Fiscal transfers and challenges to local public
management in mineral economies:
canon minero transfers and conflicts in Peru
Javier Arellano Yanguas
24th October 2008
London
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Funded by
Outline
1.
Relevance of sub-national level analysis
2.
The Peruvian case
3.
Social conflicts and mining in Peru
4.
Selection of regions for the research
5.
Analysis of conflicts in Peruvian mining regions
Relevance of sub-national level
analysis I

Academic debate about “resource curse”
theories to date has predominantly focused on
the national level: curses are understood as
malfunctions in national economies and polities.

The past 15 years have seen changes in polities,
three of which are particularly important:

a)
Decentralisation of authority from national to
sub-national levels of government
b)
Wider scope for citizens’ participation
c)
More cooperation between state agencies and
commercial organisations
These measures constitute a widely accepted
and promoted “good governance” agenda.
Relevance of sub-national level
analysis II

Simultaneously, international institutions and the mining industry have
adopted decentralisation, popular participation and public-private
partnership, complemented by the Extractive Industries Transparency
Initiative (EITI), as a new natural resources policy agenda (NNRPA).

Analysis of political dynamics at the sub-national level is crucial to the
understanding of how this agenda works.

The Peruvian case is a paradigmatic example of the implementation of
this agenda:
a)
Incipient political decentralisation in combination with canon minero;
b)
Participatory budgeting and other participatory schemes;
c)
Growing involvement of companies at the local level;
Relevance of sub-national level
analysis III

In the context of a weak Peruvian central state
and weaker local governments, the
implementation of the NNRPA has relocated the
resource curse to sub-national level. Thus, local
governments, mining companies and a variety of
local actors are locked into complex relationships.
The Peruvian case: some figures

In 2007, more than 67 % of the total canon transfer was concentrated in
just 6 out of 25 regions (Ancash, Cajamarca, Cusco, Moquegua, Pasco and
Tacna), accounting for a mere 16 % of the country’s population.

Due to massive increases in the canon minero’s monetary value, these six
regions, along with their local governments, received more than 52 % of
the total revenue transferred by the central government to the local level
for investment.

While the country on average allocated approximately nuevos soles 426
($USD 152) per capita for decentralised public investment, mining
regions received this figure several times over.
Social conflicts and mining

Do mining regions take advantage of these
transfers? Are they in a comparatively better
position? Apparently not:
a) They suffer from more frequent social
conflicts.
b) Public investment is inefficient and not
designed to promote development.

I will focus mainly on the conflict side.
Selection of regions for the research I

I selected three regions out of the six receiving the greatest amount of
canon minero transfers (it guarantees the importance of current mining
activities).

Regions with the most municipalities exhibiting two concurrent features:
a) In receipt of more than nuevos soles 1,800 per capita of fiscal
transfers
b) Their population is over 3000

This selection allows research of both the nature of conflicts and the
dynamics around public investment at local level.

According to these criteria, I selected Ancash (eight municipalities);
Moquegua (five municipalities) and Pasco (nine municipalities).

I undertook field research from the 1st of April to 29th of September
(2008)
Selection of regions for the research II

The importance of mining is the feature common
to the three regions.

However, the three cases are dissimilar enough to
make them a representative sample of Peruvian
mining regions.

The following tables give some relevant statistics
that characterise these regions and the companies
operating in them.
Region
Area
(Km2)
Population*
Mining as a percentage of regional
GDP**
2005
2006
Rural
population*
Poverty*
2007
Ancash
35915
1,063,459
39.4
49.2
48.6
36 %
42.6%
Moquegua
15734
161,533
36.1
37.0
43.1
15 %
25.8%
Pasco
25320
280,449
59.3
72.1
74.3
38 %
63.4%
* Data for 2007; ** Current prices
(Instituto Nacional de Estadística e Informática - Perú, 2008)
Companies operating in the three regions
REGION / Mine
Owners
Commencement
year*
Type
Minerals
Size
Expected
lifespan**
Employment***
Direct
Services
1,700
2,500
ANCASH
Antamina
BHP Billiton 33.7%
Xstrata 33.7%
Teckcominco 22.5%
Mitsubishi 10%
2001
Open pit
Cu , Zn
Very
large
Over 25 years
Pierina
Barrick
1998
Open pit
Au
Medium
Closing
440
450
Southern CC
Grupo Mexico
1976
Open pit
Cu
Large
Over 20 years
1,500
500
Quellaveco
Anglo American
Awaiting social
license
Open pit
Cu , Mb
Large
Over 30 years
1,500
MOQUEGUA
PASCO
Cerro de Pasco
Volcan
1903
Underground
Open pit (1956)
Zn, Pb, Ag
Large
Long term****
1,230
1990
Brocal
El Brocal
1956
Open pit (1993)
Zn, Pb, Ag
Medium
Long term
275
600
Huarón
Pan American Silver
1912
Underground
Ag, Zn
Medium
15 years
812
570
Atacocha
Atacocha
1937
Underground
Zn, Ag,, Pb, Cu
Medium
8-10 years
390
---
Milpo
Milpo
1949
Underground
Zn, Pb, Cu
Medium
8-10 years
300
600
In some locations, mining activities started before the involvement of the present company; ** According to direct company information or estimated through reserves and
production; *** According to company information; **** Dependent on current negotiation with population and authorities.
Sources: Company annual reports and personal interviews with employees.
Social conflicts and mining I

The analysis of conflict around mining in Peru has largely focused on a
handful of emblematic cases: Tambogrande, Majaz, Cajamarca, Tintaya...

Most of them share two features:
a) They are conflict between the mining companies and the local
population.
b) The local population (or a significant part of it) challenges the
existence of the mining operation or its expansion.

I argue that the mining bonanza has exacerbated other types of conflicts.

I put forward a typology of conflicts that helps to explain their recent
increase in Peruvian mining regions and their alignment to canon
minero transfers.

My classification includes groups and several subgroups:
Social conflicts and mining II
1.
2.
Conflicts between local population/communities and mining companies:
a)
Conflicts aiming to stop the construction of new mining operations
or the expansion of currently operating ones.
b)
Conflict as a communal tactic for the preparation of a negotiation
process with the company.
Conflicts over the control and use of mining revenues:
a)
Conflicts between the local population and local authorities
b)
Conflicts between different levels of government
c)
Conflicts over the control of territory
d)
Labour conflicts
Social conflicts and mining III

Conflicts aiming to stop the construction of new mining operations or the
expansion of currently operating ones :

These have been the most studied.

They occur where and when there is a viable economic alternative to mining
(real or perceived) and the population thinks that this is incompatible with
mining (Tambogrande, Cajamarca, Majaz, Condorhuain, Quellaveco).

Economic viability means connection to the marketplace: usually, proximity
to a city or town provides the critical mass of people necessary for the
conflict to be successful.

A wide array of actors (local, national and international) frequently becomes
involved in this kind of conflict.

This kind of conflicts has not increased in proportion to mining investment.
Agriculture and farming must now compete not only with economic
opportunities around the mine (reduced ones), but also with the popular
expectations of getting a job in the public works financed by canon minero
transfers.
Social conflicts and mining IV

Conflict as a communal tactic for the preparation of a negotiation process with
companies

These form the majority of the conflicts involving local communities and small
towns around mines.

Different motives trigger these conflicts:
1. In the context of a mining bonanza companies use profits to expand their
operations. They need to negotiate with local communities to obtain land
and water. Local communities employ the conflict to reinforce their
position in the negotiation process (Rancas, Cerro de Pasco, Huallay,
Juprog).
2. The non-fulfilment of company promises and previous agreements:
(peasants’ communities around Pierina, Ayash, Carhuayoc, Ilo). Company
profits provide an incentive for the population’s claims.
3. Communities’ sense of grievance regarding previous agreements on land
transfers. Although the price was freely agreed, the population believes
that the current companies’ profits signal unfair deals (Antamina)
4. The local population demands its share in the unprecedented profits
(Yarusyakan, Ticlacayan, Huallay).
Social conflicts and mining V

People feel that conflict is the only way to allow them negotiation on an
equal footing with the companies.

The local population justifies its claims using different discourses: ecology,
ethnicity or social justice. People have a complex and ambiguous
relationship with these discourses:
a)
Such considerations are deeply rooted in the local culture and genuinely
constitute people’s identity.
b)
However, negotiations conclude in agreements on employment,
economic compensation, promotion of small businesses,
implementation of social projects, etc.

Local communities try to negotiate directly with the companies. They do not
want other actors to get involved.

Conflicts in this subgroup have increased in the last few years because
mining companies’ profits prompt them. As canon minero transfers depend
on companies’ profits, this partly explains the alignment between conflicts
and transfers.
Social conflicts and mining VI

Conflicts over the control and use of mining revenues

This type of conflict has increased dramatically in the last two years.

These conflicts are directly related to canon minero transfers.
a)
Conflicts between local population and local authorities
•
b)
Local authorities’ failure to invest canon minero transfers efficiently
(Pasco and Ancash).
Conflicts between different levels of government.
•
Between municipalities and the regional government (openly in
Ancash and Pasco).
•
Between regional governments and the national government:
o
Modification of the Fondoempleo scheme;
o
Rules for the distribution of canon minero (Ancash, Moquegua).
Social conflicts and mining VII
c) Conflicts over the control of territory
• Regions and municipalities fight to include under their jurisdiction
territories with mining potential and water resources (a key asset for
mining development)
• Moquegua has different quarrels with Puno, Arequipa and Tacna.
•
d)
Within Moquegua, some districts are fighting amongst themselves
(Carumas/San Cristobal; Samegua/Torata).
Labour conflicts
• In Ancash (Conchucos) and Moquegua the majority of the population
works as unskilled labour for the municipalities (thanks to canon minero
transfers). These workers earn more than teachers, health workers, police
officers, the armed forces, etc. This consequently generates malcontent
and mobilisations.
Thanks!
41
50
Transferencias de Canon y
regalías
4500
3500
3000
16
02
2500
2000
83
4
1500
45
1998
1999
2000
2002
2003
30
8
74
1997
18
3
15
0
1996
95
10
4
500
67
1000
15
Millions of Nuevos Soles
Constant prices 1996
4000
0
2001
Source: Ministerio de Economía y Finanzas 2008
Compilation and graphic representation: The author
2004
2005
2006
2007
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Millions of Nuevos Soles
Transferencias a los departamentos en
2007
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Source: Ministerio de Economía yCanon
Finanzas
2008
minero
Graphic representation: The author
Canon oil
Canon Gas
Other Canons
Other transfers
Transferencias per capita a Departamentos
2007
4000
3500
2500
2000
1500
1000
500
Canon Minero
Source: Ministerio de Economía y Finanzas 2008
Graphic representation: The author
Canon oil
canon gas
Other canons
Other transfers
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Indice de conflictos 2005-2007
900
300
200
829
800
700
600
500
503
424
400
356
299
156
113
161
100
Source: Defensoría del Pueblo 2008
Compilation and graphic representation: The author
22
68
513
412
340
346
218
171
231
112
104
162
0
0
147
0
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Conflicts per million inhabitant 2007
Indice de conflictos 2007
Per capita conflict index aggregated 2007
700
615
600
500
400
300
303
200
100
236
130
278
136
134
179
39
9
Source: Defensoría del Pueblo 2008
Compilation and graphic representation: The author
40
29
24
48
74
116
52
0
8
40
44
0
28
57
0
0
Regressions of “canon minero” transfers and
poverty on conflicts
Per capita ACI
Per capita ACI
Per capita ACI
Per capita ACI
2005-2007 (log)
2005 (log)
2006 (log)
2007 (log)
“Canon minero”/capita (log)
.34
(3.74)***
-.14
(-1.05)
.45
(3.16)***
.60
(4.08)***
% Poverty
.59
(6.58)***
.75
(5.44)***
.65
(4.58)***
.42
(2.86)***
R
.66
.76
.76
.74
Adjusted R2
.42
.58
.57
.51
N
73
25
24
24
Dependent Variable
OLS-regressions, standarised coeficients (t-values in parenthesis). *** significant at 1% level; ** significant at
5% level; * significant at 10% level.
Conflicts, poverty and canon minero transfers
Table 2. Evolution of correlation between “canon minero” transfers and conflicts
2005
2006
2007
Pearson Correlation
-.16
.44*
.65**
N
25
25
25
Pearson Correlation between “canon minero” transfers/capita (log) and ACI/capita (log).
** Sig. (2-tailed) significant at 1% level; * Sig. (2-tailed) significant at 5% level.
Table 3- Evolution of correlation between poverty and conflicts
Pearson Correlation
N
2005
2006
2007
.75**
.61**
.45*
25
24
24
Pearson Correlation between % Poverty and ACI/capita (log). ** Sig. (2-tailed) significant
at 1% level; * Sig. (2-tailed) significant at 5% level.
Correlation between conflicts and transfers 2005
Correlation between conflicts and transfers 2006
Correlation between conflicts and transfers 2007
Territorial conflicts in Moquegua