Panama's high court declares mining contract unconstitutional. Here is what happens next

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Panama (AP) — In a historic ruling, Panama’s Supreme Court this week declared that legislation granting a Canadian copper mine a 20-year concession was unconstitutional, a decision celebrated by thousands of Panamanians activists who had argued the project would damage a forested coastal area and threaten water supplies.

The mine, which is now in the process of shutting down, has been an important economic engine for the country, employing thousands. But it also triggered massive protests that paralyzed the Central American nation for over a month, mobilizing a broad swath of Panamanian society, including Indigenous communities, who said the mine was destroying key ecosystems they depend on.

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In its decision, the high court highlighted those environmental and human rights concerns, and ruled the contract violated 25 articles of Panama’s constitution. Those include the right to live in a pollution-free environment, the obligation of the state to protect the health of minors and its commitment to promote the economic and political engagement of Indigenous and rural communities.

WHAT IS THE FALLOUT OF THE COURT’S RULING?

The ruling would lead to the closure of Minera Panama, the local subsidiary of Canada’s First Quantum Minerals and the largest open-pit copper mine in Central America, according to jurists and environmental activists.

Panamas Supreme Court has declared that a 20 year contract with a Canadian company operating a mine was unconstitutional.

The court said the government should no longer recognize the existence of the mine's concession and Panama’s President Laurentino Cortizo said "the transition process for an orderly and safe closure of the mine will begin."

Analysts say it appears highly unlikely that Panama's government and the mining company will pursue a new agreement based on the resounding rejection by Panamanians.

"There are sectors in the country that would like a new contract, but the population itself does not want more open-pit mining, the message was clear," said Rolando Gordón, dean of the economics faculty at the state-run University of Panama. "What remains now is to reach an agreement to close the mine."

COULD PANAMA BE THE SUBJECT OF INTERNATIONAL ARBITRATION?

Analysts say the mining company is free to pursue international arbitration to seek compensation for the closure based on commercial treaties signed between Panama and Canada. Before the ruling, the company said it had the right to take steps to protect its investment.

With the ruling, the Panamanian government and the mining company are headed for arbitration at the World Bank’s international center for arbitration of investment disputes, in Washington D.C., said Rodrigo Noriega, a Panamanian jurist.

Marta Cornejo, one of the plaintiffs, said "we are not afraid of any arbitration claim" and that they are "capable of proving that the corrupt tried to sell our nation and that a transnational company went ahead, knowing that it violated all constitutional norms."

In a statement after the verdict, the mining company said it had "operated consistently with transparency and strict adherence to Panamanian legislation." It emphasized that the contract was the result of "a long and transparent negotiation process, with the objective of promoting mutual economic benefits, guaranteeing the protection of the environment."

WHAT WILL HAPPEN WITH THE THOUSANDS OF JOBS CREATED BY THE MINE?

President Cortizo, who had defended the contract arguing it would keep 9,387 direct jobs, more than what the mine reports, said that the closing of the mine must take place in a "responsible and participative" manner due to the impact it would have.

The company has said the mine generates 40,000 jobs, including 7,000 direct jobs, and that it contributes the equivalent of 5% of Panama’s GDP.

The court verdict and the eventual closure of the mine prompted more protests, this time by mine workers.

"We will not allow our jobs, which are the livelihood of our families, to be put at risk," the Union of Panamanian Mining Workers said in a statement.

WHAT WILL BE THE ECONOMIC CONSEQUENCES OF THE EVENTUAL MINE CLOSURE?

Panama two weeks ago received a first payment of $567 million from First Quantum, as stipulated in their contract. Due to the legal dispute, the amount went directly to a restricted account.

The contract also stipulated that Panama would receive at least $375 million annually from the mining company, an amount that critics considered meager.

Minera Panama published a scathing statement on Wednesday saying the Supreme Court decision will likely have a negative economic impact and warned that lack of maintenance of drainage systems in the mines could have "catastrophic consequences." The move, the company said, "puts at risk" all of Panama’s other business contracts.

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What seems to be clear is that the closure will negatively impact the country's public coffers, said Gordón of University of Panama.

The government "had hoped that with that contract it would plug some holes in the nation’s budget, which it will not be able to do now," Gordón said. "The situation of public finances is still reeling from five weeks of semi-paralysis in the country due to the protests".