SOUTHERN PERU COPPER CORPORATION 20. Skilled personnel working at the Maintenance  Workshops and mines ort a , Regarding the smelter emissions, the third phase  of the Ilo smelter modernization has started and  is scheduled for completion by 2007. In July 2003,  the Company awarded Fluor/Xstrata the contract to  provide the technology and basic engineering for the  expansion and modernization of the Ilo smelter. The  selected proposal meets SPCC’s requirements, i.e., us- ing proven technology (ISASMELT from Australia) and  complying with the current environmental regulations.  It is estimated that the construction of the project  will be completed before January 2007, the deadline  established in the PAMA. This represents the largest  capital investment project for SPCC. The cost of the  project was previously estimated to exceed $600 mil- lion. The new estimated cost to complete this project  is $320 million. Since 1995, and while this project is under construc- tion, SPCC is applying an emissions curtail program that  has allowed it to comply with the annual SO$_{2}$ air qual- ity standard (established by the MEM in 1996) in the  densely populated areas whithin the city of Ilo, and has  been able to reduce breaches to the 24-hr air quality  standard for the year 2004 to four episodes. Once the  modernized smelter starts operating, no environmental  risks are foreseen regarding this issue. The Company has sufficient funds at hand to com- mence the project, but significant additional funds will  be necessary for its completion. The Company has an  approved Peruvian bond program of $750 million, of  which $199 million have been issued. There can be  no assurance that the entire Ilo smelter project can be  financed with Peruvian resources. The Company plans  to finance the portion of the cost that is not financed in  Peru with funds from operations or by placing additional  financing in the international market. Two major remediation projects were identified in the  PAMA. One related to the old tailings conveyance and  disposal sites, and the other, to the smelter reverberato- ry slag mentioned above. Environmental commitments  regarding the tailings remediation have been fulfilled,  and the slag program has an 88% completion, as re- ported by the government auditors. In the foreseeable  future, the only reclamation/remediation plans concur- rent with operations are the ones already included in  the PAMA. On October 14, 2003, the Peruvian Congress published  a new law announcing future closure and remediation  obligations for the mining industry. On March 14,  2004, the Peruvian Ministry of Energy and Mines  (MEM) published proposed regulations for this law.  Environmental capital expenditures for the period  2000-2004 exceeded $81 million. The Company fore- The law was amended on May 28, 2004. The amended  law, as published, announced a requirement for exist- ing mining operations to present the MEM with a Mine  Closure Plan, within one year, or before October 15,  2004. Since the regulations have not been approved,  on October 15, 2004, SPCC submitted the MEM a no- tice stating that based on current legislation the Com- pany was unable to make a reasonable estimate of its  closure obligation. It is expected that final regulations  detailing requirements will be published by the second  quarter of 2005, and the Company will be required  to submit its Mine Closure Plan thereafter. The law  requires companies to provide financial guarantees to  insure that remediation programs are completed. The  Company anticipates that, when in force, this law will  increase its asset retirement obligations and require  future expenditures and amortizations over the life of  the mine to satisfy its requirements. The liability for  these asset retirement obligations cannot be presently  measured, or reasonably estimated, based on the pro- posed generalities of this law. The Company is study- ing the impact of the law on its results, but it cannot  reasonably estimate the effect until final regulations  are published. sees significant environmental capital expenditures in  2005. Approximately $171 million have been budgeted  for the smelter project in 2005. SOUTHERN PERU COPPER CORPORATION 21. The third phase of the Ilo  smelter modernization has started  and is scheduled to be completed  by 2007.