Resource Use Charges In Latin America

Table 2 presents a summary of natural resources pricing in Latin America according to a recent survey presented in Serôada Motta, Huber, and Ruitenbeek (1999).⁸ These examples were successfully implemented only when they did not depend on institutional capacity to collect the revenue through procedures based on monitoring and user performance. It can also be noticed that the definition of pricing criteria was equally important to set the basis of the pricing system and avoid political barriers.

Forestry taxes and royalties on oil and electricity production are typically oriented to financing purposes, i.e., revenue-raising. On the other hand, water charges implemented in the region face the dilemma of adopting pricing criteria to accommodate a variety of objectives that are not always consistent.

In Brazil, Colombia, and Venezuela, a forestry tax is charged for wood consumption when the harvesting is not offset by equivalent reforestation. These taxes are set for financing purposes to foster reforestation, not to achieve an ecological goal such as curbing deforestation. They are usually very low and poorly enforced, particularly in frontier regions where monitoring is difficult.⁹

However, royalties from natural resource exploitation are already in place in Brazil, Colombia, Ecuador, and Venezuela with relative success.

TABLE 2

SOME EXAMPLES OF NATURAL RESOURCE PRICING IN LATIN AMERICA

Source: Serôada Motta, Huber, and Ruitenbeek (1999).

In Brazil and Colombia, these royalties, created in the 1990s, are a small proportion (varying from 4% to 6%) of the gross revenue of hydroelectricity, mineral, and oil production. In reality, they are earmarked revenue sources for the municipalities where exploitation takes place; some funds are also earmarked for regulatory and environmental agencies. In Colombia, the use of royalty funds for preservation purposes is more strictly earmarked than in Brazil; the Brazilian experience has been one of using the royalty revenue as a supplementary budgetary source for general revenue purposes. Royalties in Ecuador and Venezuela are strictly based on oil revenue. In Ecuador the royalty is a form of tax levy on oil passing through the pipeline from the Ecuadorian Amazon; it is earmarked for the Ecuadorian Institute for Eco-Development in the Amazon Region (ECORAE), formed in 1992. Royalty income in Venezuela, by contrast, finances the general federal budget.

Royalties may become an important source of revenue for environmental agencies if applied on resources with low price elasticity of demand, as in the case of minerals and electricity. Revenue aims can be achieved through a small share of the production value, with low collection costs that do not depend much on institutional capacity and sophisticated legislation. Political constraints may arise, however, in countries where the private sector is increasing its participation and faces strong international competition.