Interview:Roque Benavides
What has been the overall reaction of the private sector to the windfall tax proposals?
ROQUE BENAVIDES: There were a number of objectives during the negotiations before implementation of the government’s decision to increase tax revenues from the mining industry. Previously companies had to pay a tax on actual sales, the so-called royalty, which negatively affected the value of assets. Therefore, the most important message from the mining industry to the government was to avoid taxes on sales.
Instead, the tax should be generated from operating profits, following Chile’s example. This was the best solution to further promote investment in mining and for the government to obtain additional resources, which can now be distributed more effectively.
There are some large international companies in Peru that have tax stabilisation contracts. Those contracts have been respected and the government has reached an agreement with each of these companies to obtain the additional tax. In Chinese “crisis” means “opportunity” and the government has shown that Peru had an opportunity in that respect. The overall reaction to the windfall tax has been very positive. Mining companies are paying more taxes only if they have a higher operating profit, which is fair for all participants.
Why do social conflicts over mining activities seem more frequent in Peru than in its neighbours?
BENAVIDES: Many people outside Peru do not really understand this issue. The expectations of the local population are very high. Peru is regarded as a star in Latin America and the benefits of the country’s better economic situation are probably not being passed on to Peruvian citizens as quickly as many people expect. The regional governments have often not been able to fully invest the funds they received, since planning takes time and this has generated over-expectations.
There is often a lack of communication between mining companies and the local people, which has to be improved. Apart from other financial incentives, the local population often benefits from mining projects through a regulated water supply all year round via the construction of dams. The rainy season in the mountains last for only three months. In Cajamarca, 85% of the rainwater goes into the sea, so it is not a question of the amount of available water, but capturing and distributing it. Cajamarca is a perfect example where the economic situation of the population has improved because of mining projects. The problem is Cajamarca is a large region and it will take time for benefits to spread.
Is the available pool of technically qualified staff holding back mining growth?
BENAVIDES: The answer is a clear no. We have good engineering schools and well-trained technical and blue-collar workers. Peru also has a strong mining tradition so we have accumulated knowledge over decades. We are even exporting human capital. There are Peruvian technicians and workers based in Argentina, Canada and Australia. However, demand is on the rise and if mining continues to grow at the same pace we may get to a point where we don’t have enough qualified people. So far though, there is an abundance of talent.
What trends do you see among Peruvian companies seeking to internationalise activity in areas such as exploration and production?
BENAVIDES: Most of the first mining companies which started operations in Peru during the 1930s have been bought by international companies. There are still a few looking for opportunities, not because they want to leave Peru but because of the risk factor. Even if a company has valuable assets, operates profitably and is listed on the New York Stock Exchange, operating alone still exposes it to a certain amount of political risk.
This risk can be spread in ways such as expanding into Mexico, Colombia and Chile. This does not mean that we are no longer interested in Peru. Actually there is an industry joke regarding this matter: “Every time we go abroad, we find something better in Peru”.
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