Mining Royalties

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Mining Royalties

                             Who benefits from

                          Compensatory fee for a
                         non-renewable resource

                             The communities must
                             see the results

Contributors: Jaime Consiglieri . Joan Kuyek and Rodrigo Pizarro
                                 .,                                                      2
Published      by    the    Mining     Policy     Research         Initiative   (MPRI)

International Development Research Centre (IDRC)
    Copyright © International
    Development Research Centre
    (IDRC) 2004

    International Development
    Research Centre (IDRC)
    Avenida Brasil 2655, 11300
    Montevideo, Uruguay                        Presentation / 3
    Phone (598-2) 709 00 42,
    .ax (598-2) 708 67 76                                 by Patricia González

    Mining Policy Research
    Initiative (MPRI)
    E-mail:                           Perspectives / 4
                                                          n Mining Royalty as Compensation Not
    Cristina Echavarría,                                  Tax, by Jaime Consiglieri ..
                                                          n Myth and Reality: Understanding
    Patricia González,                                    Mining Taxation in Canada, by Joan
    Research Officer.
    Carolina Quintana,
    Program Assistant.                                    n The Establishment of Royalty in Chile,
                                                          by Rodrigo Pizarro
    Mining Royalties
                                                       Experiences / 9
    ISBN 9974-7867-0-3, Spanish edition
    9974-7867-1-1, English edition                        n   Mining Royalties in Colombia
    Printed in PRINTER
    Millán 2621 - Phone 209 49 34
    Dep. Legal 334.039/04                              Resources / 10
                                                          n   Books
    Cover photos: Woman looking a
    mine shaft; Yanacocha's mining                        n   Articles and Documents
    facility; San Marcos villagers
    (Source: CONACAMI)                                    n   Websites

    2ND INSTALMENT PUBLICATION                Contributors:                      Internet research:
    (Spanish, English and Portuguese          Jaime Consiglieri ..,              Nicolás Caitán
    versions)                                 Joan Kuyek and
                                              Rodrigo Pizarro
    Directed on behalf of                                                        Design and layout:
    MPRI/IDRC by:                                                                Doble clic • Editoras
    Patricia González
                                              Liliana Battipede,
    Editing and co-ordination:                David Reed and                     MPRI/IDRC icons:
    Víctor L. Bacchetta                       María Isabel Sanz                  Alejo Santa María

2       •     Mining and Sustainable Development Series

Distributing Mining Wealth
through Royalties
                                                                               by Patricia González

W       ho benefits from mining? This
        question is increasingly being
raised particularly in Latin America
                                              A great variety of positions have
                                          arisen for and against these royalty
                                          systems, supported to a greater or
                                                                                         contribute to local development in a
                                                                                         context of progressive decentralisa-
                                                                                         tion, the implementation of mining
where the exploitation of mineral re-     lesser degree by theories originating          royalty systems that provide for an
sources constitutes a significant ele-    in the North that have been modified           equitable distribution of resultant rev-
ment in many national economies.          to fit the realities of our countries.         enue between the national level and
    The nature of the challenge is        However, what emerges as indisput-             mining regions and localities can be
clear. It is to create a situation in     able is the principle that it is just and      an effective tool in overcoming the
which the countries, regions and lo-      necessary for the State, as owner of           paradox of wealth producing mineral
calities where mining activity takes      the minerals, to impose a charge or            exploitation living side by side with
place have a direct share in the          compensatory fee for the exploitation          extreme poverty and social inequity,
wealth produced by exploitation of        of these non-renewable and scarce              a state of affairs evident today in many
their mineral riches in a way that        resources.                                     different zones where the economy
translates into an improvement in their        In countries where a compensa-            depends on extractive industries such
inhabitants' quality of life and level    tory fee of this type is still not charged     as mining and hydrocarbons.
of well-being. This is an appropriate     there is an urgent need to address this            In this instalment we have en-
reciprocity for the reduction in natu-    deficiency that is generating distor-          deavoured to gather together authori-
ral capital resulting from exploitation   tions and inequalities. In most coun-          tative sources representing different
of non-renewable resources, an ex-        tries the method employed to imple-            perspectives involved in the debate.
ploitation that can generate signifi-     ment that compensatory charge is the           We also include brief descriptions of
cant negative impacts.                    imposition of royalties.                       systems already operating in countries
     In the questioning of how this            With regard to the challenge cur-         such as Colombia and Canada, from
wealth should be shared heated de-        rently faced by the mining industry to         which lessons may be learnt. n
bates have been generated in the
main mining countries of the region,
focussing on the benefits and limita-
tions of tax and royalty systems appli-
                                                                                                       MPRI Objectives
cable to mining.
     Intense debate is now taking
place in Chile and Peru. Neither of
                                             The Mining Policy Research Initiative - MPRI was created in 1998 by the Interna-
                                             tional Development Research Centre - IDRC/CRDI of Canada. It was conceived from
these countries had contemplated the
                                             the start as a multi-stakeholder initiative which would associate stakeholders and
imposition of mining royalties until         respond to demands for research identified by the mining stakeholder community.
the middle of 2004. The debate in Peru       Its general objectives are three-fold:
led to the approval in June 2004 of
new legislation providing for a royalty      1. “to support applied and participatory research on issues related to mining and
                                                sustainable development in mining regions and communities of Latin America
charge based on gross concentrate
                                                and the Caribbean;
sales. In Chile the debate is still go-
ing on although the initiative suffered      2. “to foster collaboration among different stakeholders in the sector, both within
a legislative setback in August when            the region and with ones in other regions;
a proposal presented by the govern-          3. “and to improve the generation, accessibility and use of relevant information on
ment did not obtain the necessary               the subject in the region.”
majority in favour of establishing a                                        More information available on

                                                                                                Mining Royalties         •         3

Mining Royalty as
Compensation Not Tax                                                                           by Jaime Consiglieri .. *

      In view of the approval of Peru's Royalties Law on mining
         activity and the debate that it has generated, the author
        invites readers to consider the essential nature of royalty
      and the arguments for and against its application in Peru. 1

R     oyalty applied to mining activ-
      ity is the charge incurred by
companies for exploiting a resource
that is the property of the State. This
charge is supported not only by arti-
cle 66 of our Political Constitution but                                          The State has the right to charge for the use of a non-
also by many laws currently in force,                                                            renewable and finite natural resource.
as well as by various resolutions and
reports of organisations such as the
UN and the World Bank, according to        nancing of investment in production             into account the level of international
which the Peruvian State, under the        projects that articulate mining with the        metal prices as well as the level of
principle of sovereignty, can charge       economic development of each region             sales; or b) to only take into account
for the use of a non-renewable and         in order to ensure the sustainable de-          price levels (which was the Govern-
finite natural resource.                   velopment of urban and rural areas”. 3          ment's initial proposal). According to
    Also, as the State is the owner of            Realising the basis, nature and          the Minister of Energy and Mines,
resources in the ground, the conces-       implications of the proposal and the            Jaime Quijandría, an attempt is being
sionaire (in this case the mining com-     destination of revenues generated by            made to establish “a historical aver-
pany) uses them in lieu of the State.      it, it is possible to understand the align-     age price below which no royalty
So the State, as owner, has the right      ment of different stakeholders regard-          would be charged” i.e. when the
to a payment called royalty, usufruct      ing this issue: members of parliament,          price of a mineral falls below that
or rent, which must be paid by the         regional and local governments, com-            price. At the same time, an additional
concessionaire. 2                          munities and mining companies.                  clause is being proposed stipulating
     Taking into account current tech-           The law, apart from specifying that       that the higher value royalty will be
nological advances in the mining in-       royalty is a compensatory payment to            payable in cases where there is an
dustry, it is probable that in less than   the State for the extraction of non-re-         already agreed royalty.
15 years mineral ore reserves cur-         newable natural resources, also sets                The impact of mining royalty im-
rently being exploited will be almost      out the rates at which royalty is to be         plementation will not immediately be
exhausted and what remains will have       charged to mining companies as; 1%              significant, bearing in mind for exam-
a lower mineral content, which in          on concentrate sales value up to 60             ple the 28 contracts of tax stability
view of high production costs will         million US dollars, 2% on sales be-             currently in force, but we should not
make extraction uncompetitive or un-       tween 60 and 120 million US dollars             forget that these contracts are not
profitable. When a mine closes, in         and 3% on sales above 120 million US            eternal and that the scenario will
addition to the environmental im-          dollars. It also stipulates that all rev-       gradually change. 4
pacts, another direct consequence for      enues raised will be distributed                    We should also remember that not
the population of the area is a substan-   among regions and municipalities                everything is finalised. The Executive
tial loss of income and indirect serv-     exclusively for the purpose of financ-
ices due principally to the fact that      ing investment in projects.                                               í follows in p. 6
mining does not generate other endur-             Currently, the Council of Minis-
ing local activities or initiatives.       ters is considering two possible alter-         *   Economist, member of the Mining and
     The proposed legislation for the      natives for the application of royalties            Communities Program team of the Peru-
application of mining royalties stipu-     to mining activity with a view to mini-             vian NGO “Cooperación: Acción
lates that revenues generated will be      mising its impact in terms of the com-              Solidaria para el Desarrollo” (Co-opera-
allocated to “the financing or co-fi-      panies' competitiveness: a) to take                 tion: Solidarity Action for Development).

4      •    Mining and Sustainable Development Series

Myth and Reality:
Understanding Mining Taxation
in Canada
                                                                          by Joan Kuyek *

M      ining enjoys power in this
       country –and others– well in
excess of its actual economic contri-
                                            while the environmental and social
                                            costs are rising. At the same time, ore
                                            reserves are being depleted.
                                                                                       value of a number of important tax
                                                                                       measures introduced to support the
                                                                                       industry. Other information was con-
bution.                                         The industry promotes data stating     sidered confidential for commercial
    The Canadian tax system has             that there are 386,000 people directly     or privacy reasons.
evolved over time in response to the        employed in mining. In fact, there are         It is extremely difficult to sort out
demands of industry lobbies, so that        currently less than 25,000 people          the tax and royalty benefits of the
–despite millions in perverse subsi-        employed in mining and milling in          mining and concentrating industry for
dies– mining companies pay almost           Canada: the others work in smelting,       a number of reasons. Many figures are
nothing in taxes. They manage to            refining, and manufacturing –all work      confidential. Mining data is frequently
achieve this through tax planning           that could still be there if we recycled   aggregated with data from down-
techniques and deductions that result       metals instead of mining them.             stream industries like smelting, refin-
in accounting losses even in years              Investment in mining would be          ing and metals manufacturing –indus-
when commodity prices are high, and         better spent on innovative community       tries which do not necessarily depend
through ensuring that most taxes are        economic development strategies for        on mining new materials. Mining data
based on “net profits” rather than          mining dependent communities and           is also often aggregated with tar
sales.                                      support to recycling and conservation.     sands, oil and gas and quarrying.
    According to their 2003 annual                                                         Looking Beneath the Surface did
financial statements, four of the larg-     Missing data                               find that the total value of the subsi-
est mining companies in Canada paid                                                    dies to the metal mining industry
–or were owed by governments– the               In December 2002, the Pembina          alone was staggering: over $580.2
following totals in taxation. The fig-      Institute and MiningWatch Canada           million in the 2000/2001 fiscal year.
ures include their subsidiaries and         released a study assessing the value       This figure did not include the costs
taxes paid to governments elsewhere         of government support for the metal        for reclaiming abandoned mines (es-
in the world.                               mining industry in Canada entitled         timated by the Mining Association of
    Even in Canada, the return on in-       Looking Beneath the Surface. The           Canada as over $6 billion), unfunded
vestment from the mining industry to        investigation was hampered by the          liability for mine closures, nor costs
federal and provincial governments is       lack of data available from govern-        the figures we were unable to track
shrinking in terms of cash revenues,        ment. Governments generally were           (such as provincial “processing allow-
contribution to GDP and employment,         unable to provide estimates of the         ances”).
                                                                                           According to the federal Depart-
                                                                                       ment of .inance, the last year for
                                                                                       which detailed tax data on mining was
                             Sales            Taxes - 2003         Taxes - 2002        available was 1997. We have been
                                               (US$ million)                           able to determine that in 1997, min-
                                                                                       ing only contributed $251 million in
  Barrick Gold               2.035                    5                 (16)           direct federal taxes, and $147 million
  Placer Dome                1.763                   44                 (34)           in provincial income taxes (from all
                                                                                       provinces) for a total of $398 million.
  Inco                       2.474                  (49)               (639)
  Noranda                    4.657                   24                (168)           *   National coordinator of MiningWatch
                                                                                           Canada. See more information in
  Note: Numbers in brackets indicate tax refunds.

                                                                                             Mining Royalties         •       5

Layers of mining taxation                  Allowable deductions                              capital tax. Some provinces calcu-
in Canada                                                                                    late mine revenues after the deduc-
                                           Income tax                                        tion of a Resource Allowance (25%).
The federal government imposes:                                                              The provincial income tax calculation
                                               A number of expenses and deduc-
                                                                                             is similar to the federal calculation.
                                           tions are allowed in the computation
• Corporate income taxes under the                                                           There is also a capital tax on assets
                                           of income for tax purposes. The Re-
  Income Tax Act - currently 28%,                                                            in some provinces for large mines.
                                           source Allowance ensures that only
  to be reduced to 21% by 2007,
                                           75% of resource profits are subject to
  based on net income;                                                                       Mining Tax
                                           tax. Loss carry-overs, accelerated
• Capital tax (a tax on assets and         capital cost allowances, and invest-                  Is Canada's equivalent of a roy-
  inventory) - applies only to com-        ment tax credits further reduce in-               alty. Most provinces tax mineral
  panies with assets over $50 mil-         come. Canadian Exploration and                    wealth at “mine mouth”; i.e. they tax
  lion, to be phased out totally by        Development Expenses and .oreign                  the unrefined product and deduct es-
  2008;                                    Resource Expenses can be held in tax              timated costs for processing it. The
• GST (7% of purchases; export sales       pools and carried forward and back-               rate varies from a low of 8% (no
  are zero rated - GST does not ap-        ward almost indefinitely. The tax polls           processing - Quebec, New Bruns-
  ply and producers are entitled to        can be transferred to subsidiaries or             wick, Newfoundland) to the maxi-
  a refund for tax paid on inputs);        sold as an asset.                                 mum (65% - smelter/refinery in the
• Payroll levees;
                                           Capital tax                                           .or the purposes of the Mining Tax,
• Excise taxes and customs duties.                                                           companies can also deduct Mining
                                               Is based on company assets. Since
                                                                                             and Processing Asset Depreciation,
                                           2003, the federal capital tax applies
Provincial governments and territorial                                                       Pre-production Development Ex-
                                           only to companies with more than
governments impose:                                                                          pense, Exploration Expenses and
                                           $50 million in assets, and will be
                                                                                             Mine Reclamation .und contribu-
                                           phased out altogether by 2008. Most
• Income taxes varying from 9.4%                                                             tions. Ontario exempts the first
                                           provinces charge capital tax ranging
  to 15% based on value of produc-                                                           $500,000 of mining income annually.
                                           from .225 to .6 % on assets. Ontario
  tion;                                                                                          Mining Tax holidays for new
                                           is phasing it out.
                                                                                             mines are available in many prov-
• Mining Tax varying from 5 to 14                                                            inces. Ontario provides a $10 mil-
  % on defined mining profits;             Provincial taxes
                                                                                             lion tax exemption for new mines as
• Capital tax of less than 1%. Six            There are two to three levels of               well as a three year tax holiday, and
  provinces have a capital tax; On-        taxation on mines provincially: cor-              10 years for mines in remote loca-
  tario is phasing it out.                 porate income tax, Mining Tax and                 tions. n

í comes from p. 4
itself has already sent an alternative     tribution to the development of the                  been made of the concept of 'royalty',
project to Congress and the compa-         country, what the State should do and                which almost all participants see as a tax.
nies have classified the law as popu-      what is expected from communities,                   An intriguing conclusion to which I do not
                                                                                                understand how one could arrive so
list, anti-constitutional, confiscatory    local authorities and, of course, min-
                                                                                                lightly. Judging the question by economic
and discriminatory. .or their part in-     ing companies. In all these aspects                  theory it is instead a quota or right, or
volved members of parliament have          there is still much to be done. n                    more technically, a 'rent' in the classic
announced the creation of a techni-                                                             economic sense of the word…” Mining
cal committee to formulate a regula-                                                            Royalties and Ricardian Rents, an article
tory proposal for preventing abuse of                                                           by Jurgen Schuldt.
the law.                                   1. This article has been extracted from           3. Article 9 of the bill “Mining Royalty Law”
     It is in the interest of mining re-      “Actualidad Minera del Perú” (Mining              passed in session on the 3rd June 2004.
gions that a proposal which clearly           in Peru, Current Affairs) Bulletin Nº 62,      4. Of the 182 companies that have signed
                                              June 2004, a periodical published by              tax stability contracts, 22 are mining
links mining activity with the coun-
                                              Cooperación. The complete bulletin can            companies; of these in five cases the con-
try's development is not discarded.           be found on:            tract has already expired, in November
Up to now the evolution of stakehold-         biblioteca/index.cfm?action=ficha&lang            BHP Billiton Tintaya's contract will ex-
ers' positions in the debate on royal-        =esp&cod=218                                      pire, next year another five contracts will
ties has produced little progress in de-   2. “My understanding is that the crux of the         expire and during the following five years
termining how the mining sector               discussion, and of the misunderstandings,         all the rest (see above mentioned article
could make a real and significant con-        lies in the peculiar interpretation that has      by Jurgen Schuldt).

6      •     Mining and Sustainable Development Series

The Establishment of
Royalty in Chile                                                                      by Rodrigo Pizarro *

I  n Chile a pivotal public debate has
   developed over the last year con-
cerning the mining sector's tax con-
tribution and especially the applica-                    Taxes paid by
tion of royalty to copper exploitation.            Codelco represented
Chile is the world's principal copper                 28.7% of the final
producer and its exports constitute                   price while taxes
almost 40% of global copper supply.                     paid by private
.or many, however, the sector's con-                mining amounted to
                                                            only 5.3%.
tribution to the development of the
country is too low.
    During the period 1990-2001 the
state owned company Codelco paid             ensuring a just contribution in return           “economic rent” corresponding to re-
around 10,659 million US dollars to          for exploitation rights.                         sources.
the Treasury, while private mining               Mining uses a non-renewable re-                  In the beginning the proposal of a
companies only contributed 1,638             source which means that there is an              royalty was isolated: business associa-
million US dollars, in spite of their        “economic rent” that belongs to all              tions and the Government, who were
production being 25% greater. In ad-         Chileans and which at present is ap-             allies in the debate, tried by all means
dition, taxes paid by Codelco per            propriated by the industry. It is this fact      to close the subject, claiming that roy-
metric ton of copper produced repre-         that justifies the royalty. In econom-           alties would be a brake on investment.
sented 28.7% of the final price while        ics there are many theoretical debates           But the evident injustice of the min-
taxes paid by private mining                 but also in some cases a strong con-             ing sector's level of contribution, and
amounted to only 5.3%. It is therefore       sensus, one of which is to charge the            above all common sense, inspired
estimated that the total of lost tax
revenue during that period amounts to
more than 10,000 million US dollars.
    The state of private mining com-                             Efficient Mineral Resource Pricing and Rent
pany tax contribution was patheti-                                           Collection in Chile, International
cally demonstrated in 2002 by the sale
of Disputada de Las Condes, a min-                              Environment program. Harvard Institute for
ing company belonging to the multi-                                         International Development, 1999
national Exxon. .or 22 years the com-
pany paid no taxes at all to the Chil-
ean state, declaring losses every year.         This work by Professor Theodore Panayotou, Director of Harvard University Envi-
    Apart from the ridiculously low             ronment and Sustainable Development Program, concludes that in the case of min-
taxes imposed on mineral exploitation           ing in Chile the State, by constitutional provision, has a dual role as tax collector
in Chile, the explanation for the mea-          and owner of resources. As owner of the resource, the Chilean State must charge a
gre tax contribution is that multina-           price or fee when authorizing a third party to make use of it. In short, for Panayotou
tional companies use any legal sub-             natural resources are part of the capital of society and the State has a responsibility
terfuge to evade paying taxes.                  to collect a competitive return on that natural capital, in a different way than with
    Although initially the debate was           other tax collections.
centred on taxation, later the notion
of introducing a royalty on mining
entered the discussion as a means of            Contact: Theodore Panayotou, Director of the Environment and Sustainable Development
                                                Program, Center for International Development, Harvard University.
*   Executive Director of the Terram .oun-      E-mail:
    dation, Santiago, 20th May 2004.

                                                                                                     Mining Royalties           •         7

                                                  .inally, in the face of civic opin-         increasingly distant from the concept
                                               ion and parliamentary pressure, the            of great politics in which the public
                                               Chilean government decided to put              task involves strategic vision.
                                               forward legislation providing for a                 Chile's development has been in-
                                               royalty on mining. By this decision            trinsically connected with mining.
                                               the existence of company obligation            The institutional and regulatory model
                                               and the legitimate right of Chile to           that arose after the military coup re-
                                               demand payment were acknowl-                   sulted in the arrival of significant for-
                                               edged.                                         eign capital and an expansion of pro-
Chile needs the income from its copper for        With this government announce-              duction. However, this has happened
development and to protect its citizens.       ment there are two reasons to cel-             at the cost of ceding to multination-
                                               ebrate. .irstly, that it is the beginning      als practically all of the income from
                                               of the end of a regulatory and tax             this resource that belongs to the coun-
many citizens to organize around this          framework for mining that clearly              try. Now is the moment to revise these
demand. Others, just by expressing             benefits large scale mining to the             policies. Chile needs the income from
their opinion, contributed to breaking         detriment of the country, and sec-             its copper for development and to pro-
the wall that had been built to block          ondly, that citizens were able to im-          tect its citizens. The country cannot
discussion of this subject.                    pose their views on a political class          wait any longer. n

                                                                                                                  Useful data
    What is mining royalty?It is an economic compensation paid to the State, as owner
    of the minerals, for the exploitation of a non-renewable resource.


    Countries                                     Rate                                          Basis
    Argentina                                     3%                                            mine mouth value
    Australia                                     varies by state                               variable rate
    Bolivia                                       1 a 7%                                        gross sales
    Brazil                                        0.2 a 3%                                      net sales
    Canada                                        varies by province                            varies by province
    Chile                                         n/a                                           n/a
    China P. R.                                   2%                                            gross sales
    Colombia                                      1 a 12%                                       mine mouth value
    United States (all states)                    n/a                                           n/a
    Indonesia                                     (45 o 55)                                     US$ per ton production
    Kazakhstan                                    2%                                            gross sales
    Mexico                                        n/a                                           n/a
    Papua New Guinea                              2%                                            gross sales
    Peru                                          1 a 3%                                        gross sales
    Poland                                        3%                                            gross sales
    South Africa                                  n/a                                           n/a
    Zambia                                        2%                                            nsr
    n/a: non-applicable
    nsr: net smelter return
    Sources: Global Mining Taxation Comparative Study C.S.M., March 2000, James Otto; Cochilco Database; and A Primer on Mineral
    Taxation-Thomas Baunsgaard. Adapted from Minería Chilena magazine Nº 264, June 2003.
    Articulo/debemos.htm Updated and complemented for this publication with data from the MMSD Brazil project, Law 28258 Peru.

8       •       Mining and Sustainable Development Series

Mining Royalties in
             Extract from the article by Mario Jaramillo Arbeláez, Director of Mines
             in the Colombian Ministry of Mines and Energy, published on the
             MPRI website:
             index.cfm?action=listar&by=tipo&cod=2&lang=esp                          Royalties must become visible benefits
                                                                                                 for communities in the neighborhood
                                                                                                                of mining operations.

T    he recent history of royalties in
     Colombia begins with the Politi-
cal Constitution of 1991, in which
Article 360 provides for an “eco-
nomic compensation by way of roy-
alty” for the exploitation of a non-
renewable natural resource. It also
establishes the right to a share in
these royalties for the departments
and municipalities where the exploi-
tation takes place, as well as for the
ports through which the resource, or
products derived from it, are trans-                                                          Royalty Administration
    .or royalty revenues that are not        In Colombia the debate has moved on from the concept of a
allocated to departments and munici-         payment to be made by mining companies and its level to the
palities directly involved, article 361      issue of how those revenues are administered by the municipal and
provides for the creation of a national      departmental governments that receive them.
fund with the function of distributing
them to other territorial entities for       The Community Development Activities by Mining and other Natural Resource
use in the promotion of mining, en-          Exploiting Companies in Latin America and the Caribbean Research Project 1 found
vironmental protection and the fi-           that in Colombian communities there are two different views on the use of royalties.
                                             .or some the revenues “arrive but are not invested simply because they vanish”.
nancing of investment in regional de-
                                             Others, still not seeing any visible result from the investments, think that the prob-
velopment projects. In application of
                                             lem lies in the fact that administrations ignore the communities and do not pro-
the above, the Royalties Law Nº 141
                                             vide them with information about royalty management on their behalf.
of 1994, created the National Royal-         In this context, some communities demand that mining companies should be the
ties .und (NR.) and regulated the            ones in charge of administering the investment of royalty revenues, under State
right of the State to receive royalties      supervision.
and the administration and distribu-         The project recommends that follow up, control and complaint mechanisms for
tion of them.                                the investment and administration of mining royalty revenues should be strength-
    Until the enactment of law Nº 141        ened at all levels and suggests that the proposals to involve companies in the in-
exploitation of most minerals was            vestment and administration of royalty revenues should be studied.
exempt from royalties. .or those that        One of these proposals is to widen incentives that allow for a reduction in the
were not exempt the royalties had a          royalties that companies must pay in return for significant investment in local
“specific tax” characteristic (the ori-      development processes.
gin of which went back to Spanish
and Roman legislation) and this law          1. See complete documentation of the project on:
superseded them. .rom a private com-            index.cfm?action=proyecto&cod=9&lang=esp
pany perspective, royalties now rep-

                                                                                                 Mining Royalties           •         9

resent an unavoidable fiscal levy aris-
ing from the inherent nature of their
industrial activity.
    Local and regional governments
must use the revenue from royalties
for investment programs and regular
ongoing programs, in accordance
with the priorities and development
plans of each territorial entity. Cen-         n  Royalty, Regalía o Renta Minera
tral distribution of royalties must fol-       (lo que sólo Chile no cobra)
low criteria of social justice on a na-        (Royalty or Mining Rent - that only Chile does not charge)
tional scale, with particular focus on         Jorge Lavandero Illanes, December 2003
electrification and road network     
    The law does not establish crite-
                                               n Actualización de la compilación de leyes mineras de
ria for fixing royalties but it does de-
                                               catorce países de América Latina y el Caribe. Vol I
                                               (Update of the mining laws compilation for fourteen countries
termine specific rates, that range from
                                               in Latin America and the Caribbean. Vol I)
3 to 12 %, for different minerals or
                                               Eduardo Chaparro A., CEPAL
groups of minerals. Revenues raised
are distributed in different proportions
among producer departments and
municipalities, port municipalities
and the NR..
    The allocation of revenue to both
the territorial entities directly ben-
efiting, and to the NR. is specifi-
                                               Articles and Documents
cally provided for by the law. If re-
source exploitation takes place                n MMSD Project: Managing Mineral Wealth Workshop,
within 5km of an indigenous settle-            London, United Kingdom, 15th to 17th August 2001:
ment, 5% of the royalties allocated            The Revenue Dimension: New Issues and Practices
to the department and 20% of those             Presentation by Kathryn McPhail, World Bank.
corresponding to the municipality    
must go to investment projects in              Management and Distribution of Mineral Revenue: Capacity
that settlement.                               Building
    In order to have access to NR.             Presentation by Olle Östensson, UNCTAD.
funds, governors and mayors should   
present investment projects the fea-
sibility of which must be previously           n   3rd World Mining Ministries .orum Toronto, Canada, 2004:
endorsed by the Ministry of Mines              Panel: Mining: Who benefits?
and Energy, with the National Plan-  
ning Department determining their
                                               n Declaración Conjunta Chileno-Peruana de Apoyo al
                                               Royalty Minero - 4th August 2004.
    The choice of projects must take
into account: regional balance,                (Joint Chilean-Peruvian Declaration in Support of Mining Royalty)
compatibility with the National De-  
velopment Plan, percentages stipu-             d5023159b0ebe07305256ee600801427/?OpenDocument
lated by the law, the project's envi-          n   Regalías mineras: Análisis de un discutido impuesto
ronmental, social and economic
impacts, etc. n                                (Mining Royalties: Analysis of a controversial tax)
                                               SNMPE, Peru, March 2004.

                                               n El royalty es necesario: dos propuestas
                                               para la discusión pública
                                               (Royalty is necessary: two proposals for public debate)
                                               by Rodrigo Pizarro, .undación Terram (Terram .oundation).

10     •     Mining and Sustainable Development Series

n   Understanding Mining Taxation in Canada                  n   .undación Terram
By Joan Kuyek, August 2004.                                  (Terram .oundation)                          A civil organisation created in
Mining_taxation.pdf                                          1997 to formulate a proposal for
                                                             sustainable development in Chile.
n Comparative Mining tax regimes: A summary of               Its Natural Resource Program has
objectives, types and best practices                         produced several documents on
PricewaterhouseCoppers, 1998.                                mining royalty, addressed to the               public and to members of
4619567C60336.E9852567430018157D                             parliament, that contribute relevant
                                                             information to the legislative
n  .iscal federalism and taxation of non-renewable           debate on the subject.
resources: Some simple economic (an political) insights
By Kenneth McKenzie, Calgary University.        n   Libertad y Desarrollo
fiscalfederalism_Russia/McKenzie_en.pdf                      (.reedom and Development)
                                                             A private study and research
n   Mining taxation in developing countries                  centre dedicated to the analysis
By James Otto, UNCTAD, 2000.                                 of public issues. One of the      sections contains several docu-
otto.pdf                                                     ments in support of the case
                                                             against the imposition of mining
n   Annual Survey of Mining Companies                        royalty in Chile.
The .raser Institute, Canada, January 2004.                  economico/mineria/mineria.html
                                                             n Comité de Defensa y

n El proyecto de royalty a la minería:
                                                             Recuperación del Cobre, Chile
Varios documentos                                            (Committee for the Defence and
                                                             Recovery of Copper, Chile)
(The Royalty on Mining Proposal: Various Documents)
National Congress Library, Chile.
ver_articulo_en_profundidad.php?id_destaca=97                n Mining taxation and
                                                             regulations in Canada. NRCan
                                                             Includes a section of analysis and
                                                             discussion on issues relevant to

Websites                                                     mining investment in Canada
                                                             regarding mining taxation.
n   Comisión Nacional de Regalías de Colombia                inv_2.htm
(Colombian National Commission on Royalties)                          n Mineral Resources .orum
n Ministerio de Energía y Minas de Perú. Dirección           The section on Corporate Social
General de Minería                                           Responsibility (CSR) contains a
(Peruvian Ministry of Energy and Mines. Mining General       database on CSR evolution, with
Department)                                                  special emphasis on the mining
Including several documents and presentations establishing   sector. There is section on mining
the Ministry's position in the debate on legislation for     taxation and royalty.
mining royalties in Peru.                                                       minerals/csr/legislation.htm

                                                                      Mining Royalties      •       11
“The nature of the challenge is clear. It is to create
a situation in which the countries, regions and
localities where mining activity takes place have a
direct share in the wealth produced by exploitation
of their mineral riches in a way that translates into
an improvement in their inhabitants’ quality of life
and level of well-being. This is an appropriate
reciprocity for the reduction in natural capital
resulting from exploitation of non-renewable
resources, an exploitation that can generate
significant negative impacts.”

                                      Patricia González

                                                International Development
                                          Research Centre (IDRC, Canada)

                                                   Mining Policy Research
                                                   Initiative (MPRI/IDRC)