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PERU: Beggar on a Throne of Gold

by Milagros SalazarInter Press Service (IPS)
August 23rd, 2006

Mining companies operating in Peru are seeing increasing millions in profits as a result of the surge in international prices for metals, but few are contributing what is needed to alleviate the poverty of the people living in mining areas.

President Alan García, who took office Jul. 28, promised during his electoral campaign to renegotiate the contracts in the mining industry. But now he appears willing to accept "voluntary contributions" to social investment, with sums as yet undefined.

In the northwestern Peruvian region of Cajamarca is Latin America's leading gold mine, run by the Yanacocha company in partnership with the U.S.-based Newmont and Peru's Buenaventura. But the paradox is that this booming mine is located in an area where 74.2 percent of the population lives in poverty.

The world's fifth producer of gold, second in silver, third in copper and zinc, and fourth in lead, "Peru is a beggar seated on a throne of gold," according to a popular local saying. Peru is among the countries in the region with highest poverty rates.

Nationwide, 51 percent of Peru's 27 million people are poor, and 24 percent live in extreme poverty, according to the national institute of statistics, INEI.

In the last two years, metal prices have shot up: copper 111 percent, gold 42.5 percent, and silver 65.5 percent. But the increased revenues for the companies did not do much for the communities around the mines. Local residents complain that mining operations are contaminating their rivers and lakes, and they demand that the government step in to force the companies to answer for the harm caused to the environment.

In the southern city of Cusco, where the British-Australian company BHP Billiton Tintaya operates (the third leading copper producer in Peru, after Antamina and the U.S.-based Southern Peru), 59.2 percent of the 1.17 million residents are poor, according to INEI.

In the western region of Ancash, despite the gold produced by the Canadian firm Barrick Gold, 55.3 percent of the population is poor, and 23.4 percent is extremely poor.

In addition to the price hikes for gold, silver and copper, in the last two years, according to the economic news agency Bloomberg, the prices have increased for zinc by 150 percent, lead 36.5 percent and tin 15 percent.

To begin to resolve these inequalities, President García had promised to renegotiate the mining contracts and to implement a tax on the companies' profits.

But the issue suffered a lukewarm response in the recently begun negotiations. The head of the Council of Ministers, Jorge del Castillo, confirmed for Tierramérica that only a "voluntary contribution" from the mines was deemed acceptable, because of contracts of "juridical stability" signed during the Alberto Fujimori government (1990-2000), some of which are still valid.

Those contracts froze the payment of taxes. And, according to the mining executives, the obligation to pay royalties -- recently established in 2004 -- should be exonerated because they should be considered a form of taxation.

Nevertheless, that year the Constitutional Tribunal ruled that the royalties are compensation for exploiting the country's non-renewable resources, and, as such, should be paid.

In 2005 alone, it is estimated that the government failed to receive royalties totaling nearly 158 million dollars because the mining companies claimed legal refuge in the stability contracts, according to Tierramérica's conversations with former presidential candidate for the Socialist Party, Javier Diez Canseco, and experts from the consortium of non-governmental organisations Propuesta Ciudadana.

The Ministry of Energy and Mining says that 25 of the 27 major mining companies with juridical stability contracts do not pay royalties. Among them are Yanacocha, BHP Billiton Tintaya (which is already paying a voluntary contribution based on its profits), Barrick Gold, Cerro Verde and Antamina.

There are another 40 companies, most of them smaller, that do pay royalties. The big mining firms Buenaventura, Shougang and Southern Peru are also paying -- their stability contracts expired in 2005.

According to officials, from 1996 to 2002 the mining companies paid about 682 million dollars in income taxes.

Between 2002 and 2006, Yanacocha saw its net profits increase 225 percent, according to the National Oversight Commission of Stock Companies. In the first half of this year, profits shot up from 210 million dollars to 681.5 million.

Unofficial data indicate that the company may have offered the government a voluntary contribution of a relatively small sum of 20 million dollars a year.

Adding together the net profits of the five major foreign mining companies so far in 2006, the total reaches 2.76 billion dollars. But ministerial chief Jorge del Castillo said that the "juridical stability cannot be threatened and a middle ground must be reached in the negotiations with the companies."

The president of the National Society of Mining, Petroleum and Energy, Carlos del Solar, told Tierramérica that in the next few days the executives will present a proposal for the voluntary contribution, to be announced publicly Aug. 24 by Del Castillo in his first address to Congress.

"We are aware of the great social pressure existing today, but the business sector has also carried out many public works, and cannot solve everything," said Del Solar.

For the representative of the Mining Society and the general manager of the U.S.-based Hunt Oil of Peru, one of the operators of the multi-million-dollar Camisea natural gas project, the government should better manage the resources it obtains in order to mitigate social discontent.

He was alluding to the approximately 300 million dollars that were frozen in 2005 in bank accounts in the name of regional and local governments, according to the Ministry of Economy.

The mining companies and the national government charge that this money was not invested because the local and regional authorities could not support projects for carrying out public works. But those governments, in turn, say that the National System for Public Investment does not attend to their proposals with due speed.

Between 2001 and 2005, the contributions through fees and royalties increased five-fold due to the hike in international prices for metals. The Ministry of Economy estimates that in 2006 the regions will see about one billion dollars through this channel.

Amidst the bonanza numbers and the negotiations, conflicts between the mining sector and the local communities are heating up. Earlier this month a peasant farmer died in the town of Combayo in a clash with the police and the Yanacocha security guards. His death is being investigated. The rural workers of the area have declared themselves on war footing.

(* Milagros Salazar is a Tierramérica contributor. Originally published Aug. 19 by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme and the United Nations Environment Programme.)



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