to spread based on these two referendums that the 
government was trampling the rights of local inhabitants and 
carelessly ignoring environmental threats.  That simply has 
not been the case.  That leaves the pending question that 
many are asking about who is financing the recent activism. 
Most observers seem to think that it's mostly European 
organizations channeling funds through remnants of the 
guerrilla left and groups like Madre Selva, but some are 
starting to wonder if something more nefarious isn't afoot, 
such as some Bolivarian "solidarity" from Venezuela.  So far 
there is no evidence, but few in business or government we 
speak with consider it implausible. 
 
WHARTON