Reflections on the mining boom

14 November 2015

After a boom decade, what has mining brought Peru? This is the question posed by a new publication by Grupo Propuesta Ciudadano launched on 10 November. This brief study addresses a number of issues on which a certain amount of myth-making has been based. As the commodity super-cycle ebbs, it is certainly an issue for citizens and policy makers alike.

The study concludes that the wealth derived from mining and hydrocarbons was not adequately socialised by the Peruvian state, particularly in the early years of the boom. The special tax introduced by Ollanta Humala in 2011, the year that mineral prices began their decline, was too little, too late.

It argues that the resources appropriated by the state through taxation were very unequally distributed. This is because of the design of the canon system that channels resources disproportionately to regions (and provinces and districts within them) that produce minerals and hydrocarbons. Although there have been some corrective instruments introduced to iron out this disproportionality, the way this has been carried out by the Ministry of Economy and Finance (MEF) lacks transparency.

Further, it claims that the canon system has helped generate an unhealthy dependence among subnational governments on canon payments, reducing the pressure on local administrations to maintain their own local sources of tax revenue. The sudden reduction in canon funding has had very negative impacts on those regions, like Ancash, Cuzco and Moquegua, which had become most dependent on it.

The report says that it is something of a myth that canon resources have been spent mainly on white elephant projects. However, the problem remains, both in the case of national as well as regional government, that the quality of spending has been deficient and that a proportion of the money has been syphoned off through corruption.

Equally, it claims that it is a myth that subnational government has been unable to manage the resources properly. This has been a learning process, and the proportion of resources actually spent has increased since 2009.

The report also picks up on what it sees as the ‘privatisation’of spending. By this it refers to public-private partnerships (PPPs) and the scheme known as Obras por Impuestos (by which extractive companies undertake investment projects in lieu of tax payments). Obras por Impuestos only began in 2011, and the report argues that investment under such schemes tends to be more expensive and that spending lacks transparency. By far the largest two participants in the scheme have been Southern Peru (mining) and the Banco de Crédito (finance).

The report highlights the massive expansion of mining and hydrocarbons concessions, principally in the Andes and the Amazon jungle, since 1992. The area given in concessions multiplied elevenfold between 1992 and 2014. As much as 70% of the surface area of the Moquegua region, for instance, has been concessioned. Often clashing with community ownership, the system of concessions has been a very disorderly process that has generated much conflict.

Finally, the report picks up on improvements in transparency. It claims these have come about partly as a result of Peru signing up to the Extractive Industry Transparency Initiative (EITI), but notes that there are still significant areas in which transparency is lacking. These include social spending by extractive companies and spending related to honouring promises made in Environmental Impact Assessments (EIAs).

The report can be accessed at:
http://www.propuestaciudadana.org.pe/sites/default/files/publicaciones/archivos/Al%20final%20de%20una%20d%C3%A9cada%20de%20boom%20%20Qu%C3%A9%20le%20dej%C3%B3%20la%20miner%C3%ADa%20al%20Per%C3%BA%20%20Balance%202004-2014.pdf

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