- Foreign investors in Honduras have “extraordinary privileges,” allowing them to sue the government for reforms that affect their investments, hindering public interest legislation, a recent report has found.
- Honduras faces billions of dollars in lawsuits from corporations, many tied to controversial investments made after the 2009 coup, creating a deterrent effect on the government’s ability to make sovereign decisions and making it the second-most-sued country in Latin America over the period of 2023 to August 2024, after Mexico.
- Some local communities in Honduras are divided over foreign investment projects, with several expressing resistance due to concerns about their impact on the environment and land rights.
- Honduras’ recent energy reforms and mining bans are facing backlash and legal challenges, as foreign corporations resist changes aimed at protecting natural resources and human rights.
Foreign investors in Honduras enjoy “extraordinary privileges” that hinder the government’s ability to implement reforms that could benefit human rights and the environment, a report has found. These advantages allow corporations to sue the Central American country for policy changes that allegedly harm their investments using controversial investor-state dispute settlement (ISDS) mechanisms, resulting in a surge of lawsuits amounting to billions of dollars.
The report from the Institute for Policy Studies, the Transnational Institute, TerraJusta and the Honduras Solidarity Network reveals that the impact of these legal disputes creates a “chilling effect,” otherwise known as a “deterrent effect,” in which the state may be discouraged from enacting public interest legislation due to the costly risk of liability under investment agreements.
“The lawsuits directly undermine the government’s ability to listen to local communities and make sovereign decisions about protecting their land and resources,” Karen Spring, coordinator for the Honduras Solidarity Network and co-author of the report, told Mongabay.
The ISDS provision allows private sector lawyers to determine whether countries are treating foreign investors fairly. The report says that many lawsuits in Honduras stem from companies that made questionable investments after the 2009 coup d’état, with around a third of the investments facing significant resistance from affected communities.
ISDS is a controversial mechanism that companies across the world are increasingly using to sue governments for policies that may impact their profits, often with harmful consequences for environmental protection and human rights. In a 2023 report, U.N. human rights rapporteur David Boyd described ISDS as “a major obstacle to the urgent actions needed to address the planetary environmental and human rights crises,” noting that such cases contribute to a “regulatory chill,” discouraging governments from enacting stricter regulations.
“These [lawsuits] are an incredible amount of money that would absolutely erode what Honduras has available for health, education, infrastructure and other public investments,” Jen Moore, associate fellow at the Institute for Policy Studies and co-author of the report, told Mongabay.
A $10.8 billion lawsuit
The island of Roatán is at the center of the largest pending lawsuit against Honduras, sparked by government reforms to the employment and economic zones (ZEDEs) that threaten the U.S.-based Honduras Próspera’s “startup city” project. Established in 2013 to attract foreign investment, ZEDEs operate under the Honduran Constitution but enjoy extensive legal, tax and administrative autonomy, a situation that has fueled significant controversy.
During President Xiomara Castro’s electoral campaign before she was elected and took office in January 2022, she vowed to eliminate ZEDEs. Her promise led to their repeal in 2022 and a Supreme Court ruling in September that declared them unconstitutional, a decision applicable retroactively back to 2013.
“Justice for the Honduran people,” Castro wrote on X in light of the Supreme Court’s decision, “means not selling off pieces of our territory nor privatizing our sovereignty.”
Próspera ZEDE is an economic development zone in Honduras created to attract investment and boost job growth. It functions as a free trade zone with government oversight but is managed by the private company Honduras Próspera Inc. through a U.S.-based system. The setup encourages both local and international businesses, with more than $120 million in U.S. private investment reportedly drawn so far, according to a Próspera statement sent to Mongabay.
The project has become a source of division. Some members of Crawfish Rock, a community of a few hundred people in Roatán, were unaware of what a ZEDE was before development and consider it a dispossession of land, according to the report. Social tensions have risen between supporters of the projects and those focused on protecting the environment, Spring said. Meanwhile, Honduras Próspera said in a statement sent to Mongabay that support for the ZEDE outweighs opposition 4-to-1, claiming opposition comes from a “tiny, politically connected elite” within the community.
The impact of government reforms on existing ZEDEs is still unclear, but they have already faced a costly backlash. Honduras Próspera, which has invested significant sums into the project and has a 50-year legal stability guarantee, is seeking to sue the government for unfair treatment, claiming $10.8 billion, plus costs, which amount to at least $5 million per lawsuit.
In an emailed statement to Mongabay, Nick Dranias, the general counsel of Honduras Próspera, predicted thousands of human rights complaints may be filed to challenge the ruling, along with numerous trade treaty arbitration claims.
“Honduras remains the master of its fate,” he wrote. “If Honduras proceeds with what clearly constitutes indirect expropriation of investments, and the violation of the human rights of thousands of Honduran workers and international investors, just compensation is what will be due.”
A procession of lawsuits
In the past two decades, corporations have filed 19 ISDS cases in Honduras, with nearly all of them in the last two years. In 2023 alone, Honduras faced nine claims, and by August 2024, another five cases had been added, coinciding with Castro’s administration. This made Honduras the second most sued country in Latin America over that period (after Mexico). The 15 pending lawsuits total nearly $14 billion — about 40% of Honduras’ 2023 GDP — posing a significant threat to one of the poorest countries in Latin America.
Claimants, primarily from the U.S. (four), Europe (six) and Latin America (nine), including Panama, Guatemala, Mexico and Colombia, are mostly in the finance, real estate, energy and transportation sectors.
The report describes these lawsuits in Honduras as “mafia-style” and links them to the concept of “odious debt,” which holds that debts acquired from prior problematic regimes shouldn’t burden the people.
“It’s unfair that Hondurans should have to pay for these bad deals and bad policies that were struck under such irregular and corrupt and repressive circumstances after the military [regime] back in 2009,” Moore said.
Recent energy sector reforms
In 2022, Honduras passed a new energy law that aims to increase state control over the electricity sector that has been dominated by political-entrepreneurial groups since the 1990s and help reduce soaring energy prices, among the highest in Latin America.
These reforms, however, generated uncertainty among private energy generators over future energy production, prompting Norwegian investors Scatec, Norfund and KLP to file two lawsuits against Honduras related to the Agua Fria Solar Energy Park in Valle and Los Prados Solar Energy Park in Choluteca, totaling together $400 million plus costs.
The report states that the Los Prados project was rejected by the local population, and community leaders have faced persecution and criminalization for years for their opposition to the solar park. Furthermore, locals complain of environmental damage and restricted access to their land and crops due to hostility in the area.
One local woman was cited in the report as saying that the solar companies Scatec and Norfund “buried the water sources. That’s been the hardest part for us — there’s not enough water to bathe, especially with all the heat here.”
Denia Castillo, a lawyer with the Network of Women Human Rights Defense Lawyers (RADDH), who is working with communities impacted by the solar projects, told Mongabay that negotiations between the companies and the government focus on lowering tariffs rather than canceling the contracts altogether. So far, RADDH and local communities have filed 33 complaints against public officials, citing alleged irregularities in the approval process for these contracts.
According to Castillo, the communities call for cancellation of the contracts and oppose the project. “The people feel completely let down by the government because it has not wanted to listen to them, but [instead] it is negotiating with the company,” she said.
Scatec, KLP and Norfund didn’t respond to a request for comment for this story.
A delayed ban on open-pit mining
As part of Castro’s green agenda, she announced in early 2022 that no new permits for open-pit mines would be issued. This common mining method involves digging large holes and can devastate ecosystems by clearing vegetation and displacing soil. A month later, the Secretariat of Energy, Natural Resources, Environment and Mines (SERNA) declared all of Honduras free of open-pit mining and pledged to review, suspend and cancel related permits.
Yet despite the government’s announcement, Canadian mining company Aura Minerals, with controversial operations in Honduras, noted in a press release that SERNA’s minister later clarified that the government would focus on unregulated mining, allowing companies with valid operating permits to continue their activities. In response to Mongabay’s request for comment, the company replied, “Aura Minerals states that its Minosa [a subsidiary of the company] operation in Honduras holds all the necessary licenses and permits to operate and maintains its activities are in compliance with current legislation.” The extent of the mining ban remains uncertain.
Experts in the report suggest that the shift from an outright ban to allowing exceptions may be due to weakening commitments to avoid potential lawsuits. To date, the mining industry has not made any arbitration claims at the World Bank’s International Center for Settlement of Investment Disputes (ICDID) against Honduras in relation to the country’s policies on open-pit mining.
“A threat is sometimes as effective as an actual arbitration suit,” Moore said. “It makes public officials think twice about whether or not they would follow through on a [reform] decision.”
According to the report, this could be behind the delay in halting the open-pit iron oxide mine and associated installations linked to the Inversiones Los Pinares mining company (previously known as EMCO Mining and owned by EMCO Holdings) with operations in Tocoa in the department of Colón.
The Los Pinares mining operations in Carlos Escaleras National Park have been accused of causing water shortages and pollution in the Guapinol and San Pedro rivers, vital for 42,000 people, and endangering local ecosystems, according to the humanitarian organization Trócaire. Trócaire also links the project to human rights abuses, including the killing, criminalization, and imprisonment of community members defending their water sources. This includes the recent killing of local environmental defender Juan López, who was shot dead in September. Following his death, U.N. experts called for an independent investigation into potential involvement by businesses and politicians.
López was one more victim in a string of killings of activists in the region. There have also been at least 32 people criminalized by Inversiones Los Pinares for defending Carlos Escaleras National Park, according to an Amnesty International report.
“It’s … absolutely scandalous that asymmetry between corporate power and what people have access to, to defend their very basic rights,” Moore said. “It’s just so starkly on display in this case and with this slew of arbitration cases since 2023.”
EMCO Group (to which Los Pinares belongs in the iron and steel division) didn’t respond to Mongabay’s request for comment for this story.
Next steps
In February, Honduras began its exit from the World Bank’s International Center for Settlement of Investment Disputes (ICSID), which handles the suits against the country — a move praised by researchers who argue ICSID membership isn’t essential to attract foreign investment.
Experts argue it’s not enough. The report calls on Honduras to revoke investor privileges in treaties, laws and contracts and fully repeal the 2013 constitutional reforms that enabled ZEDEs. The authors also contend it’s unjust for the Honduran people to bear the cost of compensating transnational corporations amid widespread local resistance.
“[The ISDS mechanism] is a system that should be abolished,” Moore said. “It is catastrophic for policies and decisions in the public interest, in the interest of affected communities, and that repeatedly is serving very narrow profit-based interests of investors at the expense of people.”
Banner image: The Carlos Escaleras National Park has long been at the center of community efforts to protect it from mining activities, which has reportedly caused environmental damage and led to social conflicts and violence. Image via the Comité Municipal para la Defensa de los Bienes Comunes y Públicos de Tocoa (Municipal Committee for the Defense of the Common and Public Goods of Tocoa).
