Thursday, February 23, 2012

Minning and water

In the seventies, President Allende used to say that "Cooper is the wage of Chile". Today mining is still the blood of the Chilean economy. From the 83 billion dollars exported by Chile in 2011, 53 billion correspond to the mining. This year Antofagasta will receive 4.5 billion investment in mining projects. Most of the mining activity is concentrated in regions of Tarapaca and Antofagasta wich are one of the driest areas of the world. As mining requires a considerable amount of water to operate, many problems have arisen.

Unlike in southern Chile, where water is abundant and has practically no economic value, in the north the agriculture, industry and drinking water are competing for access to it. The lack of a clear strategy of development to every region makes this competition turn into conflicts that may become violent.

This is what is happening in southern Peru, where the conflict between mining, agriculture and drinking water has already turned into a war over water, involving politics and the economy. In Peru the situation is worse than in Chile because the water market is regulated quite discretionally by the Government. Farmers claims for preferred water supply to have their crops. These crops are usually inefficient, both technically and economically, because require lots of water for a starving economy.

How to distribute the water when it is scarce? Economy say that if a good is scarce, its price should rise to reach the point where supply and demand meets. For water economy this is, most of times, politically infeasible. In rural areas where farmers have ancestral rights over water, they demand to the Government to grant them more and more. In a way the farmers consider theirself as "the legitimate owners" of all the water they can get.

In Chile, Copiapo had this conflict, farmers technically advanced and profitable, increased their crops at a point that now the water resources are collapsed, which also threatens to large mining investments and even drinking water. In Antofagasta tap water users have been hardest hit, the Government installed a million dollars desalination plant, and they have to pay huge bills for poor quality water.

In Arica, where I live, there are national parks and protected areas that have prevented big mining operations, but there is strong local and external pressure -even from the Government- to remove these protections, at least partially, and install large-scale mining in the region. That would hurt all efforts to develop sustainable tourism, which is one of the main regional economic activity today.

How to allocate the water in places where it is scarce resource? It is not a simple problem, specially in a country with a very dry territory and conflicting users. There are many economic, political and social stakeholders, and a myriad of simple answers, most of them false simplification of a very complex issue. The only certainty is that the answer must be based on fine tunned technical studies, and the general economic principles that have brought prosperity to the country in the last 35 years, must be respected. Otherwise a conflict similar to South Peru is expected for our country.

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