EXTRACTIVE INDUSTRIES

Historically, mining activities have contributed to half of Peru's export earnings. In 2005, mining activities accounted for 6 percent of GDP and more than 10 percent of fiscal revenues. Although mineral output (iron, gold, silver and copper mainly) grew by 4 percent in 2006, mining export earnings increased by 53 percent during the same period due to soaring prices.

Peru also has the fifth largest proven natural gas reserves in South America and it has potential to substantially increase oil and gas production in the future, with LNG and pipeline projects planned for completion by 2010. In 2005-2006, Peru signed 31 oil and gas exploration contracts in the Amazon region.¹

The largest ongoing project is the development of the Camisea natural gas field, including gas production, transport and distribution, whose private-led investment is responsible for a large part of economic growth. An LNG project is expected to begin operations within the next five years. As activities expand in the Amazon basin, sound regulation and environmental protection become ever more necessary.

According to Propuesta Ciudadana, an organization that reports on transparency and accountability in Peru, the value of mineral output grew by 31 percent in 2004-2005, and then by 56 percent in 2005-2006. Also, profits in the hydrocarbon sector rose by 400 percent in 2005 and in the mining sector by 60 percent, compared to 2004 figures.² The government gets a share from these revenues through the corporate income tax (30 percent). Also, in 2004 mining royalties were introduced with a scale ranging from 1 to 3 percent on gross sales, which mostly benefits sub-national governments. Apparently, many mining companies are exempt from paying royalties due to fiscal terms stability contracts.

Peru produces around 115,000 barrels of oil per day, and this modest volume accounts for roughly $1.7 billion USD in annual revenue, just one tenth of the revenue generated by the combined silver, copper and gold industries.

Transfers from mining, oil and gas revenues (called canon) constitute the largest source of revenue for local and regional governments. In 2006 these transfers were estimated at USD1 billion (1 percent of GDP) and up from USD150 million in 2002. However, these resources are concentrated in a few regions, with seven departments accounting for close to 80 percent of the total.³

1. EIU, Peru Country Report, March 12, 2007
2. Report available at: http://participaperu.org.pe/apc-aa/archivos-aa/3c6bb51ada688b58c57cb18308d59d73/GPC_9_1.pdf
3. IMF, Peru Article IV Consultation