Insight: Peru provinces sit on cash from mines; discontent grows

Thu Jun 14, 2012 12:19pm EDT
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By Patricia Velez

LIMA (Reuters) - Peru's provincial governments are sitting on billions of dollars in mining tax revenue earmarked for new roads, schools and water projects - an institutional failure contributing to anti-mining protests nationwide.

Regional and local governments had 9.5 billion soles ($3.5 billion) from natural resources taxes collected over the last decade lying dormant in bank accounts as of December, according to a Reuters analysis of finance ministry data. The swollen coffers represent a fortune in poor provinces where the poverty rate is around 60 percent despite Peru's decade-long boom fueled by minerals exports to a rising China.

Most of the receipts come from mining, though a fraction come from energy or commercial fishing companies.

The central government blames a lack of administrative capacity in the provinces - a polite way of saying incompetence - for the spending shortfalls that contribute to a cauldron of discontent in the hinterlands and feed anti-mining sentiment.

Congress passed a law in 2001 requiring local governments to spend their income from mining taxes on infrastructure projects. It was part of a broader push to decentralize decision-making after centuries of concentrating power in the capital. But failing to comply with the law doesn't carry penalties for rural officials.

Under rules designed to let provinces share in Peru's resource wealth, the central government keeps half of the cash from income taxes it levies on mining companies and distributes the rest, known as the mining canon, to local governments. Peru's corporate income tax rate is 30 percent.

Funds from the canon could help defuse hundreds of conflicts in Peru over the spoils of natural resources. The disputes threaten to halt some of the $53 billion in mining projects planned by the private sector. Mediating the conflicts - there is usually at least one violent protest a month, with several others brewing - has become President Ollanta Humala's biggest challenge.

But none of the 16 regions and local governments within them that receive the mining canon have spent all of their funds in recent years, finance ministry data shows. On average, less than half of the money available to spend in 2011 was spent on sorely needed projects like water, sewage and electricity systems.   Continued...