News Article

Mining Fund: Still Looking Out for Mining Communities?

By Alejandro Salas | Wed, 02/12/2020 - 17:39

Six years after its creation, the Mining Fund was canceled in favor of a new right companies have to pay that will be used for education infrastructure. Although companies agree that the resources stemming from the fund should be better and more transparently used, they also agree that the beneficiaries should be mining communities, said Alberto Orozco, President of the Sonora Mining Cluster. As moderator of the Redistributing Value in the Industry: the Mining Fund panel during Mexico Mining Forum, Orozco led a discussion between the public and private sector on Wednesday at the Sheraton Maria Isabel hotel in Mexico City.

In 2014, the Mining Fund was created as a right that companies had to pay, so the resources could be invested in the development of communities where extraction activities took place. According to Bernardo Ramírez, Partner at Chevez Ruiz Zamarripa, unlike a tax that is discretional in terms of resource allocation, rights are paid based on a service. “In mining, the goal is to redistribute value where cash flow was generated,” said Ramírez.

However, in 2020, the government approved a reform that completely overhauled the Mining Fund in favor of a new right. Resources will now be destined to education and will be redistributed as follows: 85 percent to the Ministry of Education, 5 percent to the Ministry of the Economy and 10 percent to infrastructure programs, according to Ramírez. “Considering that by 2019, MX$18 billion (US$970 million) had been collected through the Mining Fund, this is not a minor issue,” he said.

“Everyone asked us to keep the Mining Fund intact,” said Miguel Ángel Lucero, Senator and President of the Senate’s Mining Commission. According to Lucero, the commission fought against the Morena party majority in the Senate but eventually lost against 70 percent of the chamber who voted in favor of the creation of a new fund to redistribute resources among 200,000 elementary schools. The Senator highlighted that inconsistencies and lack of transparency in the use of resources were the main reasons behind President López Obrador’s decision to terminate the Mining Fund. “Resources were not used for infrastructure projects but for electoral campaigns. We should be happy that the MX$4 billion (US$214.8 million) we are expecting to collect in 2020 will be used on something useful for the country,” he said.

These views, however, were ill received by most industry stakeholders and decision-makers, including the state administrations of the major mining hubs in the country. “We seek to come up with a scheme to reinstate the Mining Fund according to the mechanics of the new administration,” said Luis Javier Sánchez, Deputy Minister of Investment of Zacatecas, calling for collaboration with the federal government to not terminate the Mining Fund. Sánchez highlights the role that mining plays in the Mexican economy, especially in Zacatecas that is the leading global producer of silver and the biggest national provider of lead and zinc. “We need to be allies to this sector,” he said. Hilde Salgado, Deputy Minister of Economic Development of Sinaloa, however, chose to make the benefits of the Mining Fund more evident.

“Sinaloa has 112 mining projects and 1,470 concessions managed by 58 companies from Canada, China and the US. Between 2014 and 2017, resources stemming from the Mining Fund resulted in MX$194 million (US$10.4 million) invested in infrastructure, education, highways, services and many other projects that can all be verified, with MX$62 million (US$3.3 million) left over that is already allocated to several projects. Approximately 98 percent of the economy of communities in the mountain range depend on mining operations, which are now left in uncertainty,” she said.

According to Salgado, companies will now have to give back to communities twice. Once with this new tax and then with projects directly with communities, since these will not see a return from the government due to the lack of proper direction of this new right. Carlos Silva, CEO of Santa Cruz Silver Mining, disagreed. “Actually, we will have to give back thrice. Companies have always been responsible for the infrastructure development of our communities. We have always had our communities as a priority because that is the only way we can be productive. This means that beyond the Mining Fund, we have always developed projects in favor of communities,” he said.

Although Ramírez acknowledged that the Mining Fund has some deficiencies in the way the right was calculated and how it relates to the income tax, its impact on communities and social development was visible. “If there is clarity in what kinds of projects are considered beneficial for communities, then there is no room for corruption,” he said. “The impact the Fund had was good. We previously fought against it but now we are fighting for the resources to be used where they should be,” said Silva.

Considering the negative response from the overall industry, Lucero recognized the difficult position of the Senate and the Chamber of Deputies. “It is hard to defend what some consider undefendable. However, difficult situations require hard solutions,” he said. When asked how the government would make sure there was no corruption in the way resources would be managed now, Lucero referred to the new way the government works in terms of social programs. “Resources are given directly to those who need them. Lack of bureaucracy means fewer chances of corruption. Schools will now receive resources directly, which they had never received before,” he said. Salgado, however, saw this as a political, rather than a social action. “Everyone wants what is best for the country but these measures seem like a populist strategy to secure votes for the next election,” she said.

Alejandro Salas Alejandro Salas Senior Editorial Manager