Resource revenues elusive in Peru

By Chris Hufstader
Indigenous communities along the Urubamba River are still waiting to see significant benefits of Camisea Pipeline revenues.

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Peru's economy is growing, and more revenues from mineral and natural gas deposits now coming on line are expected to further expand the government's budgets. But the government is not using its new revenues in the communities most in need, says researcher Epifanio Baca of Grupo Propuesta Ciudadana, a government watchdog organization in Peru supported by Oxfam America.

"While Peru's macroeconomic indicators are improving, individuals feel frustrated because they do not perceive their income to be increasing as a result of the country's economic growth," Baca said. "Grupo Propuesta Ciudadana recommends that the government implement policies that increase the benefits of economic growth to excluded populations, improve the efficiency of social programs, and improve the quality of education and health services."

Baca spoke at a panel discussion at Oxfam America's headquarters in Washington titled "Peru's Windfall—The Challenge of Harnessing Extractive Industries Revenues for Poverty Reduction." He said that while the extractive industries such as gold and silver mines and natural gas pipelines are leading Peru's booming economy and contributing more than $2 billion per year to government accounts, half the country still lives in poverty, and Peru is not converting its resource wealth into benefits for its poorest citizens.

One example is the municipality of Echarate, in the Urubamba River valley in the department of Cusco. This area has recently seen rapid development of the Camisea gas pipeline, which is expected to bring Peru $10.8 billion over the 30-year life of the project. The pipeline is being run by an international consortium, and partly funded by $135 million from the Inter-American Development Bank.

Research by Baca and Grupo Propuesta Ciudadana shows that while Echarate's budget for infrastructure projects was less than $700,000 in 2003, by 2007 it was more than $65 million as a result of Camisea royalties. Although the municipality has constructed a new office building, indigenous people in outlying villages report limited presence of government representatives in their communities.

"While indigenous communities have suffered from the negative effects of the gas project—including pipeline spills, decline in fish populations and environmental degradation—they have not significantly benefited from this municipal government windfall nor do they have adequate influence in determining how this money should be spent," says Emily Greenspan, policy advisor for Oxfam America in Washington, who recently returned from a visit to the Camisea project zone in the Peruvian Amazon.

Citizens of Peru already have the right to ask for information about revenues and spending, and companies are required to publish this information. But there is no government office overseeing the information requests, and companies do not always divulge the information requested, says Javier Aroca, an attorney who is Oxfam America's advisor on extractive industries in South America.

Aroca says lack of transparency makes it impossible to determine what companies are contributing to local and national governments. "All transactions related to extractive industries must be clearly defined and described, so that all the information is included in the national budget," he says. "National and international companies must meet international standards of accounting, audit, and publication of accounts. The management and final use of the funds must be published, especially at the regional and local levels. This would help increase trust in public institutions and ensure there is no corruption."

How to spread the wealth

Baca made a number of recommendations about reformulating the laws governing distribution of mining and hydrocarbon revenues. He also recommended systems for fair allocation of the revenues to both producing and non-producing areas, and creating a system that is more transparent, predictable, and equitable.

One way to increase the transparency of extractive industry revenues would be to implement the Extractive Industry Transparency Initiative (EITI), an international agreement that requires companies to disclose payments to governments so that citizens are aware of what their country's natural resources are worth and where the money is being used. In Peru, the national association for the oil, gas, and mining industry (Sociedad Nacional de Mineria Petroleo y Energia, or SNMPE) has succeeded in having all royalty and gas payments to be published as a lump sum (including all companies together), instead of by each individual company. That makes it hard for people to know how much a specific company is contributing to the government and what portion of that should be coming to the communities that are producing minerals and hydrocarbons.

Complying with the highest standard under EITI would require each company to disclose its tax and royalty payments. Oxfam America is calling on the SNMPE to encourage its member companies and the Ministry of Energy and Mines to support a company-by-company, rather than aggregate, reporting standard for royalty and tax payments as a means to increase transparency of Peru's revenues.