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On his desk in Lima, Peru’s Minister of Mining, Ivan Merino, has a list of criteria that mining companies must meet if they are to continue operating under the president’s new left-wing government. Pedro Castillo.
Some relate to economic matters, others to environmental regulations, labor laws and community relations.
“If you meet every requirement, you get a mark,” Merino says, putting his thumb and forefinger together and tracing the check mark in the air. “If you return your scores and meet all the requirements, we will not only allow you to work here but we will support you.”
Such as The Castillo government settles into powerNo sector is more important to the income stream than mining. Industry accounts for 60 percent of export earnings in Peru, the world’s second largest producer of copper and an important exporter of gold, silver, zinc, tin and iron ore.
Multinational companies such as Anglo American, Newmont, Glencore and Freeport-McMoRan operate, as well as China-controlled companies including MMG Ltd and Chinalco and local mining companies such as Buenaventura.
The Castillo government says the sector should contribute more to paying for education and health expenditures, but it is unclear how much more. In a notorious document published last year, the Free Perú – the Marxist-Leninist party that propelled Castillo to power – said miners should hand up to 80 percent of their profits and warned that if they refused, “the state must go ahead with nationalization.”
Since then, Castillo has unveiled a A more moderate plan for the government But it is proposing a “new tax on profits” for mining companies and “an end to tax credits”.
“We must nationalize our wealth, that is, make it serve the Peruvians, with new rules for taxes and royalties,” she says.
Merino told the Financial Times that the government was still evaluating these changes. He hoped to have a clearer idea of the new tax system “within 100 days” and that Peru, with regard to royalties, “will employ the best practices used in other countries”.
Peruvians are watching the neighborhood Chile Carefully. There, there is legislation before the Senate that requires copper miners to pay royalties on a graduated scale linked to the price of the metal. When it goes above $4/lb — as it did this year, hitting a record $4.76 in May — royalties can be as high as 75 percent of sales.
In Peru, this year, driven by higher commodity prices, the mining sector says it will contribute about $3 billion in taxes and other payments to the state — a record figure and more than double what it was in 2019, before the pandemic.
“We are at our limits,” said Pablo de la Fleur, president of the National Federation of Mining, Oil and Energy of Peru (SNMPE). We pay eight different taxes and fees, between which they take nearly 50 percent of the profits the companies make. This is a heavier burden than in any of the mining countries we compete with.”
During the five years of Castillo’s presidency, he said, mining is likely to save the state more than $20 billion. “Never before has he generated so much in a single five-year period.”
Miners say the problem is not how much money they generate but how it is spent or not spent locally. Once they pay the corporate tax, the central government redistributes half of it to the local and regional governments. SNMPE estimates that only 61 percent of that half is ever reinvested.
Castillo says he wants to renegotiate the tax stability agreements companies signed with previous administrations. These contracts give companies a long-term view of their obligations and are essential for investment.
MMG Ltd, a subsidiary of China Minmetals Corporation, has a tax stability agreement in effect until 2030 at its massive Las Bambas mine in the high Andes near Cusco. Chinalco has a similar deal in its Toromocho mine through 2028. Anglo American and Japan’s Mitsubishi, which are building the $5.3 billion Quellaveco mine in southern Peru, have an agreement through 2037. These companies will be reluctant to renegotiate these deals.
While trying to raise more money from the miners, Castillo also has to play for his electoral base. Many of those who voted for him in June elections They are from poor, remote mining regions in the Andes and their expectations of wealth redistribution are very high. They want the government to fulfill its campaign promise of “no more poor people in a rich country”.
“Here in Chumbevelcas, nearly 97 percent of us voted for Castillo,” said Wilbur Fuentes, the leader of the protests against the China-owned Las Pampa mine. Local farmers say the constant convoys of trucks leaving the mine on a dirt road generate clouds of dust that destroy their crops.
Days after assuming the presidency, Castillo sent his Prime Minister Guido Peledo to the Chumbivilcas to resolve the dispute. The farmers agreed to halt their protest for 60 days while a solution is found. “We are all supporters of Pedro Castillo, but if we don’t see any progress at that time, we will start demonstrating again,” Fuentes warned.
Likely to include the next few months Tax tug of war Between the government and the mining lobby, with the government insisting the proposed changes are long overdue.
“As President Castillo says, Peru is a rich country,” Merino said. “We will make sure that this wealth reaches the people.”