IAP - Deregulation
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OBJECTIVE
APEC economies will:
- promote the transparency of their respective regulatory regimes; and
- eliminate trade and investment distortions arising from domestic regulations which not only impede free and open trade and investment in the Asia-Pacific region but also more trade and/or investment restricting than necessary to fulfill a legitimate objective.
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Current Position
Since 1990, the Peruvian economy has been involved in a deep process of structural reform, one committed to modernizing the country in the economic and institutional senses, while also attracting investment. To reach that goal the Government has promoted macroeconomic discipline, established market rules, dismantled the trade protection structure, reinserted the economy into the world financial circuit and brought about an all encompassing deregulation of the economy.
Regarding this last topic, the Peruvian government has significantly deregulated the following areas:
- Investment
- Foreign Technology
- Exchange Regulations
- Labor Regime
- Financial, Insurance and Capital Markets
- Foreign Trade
- Sectoral Laws
- Taxation System
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a) Investment
Mechanisms have been established in order to guarantee foreign investors tax and legal stability, availability of foreign currency and non-discriminatory treatment. All legal and administrative hindrances and distortions that block economic development and restrict free private initiative have been eliminated, leaving competition to the private sector. Concessions have been granted to private investors for providing services or for building and administration of public works, traditionally carried out by the State, including, and not limited to, road, public services, education and transportation.
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b)Foreign Technology
Contracts for technology transfers, trademarks and other elements of foreign copyrights, technical assistance, basic and detail engineering, administration and franchises may be signed without any prior authorization by State agencies. However, contracts are to be registered at INDECOPI (National Institute for the Defense of Competition and the Protection of Intellectual Property).
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c) Exchange Regulations
All exchange controls have been abolished. No government authorization is required to carry out exchange operations. Possession and receipt of foreign currencies is accepted. Individuals and corporations may remit foreign currency abroad or retain it in the country. Foreign currency investments by foreign investors may be exchanged for domestic currency through the banking system or deposited locally. Residents and non - residents in Peru may open and maintain deposits in foreign currency in the local banking system. Similarly, individuals and companies may hold foreign currency accounts abroad.
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d) Labor Regime
The labor market has also been liberalized. Laws have been passed to create a new regime for involuntary severance compensation, regulating temporary employment and making labor stability more flexible. Enterprises in Peru may contract up to 20% of foreign workers, providing that their remuneration does not exceed 30% of the total salaries and wages paid by the company. Exemptions may apply.
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e) Financial, Insurance and Capital Market Reforms
The government has expanded and substantially liberalized operations carried out by financial institutions:
a. Interest rates and the distribution of financial resources are determined by market forces.
b. No limits exist on foreign participation in banking, insurance and underwriter activities.
c. Insurance and underwriting may be freely contracted abroad by Peruvian residents.
d. There is freedom to determine policies and interest rates.
e. Foreign investors have access to local short, medium and long term credits under the same conditions as nationals.
f. Operation of private pension funds (domestic and foreign) is permitted.
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f) Foreign Trade
Any prior governmental authorization, prohibition, control, public or private registration requisites and other non-tariff restrictions, for both exports and imports have been eliminated.
Free importation of goods exists and exports are not subject to any taxes. Moreover, companies exporting manufactured products have the right to a drawback mechanism. Similarly, prior authorizations and licenses have been eliminated, as well as other administrative requisites regarding exports, although a short list of goods may not be exported, for example animal species in danger of extinction.
It should be noted here that the reordering of the foreign trade regime also included drastic measures that successfully reduced costs in both ports and airports.
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g) Sectoral Measures
i. Fishing
All restrictions on developing fishing activities that are not founded on the need for conservation of hydrobiological resources have been eliminated. The framework law promotes foreign investment in the sector and establishes the procedure and requisites for obtaining licenses for fishing in Peruvian waters.
ii. Mining
The framework law establishes tax, administrative and free exchange stability, exemptions from income tax, free remittances of dividends or profits and non discrimination.
iii. Oil
The State monopoly in this particular sector has been abolished and all provisions on investment in petroleum exploration and production activities have been liberalized. Present legislation expands the exploration period to seven years, permitting contractors to participate in different phases and simplifying procedures for approval of exploration and production contracts. Moreover, the framework law establishes measures for reducing contractor's costs and authorizes guarantees for the use of foreign currency and remittance of profits in foreign currency.
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iv. Agriculture
New laws have relaxed the land tenure system and promote private investment, especially through the expansion of the agricultural front through the development of uncultivated lands.
Main changes to the laws are:
a. Companies may invest in agriculture and own lands. The owning and handling of lands may be exercised by any person or company, in equal conditions.
b. Agricultural land may be freely sold, rented, taxed and exploited in diverse associative forms, among individuals or legal entities, indiscriminately.
c. Foreign investment, as in any other sector, does receive the same treatment as national investment.
d. There are no limits to the number of hectares that private individuals or companies may own. However, the Executive has been given the faculty to enact a tax on any property exceeding 3,000 hectares.
v. Transport
Freedom of routes or operation permits for interprovincial public terrestrial transport under the form of concession exists. The same applies for international maritime transport. Also, procedures and requisites in order to facilitate capital and a firm's access to supply aerial services has become more flexible. Finally, freedom of train traffic has been established.
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h) Taxation System
The government has made important modifications to the taxation system, reducing the tax burden applied to income and consumption, while having reduced a long list of taxes to the current four: the income tax with just to ranges (up to S/.50,000 Soles of net aggregate income is 15%, and over that amount 30%), the general sales tax of 18% (16% plus 2 points for the Municipal Promotion tax), the selective consumption tax for some specific items and tariffs at 20% and 12%.
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ACTIONS
These measures have been the backbone of a very wide economic and institutional deregulation. In that sense, the Peruvian government is now committed to preserving and consolidating what has been achieved up to now.
In 1997 the main privatization drive has concentrated in activities related to mining and the generation and transmission of electricity. In addition, the government has launched an aggressive program of investment concessions in infrastructure projects and public services (with the exemption of the municipal ones) directed at the private sector (national and foreign). For that purpose, the Special Privatization Committees of COPRI ¡V the Commission for the Promotion of Private Investment Promotion, has the faculties of carrying the privatization program in Peru ¡V privatization of state owned enterprises and development of infrastructure projects through the concession modality.
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Special Airport Committee
In view of Per's rugged geographical features, airports play a fundamental role in promoting the development of the country, providing facilities for local and foreign trade, gathering access to new markets, encouraging the flow of tourism and linking the different regions of Peru with the rest of the world.
The Peruvian Corporation of Airports and Commercial Aviation -- CORPAC manages 33 airports which receive domestic and /or international commercial flights. The main airports capable of receiving international flights are Lima, Iquitos, Cusco, Tacna and Arequipa.
The "Jorge Chavez" international airport is located in the Province of Callao in the department of Lima. It is the most modern and has the best airport facilities in Peru. This airport takes in the most passengers and the largest volume of freight, and due to its strategic geographical location it can become a very important "Commercial hub" in Latin America.
It represents an excellent business opportunity for the private sector because of the heavy air traffic it handles and its increasing development.
The public tender to grant the concession of Lima's international airport will take place the first trimester of 1999.
The other four important airports: Cusco, Arequipa, Iquitos and Trujillo will be tendered according to the defined strategy and schedule actually in progress. The Cusco Airport may be the next airport tendered.
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Special Committee for Ports Concessions
In view of Peru's geographical location in South America, port facilities play a strategic role. Trade, particularly between member countries of the Asian Pacific area in recent years has been increasing at a faster pace than the world average and this tendency is likely to continue.
The Government is seeking to upgrade the existing management of its ports in order to make them more efficient. The objective is to offer in a public tender seven ports that will be operated under concession contracts. These ports: Paita, Salaverry, Chimbote, San Martin, Illo, Matarani and Callao are currently run by the National Ports Company - ENAPU. The first two ports to be granted in concession are Matarani (nearly 7% of the country's cargo volume is concentrated here, and it represents an important port facility for neighboring Bolivia) and Illo (caters fishery and mining sectors, and is also important for Bolivian trade) which are scheduled for the first trimester of 1999.
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Special Committee for National Road Network Concessions
In a country like Peru, the development of road infrastructure is a fundamental element for the national and regional integration of the different economic activities in the country. A road network in good condition will help reduce transport costs for individuals, merchandise and the flow of tourism.
The Government is determined to encourage private investment in highways under a concession system. As far as investors are concerned, their potential profits would be based on direct fees charged for rendered services, based on dynamic economic growth.
The Government has been working to upgrade its national road network since the beginning of the decade. The national road network covers 74,000 Km of which just 12% are paved. In order to put Peru on par with regional standards; the government is seeking to grant in concession a total of 7,000 Km. of the 17,000 Km. that constitute the national road network.
These 7,000 Km. have been divided into 11 routes covering the Pan-American highway as well as the corridors to the interior of Peru.
The first route to be handed over to the private sector on concession, Network Route No. 5, which covers 200 Km. of Pan-American Highway to the north of Lima, as well as 200 Km. of an alternate route to the "Carretera Central", the main artery of the Andes.
The Special Committee of Privatization is currently in the final stage of reviewing, both demand traffic studies as well as final engineering projects. These, along with a fixed concession period and traffic rate per 100 Km., will be given to potential private investors. The concession should be awarded based on highest economic value to the State, given set quality parameters. The process is expected to begin in December 1998.
The Special Committee has undertaken economic and technical studies which are necessary for the Project, and it has already started the process of hiring and Investment Bank which will advise the Committee on how to promote the project until it is given in concession to the successful bidder.
Special Committee for Olmos Hydroelectric and Irrigation Project
The Olmos Irrigation and Hydroelectric Project is located on the north coast between the departments of Lambayeque, Piura and Cajamarca. The project will enable farmers to draw in, regulate and channel waters from the three rivers in the Amazon Basin over to the Pacific watershed so as to expand the agricultural front. The project will make it possible to irrigate more than 66,000 hectares in the valleys of Cascajal, Olmos, Motupe, La Leche and Alto Piura.
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Alto Piura Special Committee
Another irrigation project to be included within the concession program covers the creation of arable land in the upper-reaches of the Piura Valley (northern coast).
The Huancabamba River, which flows through the Amazon Basin, and whose waters would be channeled into the Pacific Ocean would make it possible to irrigate 34,298 hectares of land. The second source is from underground water in the valley, with the purpose of regularizing the irrigation of approximately 29,000 hectares in the old "Alto Piura" valley. The Committee is working with an Investment Bank in order to define the strategy, the method and the conditions of the concession which will allow to select an investor to secure the construction, maintenance and operation of the works and services of the project.
Simultaneously, the Committee is accomplishing the actions to hire a technical consultant who will carry out the environmental impact study, which will assure the viability of the infrastructure and the public services of the concession. The Committee hopes to start the bidding process to grant in concession the project in January 1999 and conclude it in October of the same year.
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Special Committee for Transport and Gas Distribution
The Camisea project is one of Latin America's largest gas projects, and involves the construction of a pipeline that will enable the project to supply natural gas to Lima and meet the energy demand from 1.4 million households. Also, gas could be used to meet energy demand in the industrial sector, which is currently covered by oil based products such as Diesel Number 2 and residual petroleum.
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Special Committee for the Biabo Forest
The Biabo forest covers some 2.1 million hectares, located between the departments of Loreto, Ucayali and San Martin. The Government is studying to transfer the forest concession to the private sector, breaking it down into blocks of 20,000 to 40,000 hectares each. The concessions will be granted for a period of 50 years, which can be renewed for a similar term. The lots are scheduled to be put up for bidding in a public tender in late February 1999.