The canon and its impact
29 September 2018
An increase in mining output and prices in the first half of this year means that the amount of money available to sub-national tiers of government through the canon system has increased. Regional and local governments received 3.1 billion soles from the canon minero. This compares with 1.9 billion in 2017, but is still way below the peak of 5.1 billion in 2012 when world mineral prices reached their peak.
The canon system is a mechanism by which some of the tax paid by extractive industries is returned to those parts of the country in which such industries are operating. It includes rents from hydrocarbons (chiefly natural gas) as well as from mining. It is paid in different proportions to regional governments as well as to municipalities at the provincial and district levels. Over the years, it has provided large financial resources to parts of the country that have historically received little.
However, the workings of the canon system are not free of criticism:
• It produces huge inequalities between recipient areas and those who receive little or nothing. Nearly one-third of this year’s canon minero (1.1 billion soles) went to one region, Ancash. This is where Antamina is based. Most of the canon gasífero goes to Cuzco, where Camisea is sited. Not only are there big inequalities between regions, but also within them.
• The legislation specifies that the bulk of the canon money can only be spent on physical infrastructure, such as roads or buildings. This means that its impact on local development is skewed in this direction. It can be spent, for example, in building schools but not in training teachers or paying their salaries. The same is true in health. The focus on infrastructure has brought major benefits to the construction industry.
• Canon flows have the effect of encouraging corruption and lack of transparency because of the weakness of systems of oversight. Much of the money is directed to areas of the country where such systems are non-existent. Ancash, for example, is a region that has been at the centre of corruption allegations in recent years. Even where there is no corruption, local authorities frequently have difficulty in spending the amounts at their disposal.