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New Salvadoran Government Inherits Unfair Liability Thanks to Investment Rules

03/20/2014 04:27 EDT | Updated 05/20/2014 05:59 EDT

Even before former guerrilla commander Salvador Sánchez Cerén is inaugurated as President of El Salvador, his administration is saddled with an unnecessary $301 million liability - a lawsuit over El Salvador's refusal to allow an environmentally-perilous gold mine to be built.

It is a legacy that has already cost the Salvadoran government some $5 million in legal costs - money that the impoverished nation could have spent on education, health care, disaster relief, you name it.

The lawsuit, before the World Bank's International Centre for the Settlement of Arbitration Disputes (ICSID), should have ended in late 2013 with the imminent bankruptcy of Pacific Rim Mining, the Vancouver-based firm that has been trying to get at a gold deposit in the department of Cabañas for over a decade, and which had no other active mining project to sustain its losing effort.

But it continues to move forward because an Australian-Canadian outfit - OceanaGold - was willing to bail it out.

What benefit OceanaGold's management saw in this ill-advised move is anyone's guess, besides trying to further punish the people of El Salvador for having successfully convinced three successive government administrations that mining is not in the water-strapped country's best interest.

Certainly, when we look at the facts about Pacific Rim's operations in El Salvador, as we have just done in a jointly published report released today, there is not much going for this company or its 'El Dorado' project. The company never fulfilled the requirements to get a mining permit to put the project into production and has encountered considerable opposition almost from day one that shows no evidence of going away. On the contrary, Pacific Rim's behaviour has helped make stopping gold mining a national issue - and an international concern.

But maybe it was because OceanaGold shared a Director with Pacific Rim Mining who was looking for a favour and convinced it that a lowball $10 million bailout now would turn into a healthy profit with a win at ICSID or a more favourable win at the polls in El Salvador's recent elections.

Whatever OceanaGold was thinking in October when it announced that it would purchase Pacific Rim Mining, it should think again, cut its losses and drop the suit.

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