Peru-Brazil: Two faces of mining royalties’ debate

Source: Inesc

The economic contribution of mining companies to the countries where they operate, and where these funds actually go, should be of interest to the whole of society, especially movements and organizations that are fighting for social and environmental rights. Peru, the world’s biggest producer of silver and the second of copper and zinc, signed last week an agreement with mining enterprises to levy a tax on the exceptional profits these companies are making.

The yield will contribute an additional 1.1 billion dollars a year to the Peruvian treasury. For the foreign mining enterprises, which include the Brazilian corporations Valle and Votorantim Metales, the agreement comes as something of a relief since they were expecting to have to pay much more, says the Brazilian publication Valor Economico, partly because the international prices of these metals have gone up.

For Alessandra Cardoso, a consultant from the Institute of Socioeconomic Studies (Inesc, one of the focal points of Social Watch), in Brazil this does not seem to be a priority question and the debate is confined to experts in government circles.

In an article on the Inesc website, Cardoso said the Peruvian measure is important for regulating the mining sector in Peru and is a move towards linking these contributions to financing social expenditure geared to reducing poverty, a situation that affects nearly half of the country’s 30 million inhabitants.

In the weekly Alternativas al Extractivismo in Lima this year, the Peruvian economist Javier Iguiñiz said that the economic development model implemented by the then president Alan García depends on excessive exploitation of the country’s natural resources and that it should be replaced by another model that would benefit the majority of the population.

Mining enterprises should cooperate much more with taxes, foreign exchange and technology, which should be used not only in the cities, which is what normally happens, but also in rural areas and to support small and micro-enterprises.

Iguiñiz concludes that we Peruvians "…are hardly considered when it comes to using these resources or sharing them with our own society”, and this amounts to “…selfishness as regards the distribution" of these goods.

As for the situation in Brazil, Cardoso says, "Unhappily, the debate about the returns for society" of the profits from mining firms "Does not yet seem to be a priority subject. During the election campaign the presidential candidate Dilma Roussef made a commitment to review the regulatory framework of the mining sector, and this would include increasing the royalties", which in this country are "…among the lowest in the world".

But Cardoso commented, "Now, eight months into the new administration, discussion of this matter seems to be restricted to a small committee. “On one side the mining companies comprise a powerful lobby striving to keep the rules of the game unchanged and maintain their flow of astronomical profits, and on the other side the Government is still wavering, but there is no pressure from society to force it to take a stronger position.” According to the Inesc consultant, “It is in this context that a promised bill for remuneration for the exploration of natural resources has not yet come before Congress".

However, Cardoso says there is "public debate" at the Secretariat of Geology, Mines and Mineral Transformation of the Ministry of Mines and Energy, but that it is "very selective", and aimed at a "new model" that would mean "A fairer distribution of the wealth that mining produces, and also a stimulus for the development of productive regions".

"This question should be of interest to society as a whole, and particularly to movements and organizations that are fighting for social and environmental rights", at a time when the profits from mining are soaring. Between January and June of this year profits jumped by 131.4% more than in the same period in 2010. "But just increasing the royalties paid does not amount to progress in this area, it is also essential to re-negotiate how these resources are distributed and what they are used for, which means how they should be shared among the member states of the federation, what the priorities for using them should be, how the process can be made more transparent and how civil society organizations can monitor where these funds go."

Cardoso added, "The alternative is that things will remain as they are today with these resources concentrated in a few municipalities and applied without transparency or any commitment or guarantee of (or respect for) the human rights…” of communities.

"The social and political context in Peru, where regulation of the sector is being discussed and attention is focused on the return this wealth can yield in terms of concrete goals like reducing poverty, is an excellent opportunity for us to discuss the conditions under which we will allow our natural resources to be exploited. We are letting an opportunity slip away to link this debate to a wider debate about the need to increase social investment and preserve the environment and our enormous biodiversity.”

More information:
Plan to increase mining royalties criticized, in Portuguese:
Latin America: Extractivism, an illusion of development, in Spanish: