But Southern, citing low international copper prices and other factors, had requested late last year that the project be completed in 2007 rather than 2004 as proposed, he said.

"The answer was no because the truth is it seems like we are being given a runaround," Polo told Reuters in an interview.

"We understand Southern's financial situation but the environmental situation of the country and Ilo must also be taken into account," he added.

Officials at Southern Peru did not return phone calls asking for comment.

In late November, Southern President Oscar Gonzalez said Southern was in conversations with the government to revise the proposal for the smelter modernization, including a cutback in the planned capacity for the smelter.

Southern is Peru's second largest copper producer and one of the world's 10 largest copper producers. In the first 11 months of 2002, Southern produced 310,682 tonnes of fine copper up 0.63 percent from a year earlier.

Luis Alberto Sanchez, the ministry's assistant director of environmental affairs, said Southern can submit another proposal but "it needs to be better than the last one."

Under environmental legislation approved in 1996, Southern was required to modernize the decades-old smelter within 10 years to capture 92 percent of sulfurous gas emissions.

Under Grupo Mexico (GMEXICOB.MX) ownership since 1999, Southern revised that plan in 2001 and proposed to meet the requirement in one stage rather than the two stages originally planned, moving up the completion date to 2004.

"We accepted this because we considered that it was beneficial for the country," Polo said.

SOUTHERN PLANS TO SCALE BACK EXPANSION

Late last November Southern Peru president Gonzalez told a small group of reporters the company planned to scale down the $600 million smelter modernization and was still studying proposals regarding the technology to be employed.

Gonzalez said Southern now foresaw a smelter capacity for 1.5 million tonnes of concentrates annually rather than the originally planned 1.83 million tonnes. Southern's smelter currently processes 1.2 million concentrates annually.

He added the decision to reduce smelter capacity was due to a scarcity of copper concentrates and excess smelter capacity worldwide.

Lower copper grades, a recent upturn in copper consumption and production suspensions, like at Peru's BHP Tintaya, owned by BHP Billiton, had reduced the availability of copper concentrates, he said.

Southern also hoped to reduce the level of investment planned for project, Gonzalez said.

"They (Southern) are revising the planned increase in production," Polo said in the Reuters interview Monday. "This is business management issue but the environment is an issue that comes under our management."

SOUTHERN MONITORS POLLUTION LEVELS

In order to mitigate pollution until the environmental program (PAMA) is complete, Southern says it has a program under which it reduces production at certain times of the year when weather conditions are such that pollution in Ilo will exceed permissible limits at customary levels of output.

Although the number of days per year in which these limits are exceeded has been reduced to six days from 35, this program is not a substitute for the environmental improvement program, Sanchez, the ministry's assistant director of environmental affairs, said.

Once the PAMA is complete, the permissible limits for gas emissions will be lower than the current level, he said.

"They are pledged to a PAMA... they can't allege that lowering production is going to solve the problem," Polo said.