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ECONOMY-PERU: Easier to Extract Minerals than Accounting Information

Milagros Salazar

LIMA, Aug 8 2008 (IPS) - Sixty-six percent of the Peruvian state’s revenue from the extractive industries does not appear on government accounts. Parliament is taking a hand in the matter amid pressure from oil, gas and mining companies for the government to flout an international agreement on transparency.

Plans to adopt the Extractive Industries Transparency Initiative (EITI), to which Peru adhered in 2004, are being frustrated by the resistance of a group of extractive industry firms.

Tax revenue from the extraction of natural resources amounted to 7.5 billion dollars in 2007, of which 34 percent was transferred as the “canon minero” or direct financial compensation to the country’s 25 provinces to be used on social spending, while the rest remained in national government coffers and is not clearly accounted for.

These 4.9 billion dollars deserve public scrutiny, according to a multi-party parliamentary working group which wants to change the law regulating the distribution of the “canon minero”, presently shared unevenly among the provinces depending on the amount of mineral resources extracted from their territories.

“These funds must be managed with transparency. If the amounts transferred to the regions are known in detail, why is the fate of the central government funds being kept secret? Government accounts should be open to scrutiny at all levels,” Washington Zeballos, chairman of the parliamentary group, told IPS.

Zeballos says the government of President Alan García is misinterpreting the law on the “canon minero”, which states that 50 percent of tax revenue from the extractive industries must be returned to the provinces, by transferring only 50 percent of the Income Tax paid and excluding other levies, like the Selective Consumption Tax (ISC) and the General Sales Tax (IGV).

That means, he says, that the executive branch is retaining 16 percent of the funds that should be transferred to the provinces.

In compliance with the EITI strategy, the parliamentary working group proposes that the Finance Ministry create an account for these funds, with detailed information on all the revenues and benefits from the extractive industries.

The international EITI initiative was launched in 2001 by then British Prime Minister Tony Blair (1997-2007) to fight corruption by publishing full, regular, publicly accessible accounts of all significant payments made by oil, gas and mining firms to states whose economies depend on exploiting natural resources, and reciprocal accounts from the states detailing how the receipts are spent.

The basic principle is that if companies and the state have to make all their money transfers open to public scrutiny, bribery and corruption will be reduced by the exercise of citizen oversight.

Blair’s proposal has been taken up by Australia, Belgium, Canada, France, Germany, Italy and the United States, among others. In Latin America, Bolivia and Peru have taken the first steps to implement it, although the process is being slowed by the reluctance of some companies to cooperate.

“One group of companies is lobbying against reporting in detail what each contributes, and wants to publish instead only the overall figure for the sector, and the government is giving way on this,” said Epifanio Baca, head of the Vigila Peru (Citizen Watch) section of the non-governmental organisation (NGO) Propuesta Ciudadana.

Baca is a member of the national commission set up in 2006 to drive the EITI transparency proposal, under the Ministry of Energy and Mines, with the participation of the National Association of Mining, Petroleum and Energy (SNMPE) and representatives of NGOs and universities.

The national commission has held regular meetings on the question, but according to its civil society spokespersons, progress has been limited, so much so that Peter Eigen, the head of EITI, sent a letter to President García in October 2007 which indicated that Peru does not qualify as an EITI compliant country.

Recently, the Ministry of Energy and Mines told the other members of the national commission that the most viable way forward was to publish individual tax payment information only in the case of companies willing to do so, on a voluntary basis. Tax information on other companies would be presented in aggregated form, by sub-sector.

“This shows the government’s lack of commitment and laid-back attitude of ‘let’s just do what we can, regardless of the final result.’ If these companies are going to publish what is already known, why should we give them a seal of approval for transparency? It doesn’t make sense,” Baca complained.

For his part, the chairman of the national commission, Deputy Minister of Energy Pedro Gamio, told IPS that “there is willingness to act transparently, but we must respect the law, as the companies are protected by tax secrecy provisions.”

Gamio said that large companies that account for 80 percent of total production have been persuaded to provide detailed information of their tax payments.

“Only small and medium companies are opposed to publication of their individual tax contributions, but they will do so in aggregate,” he said.

EITI also calls for “the reconciliation of tax payments and revenues, applying international auditing standards and reporting their opinion on this reconciliation and any discrepancies that are observed.” The Peruvian state must hire an international firm of auditors to carry out this requirement.

While the EITI expectation is that companies should make public every tax payment they contribute, the deputy minister of energy stated that only the amounts paid in Income Tax would be published, most of which are already known.

Half of this tax is paid as “canon minero” to the provinces where the extractive activities take place, and these amounts are publicly available. In addition, many of the large companies disclose their Income Tax payments on the Internet site of the National Supervisory Commission for Companies and Securities (CONASEV), their regulatory body.

The Peruvian government has earmarked 300,000 dollars for carrying out the audited reconciliation and other activities, such as pilot transparency schemes to analyse the distribution and use of “canon minero” revenues in the provinces of Cajamarca and Cuzco.

But Baca said this money will be wasted unless the state toughens its approach and manages to extract new information.

“We have done everything we can to reach a consensus. A transparency process is under way, begun on an individual basis by the leading companies, and now what needs to happen is to make it official and apply it across the industry,” said Gamio.

Among the large corporations that display their adherence to EITI on their web sites are the mining companies Antamina, Anglo American, Canada’s Barrick Gold, the Anglo-Australian BHP Billiton and Newmont of the United States, and the Spanish-Argentine oil company Repsol.

Antamina’s company spokesman Gonzalo Quijandría said that for the past two years, the company has been publicly reporting its tax payments, because it believes implementing EITI will contribute to building confidence among the local communities where the company operates.

To this end, Quijandría said that the central, provincial and municipal governments should also report “how the money contributed by mining companies is spent.”

Deputy Minister Gamio said that the national government is in favour of this aim, and that the implementation of EITI provides a good opportunity to accomplish it.

The governor of the southern province of Tacna, Hugo Ordóñez, said that it was “necessary to drive the construction of a process of total transparency, because there is a serious crisis of confidence, due to corruption, and demonstrated by the rise of social conflicts.”

Social unrest, especially conflicts between mining companies and local communities, has been growing in frequency and severity in Peru.