Advancing Together With Barrick Gold

Mining Taxation with representation in Peru

Incentive for infrastructure improvements benefits host communities

A new 21-mile road connects people in La Libertad’s highlands, near Barrick’s Lagunas Norte mine, to the coast of Peru. The country’s tax credit program helps communities access state funds for infrastructure projects while allowing companies to see their taxes directly benefit communities where they operate.

Ensuring tax dollars from mining flow back to the communities where mining actually takes place is a frequent concern among local leaders. A new tax credit program created by the Peruvian government is helping to address the issue, giving companies the option to invest a portion of their taxes in local infrastructure projects.

The tax credit program, known as Obras Por Impuestos (Public Works Through Taxes), was introduced as Law No. 29230 in 2009. It allows a company to pay up to half of its income tax through contributions to public infrastructure projects in communities near its operations. To date, the program is responsible for the construction of roads, hospitals, schools and other forms of public infrastructure throughout Peru.

Infographic: Who benefits, who contributed and where the money’s going (PDF).

 

How the program works

Companies can choose to invest in projects on a “priority” infrastructure list developed by local and regional governments. In circumstances where a project is not listed as a priority, communities can work with a company to obtain priority status for the project. In this way, the program helps communities to access state funds while allowing companies to see their taxes directly benefit communities where they operate.

“Part of the challenge up until now has been promoting use of the program,” says Napoleon Vilca, President of the Special Committee for Law 29230 for the Region of La Libertad, which promotes the fund to private companies on the government’s behalf. “The region of La Libertad, for example, has $140 million allocated for public investment through this program and has only spent $25.5 million.”

While the Peruvian government has earmarked billions of dollars for public infrastructure projects in recent years, a lack of capacity at the local and regional level to execute large-scale projects has left much of the money unspent. By leveraging the skills and capacity of the private sector in exchange for tax credits, the Obras Por Impuestos program is helping to unlock those funds.

“Obras Por Impuestos is an especially beneficial program for local governments, many of which lack the budgets necessary to tackle large projects such as hospitals, schools or roads,” says Manuel Fumagalli, Barrick’s Executive Director in Peru. “By working with the regional government of La Libertad, some of the communities that we interact with suddenly get access to regional funds.”

 

The road to wellness

“As more companies learn about the program, they are beginning to volunteer their tax dollars for projects that benefit their host communities,” says Carlos Cabanillas, Barrick’s Manager of Government Relations in Peru.

Barrick recently finished a technical study for a hospital in Santiago de Chuco and will provide $6.4-million in financing for the project, which will significantly improve medical care available in the city. Santiago de Chuco is located 60 kilometers from Barrick’s Lagunas Norte mine in northern Peru.

“The hospital will allow the 70,000 inhabitants of Santiago de Chuco and those in surrounding areas to benefit,” Vilca says. “It will also be the most modern facility in the entire Andean region.”

Through this program, Barrick has already constructed a 21-mile road that connects distant communities in the districts of Santiago de Chuco and Julcán to the coast of Peru. The road, which took less than one year to construct and cost more than $2.4 million, benefits 3,100 locals in La Libertad’s highlands, close to Lagunas Norte.

 

Barrick bricks for a barracks

La Libertad has seen an increasing gap in the number of police being trained relative to the number retiring. Every year between 70 and 120 officers retire, while the current police academy in Trujillo can only train 80 police officers per year to replace dwindling ranks.

While this trend has not led to a collapse in law and order, the local community has asked for a new police academy to address the decreasing ratio of 1.02 police officers per 1,000 inhabitants in the region. A consortium of companies has answered the call.

Barrick, Banco de Crédito del Peru, the largest bank in Peru, Backus, a local brewery, and Poderosa Mining have agreed to finance the construction of a police academy in La Libertad’s capital of Trujillo. The academy will enable the region to train 360 police officers per year at the Trujillo Technical School of Peruvian National Police, to the benefit of those students and indirectly to the benefit of the more than 1.6 million inhabitants of the region. The academy’s construction will cost nearly $12 million and will take about 18 months.

“It’s very exciting to see Barrick at the fore of this innovative way of investing in and benefiting local communities in one of the biggest problems that affects the region La Libertad,” says Juan Carlos Zaplana, Chief of Communications and Public Relations at Barrick’s Lagunas Norte mine. “This program provides one more excellent way for Barrick to give back to the communities where it operates.”