Mining-Oil Sector Rents in Latin America 2000-2014: outcomes and implications for improved global Resources Governance Jean Acquatella Ph.D Economic Affairs Officer, Natural Resources Division U.N ECLAC, Santiago, Chile SDC presentation and discussion July 6 th 2016
Contents 1. Mining – Oil/Gas sector Rents in Latin America 1990-2014 State and Private sector share of mining rents and behaviour 2003-2014 price cycle 2. Resource Governance implications ? -> key discussion Extractive Sector contribution to National/Local Human Development is a joint function of both: a) Government’s and b) Extractive Industries’ performance and responsibilities. Specify the various channels through which both Govt. and Industry behaviour determine Extractive Development outcomes, incentives and political economy constraints. Review and improve existing Mining taxation instruments ( RRT, windfall taxation, avoid fiscal competition through regional integration). Improve progressiveness during up-cycles. Improved public investment and use of resource rents ( resource rent long term investment and stabilization funds, with specific uses?). Increased transparency and accountability of rent generation, use and investment. Local development impact and managing of socio-environmental conflicts. 3. Multi-level Governance interventions in 2030 SDG agenda. Comprises Government and Industry behavior/performance in Host country. Home country role plus Global level regulation, TAIs, market access & reputational incentives. Need for national, regional and international regulation, benchmarking, standards, codes of conduct and strengthened transparency mechanisms , monitoring/verification/certification to ensure positive development outcomes.
Increasing socio-environmental conflicts to extractive project development
Extractive Rents revenue flows within Government (Host country): CENTRAL Nat. GOVERNMENT FISCAL Ministry $$$ Treasury Extractive Revenue Extractive Revenue Taxation – Fiscal Channel Investment Channel $$$ Rent Mining/Oil RENTS allocation Sub-National GOVT. EXTRACTIVE Operations Current expenditure Fiscal Federalism Private TNCs, State Corp. or HDI Revenue sharing? Investments? Public investment Corporate fund allocation Socio-Env. Social Responsibility Conflict Efficient channeling of Extractive $$$ Revenue into Public Investment with local HDI impact? Extractive REGION Extractive REGION Public investment Sust. OUTCOMES Local GOVT. Capacity for Quality Local community Local public investment PUBLIC INVESTMENT? Socio-economic development Infrastructure, education Env. sustainability Health etc. Improved HDI
Extractive Rents revenue flows within Government ( Host country): Quality public investment of rents is key to socio-economic development - HDI CENTRAL Nat. GOVERNMENT FISCAL Ministry $$$ Treasury Extractive Revenue Extractive Revenue Taxation – Fiscal Channel Investment Channel $$$ Rent Mining/Oil RENTS allocation Sub-National GOVT. EXTRACTIVE Operations Current expenditure Fiscal Federalism Private TNCs, State Corp. or HDI Revenue sharing? Investments? Public investment Corporate fund allocation Socio-Env. Social Responsibility Conflict Efficient channeling of Extractive $$$ Revenue into Public Investment with local HDI impact? Extractive REGION Extractive REGION Public investment Sust. OUTCOMES Local GOVT. Capacity for Quality Local community Local public investment PUBLIC INVESTMENT? Socio-economic development Infrastructure, education Env. sustainability Health etc. Improved HDI
Weak Sustainability Criteria or Hartwick Rule requires non decreasing “ National Capital” in its broadest sense. Y = f(K, H, Nnr ) Y = [ K + H + Nnr ] [ K + H + N ] National technological change Income resources efficiency (welfare) $ time
International revenue, financial, trade, IFF flows: (Host & Home countries) Government & Private sector actors –nat’l. & Int’l. EITI Govt. – Corp. Revenue payment CENTRAL Nat. GOVERNMENT disclosure FISCAL Ministry Global and Treasury $$$ $$$ Home country challenges Revenue Int’l. Private flows Extractive Revenue Taxation – Fiscal Channel profits, etc. Investment Channel $$$ FATF Tax cooperation Rent Mining/Oil RENTS allocation Trade due diligence Sub-National GOVT. EXTRACTION operations Current expenditure Fiscal Federalism ICMM codes of conduct Private TNCs, State Corp. or HDI Revenue sharing? Ind. Association initiatives Investments? Public investment Information disclosure, Corporate fund allocation transparency & Social Socio-Env. accountability Conflict Responsibility mechanisms Efficient channeling of Extractive $$$ Post COP-21 MRV Revenue into Public Investment with local HDI impact? Extractive REGION Extractive REGION Public investment Local GOVT. Sust. OUTCOMES Capacity for Quality Local community Local public investment PUBLIC INVESTMENT? Socio-economic development Infrastructure, education Env. sustainability Health etc. Improved HDI
Extractive Rents flows: Global, Home & Host country challenges MULTI-LEVEL RESOURCE GOVERNANCE EITI Govt. – Corp. interventions or pressure points Revenue Payment 1. FISCAL issues Transparency & other Repatriated profits Accountability mechanisms CENTRAL Nat. GOVERNMENT Tax evasion, FISCAL Ministry $$$ Transfer pricing etc. $$$ Treasury Revenue Private flows 2. TRADE issues Extractive Revenue Taxation – Fiscal Channel profits, etc. Mis-invoicing, bribery Investment Channel Due diligence supply chain $$$ 3. FINANCIAL issues Rent Mining/Oil RENTS allocation FATF implementation Sub-National GOVT. EXTRACTION operations Current expenditure Illicit flows, laundering Fiscal Federalism Private TNCs, State Corp. or HDI etc. Revenue sharing? Investments? Public investment Corporate fund allocation Socio-Env. Social Responsibility Conflict Efficient channeling of Extractive $$$ Revenue into Public Investment with local HDI impact? Extractive REGION Extractive REGION Public investment Sust. OUTCOMES Local GOVT. Capacity for Quality Local community Local public investment PUBLIC INVESTMENT? Socio-economic development Infrastructure, education Env. sustainability Health etc. Improved HDI
Extractive Rents flows: Host, Home countries and Global challenges call for MULTI-LEVEL RESOURCE GOVERNANCE interventions or pressure points beyond current status-quo 1. FISCAL issues Repatriated profits CENTRAL Nat. GOVERNMENT Tax evasion, FISCAL Ministry $$$ Transfer pricing etc. $$$ Treasury Revenue Private flows 2. TRADE issues Extractive Revenue Taxation – Fiscal Channel profits, etc. Mis-invoicing, bribery Investment Channel Due diligence supply chain $$$ Illicit trade Rent Mining/Oil RENTS 3. FINANCIAL issues allocation Sub-National GOVT. EXTRACTION operations FATF implementation Current expenditure Fiscal Federalism Private TNCs, State Corp. or HDI Illicit flows, laundering Revenue sharing? Investments? etc. Public investment Corporate fund allocation Socio-Env. Social 4. RESOURCE SUPPLY Responsibility Conflict sustainability of the Efficient channeling of Extractive $$$ global economy. Revenue into Public Investment with local HDI impact? Extractive REGION Extractive REGION Public investment Sust. OUTCOMES Local GOVT. Capacity for Quality Local community Local public investment PUBLIC INVESTMENT? Socio-economic development Infrastructure, education Env. sustainability Health etc. Improved HDI
Contents I 1. State’s share in Mining/Oil sector Rents during 1990-2013 - Analysis of State’s share in mining/oil sector estimated annual economic rent during latest price-cycle 2003 – 2012. - Estimated mining, oil & gas sector rents ( World Bank WDI database ). - Mining/Oil Corporate income tax & royalty payments ( nat’l tax authorities, fiscal ministry and central bank statistics) 2. Mining sector trends during price boom 2003-2012 – Evidence of extraordinary profits ( windfall) – Progressive taxation during up-cycle only in Oil/Gas, not in Mining ( Corp. Income tax + royalties, no windfall taxes, sharing contracts, need to move towards Res.Rent Taxation) – Case studies: local level « dutch disease »; anecdotal evidence for transfer pricing type practices. 3. Macroeconomy: prociclical consumption boom with few exceptions.
Oil/Gas and Metals price cycle 2003-2013 International commodity Price Index, January 2000 to May 2013 (price index January 2005=100) 300 before- 2003 2004 - 2009 2010 - 2013 250 200 150 100 50 0 may-01 may-03 may-05 may-07 may-09 may-11 may-13 ene-00 sep-00 ene-02 sep-02 ene-04 sep-04 ene-06 sep-06 ene-08 sep-08 ene-10 sep-10 ene-12 sep-12 Metales Energía (Petróleo, Gas Natural y Carbón) Performance differs between Oil/Gas and Mining sectors in terms of % State appropriation of rents, investment and production dynamics in response to the price cycle. Fuente : Comisión Económica para América Latina y el Caribe (CEPAL), sobre la base de información del Fondo Monetario Internacional (FMI).
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