Net Present Value

Just in time for tax season.

As I am always on the look out for obscure concepts of one kind or another into which to shoehorn experience - let us for the moment consider Net Present Value.

Net Present Value (or NPV) is a concept that I have been thinking about a lot about lately. It comes to me from my many recent inquires into global mineral laws.

According to the authors of Mining Royalties: A Global Study of Their Impact on Investors, Government And Civil Society Net Present Value can be explained as - the optimal level of taxation:

"The more the government taxes the mineral sector, the greater the share of wealth created by mining that flows to the government. This means, of course, that less of the wealth is flowing to the companies. Therefore, rising tax rates undermine companies incentive to carry out exploration, to develop new mines, and even, if the increases are sufficiently large, to remain in production at existing operations. Thus, one critical issue for pulbic policy is determining the optimum level of mineral taxation. Clearly a tax rate that takes all of the wealth is too high, because it kills the goose that lays the golden egg. On the other hand, a tax rate of zero is likely to be too low, leaving the state with only nontax benefits that flow from mining and mineral production. Somewhere between these two extremes is an optimal level of taxation that maximizes the Net Present Value (NPV) of the tax revenues or, more appropriately, the NPV of all social benefits the country receives from its mineral sector.". (8)

So, two things:

First, I feel that Net Present Value as it is defined here by these well-meaning analysts at the World Bank is a limited concept that comes with its own prejudices and ideological assumptions. Through the prism of Net Present Value one analyzes the world and its minerals purely in financial terms, or that which can be presently quantified.

I guess my question here is whether there are other factors at work that we are not presently quantifying, or are able to quantify. Net Present Value assumes that nothing but "social benefits" can accrue to a country that engages its "mineral sector" provided that country discovers the optimal level of taxation. But what about the "social disruptions"? What about the "social benefits" of not mining at all? What about Net Future Value? These minerals of which we speak are, after all, Non Renewable. I am referring to that which we qualify. And the degree to which we are able to quantify that which we qualify. Or put another way - putting a number value on that which we cherish.

Consider:

I'm broke and I have no job or I may be a subsistence farmer of some kind. I am barely getting by basically, but at least I can take a walk in the beautiful forests and valleys where I live and listen to the birds in the spring just like my great grandparents did before me. And maybe I'm living off this land, but it is an incredibly hard life that comes with its own measures of unreliability and limitations, and I am certainly never getting ahead. Interestingly enough, this area also happens to lay on top some potentially lucrative mineral deposit of some kind. Some foreign company will come and help develop it all for me and my people provided I (we) give them a share of the profits. And ideally, with my (our) share I could maybe build a hospital and or a school, and provide opportunities for my children that I myself never had and my grandparents and parents never dreamed of. But the valleys and the forest will never be the same, if they remain at all. And once the minerals are gone, certainly the company will go to.

(*Note* : Interested readers may notice my own ideological, certainly bourgeois assumptions here in this idyllic 'walking in the beautiful forests and valleys and listening to the birds' image. Oh yes, everything is just hunky dory in the life of your average subsistence farmer - its just a walk in the park, really. As I write this, after all, I know that should I get thirsty all I have to do is walk ten feet from my desk, turn on the tap and I can drink all the relatively clean water I want. My computer seems to be running fine with all the power it needs. I could probably write whatever obnoxious thing I wanted right now and I doubt any jackbooted thugs are going to show up, kick in my door and haul me away. And even if they did and I survived - I could sue. If I have to take a shit I'm fairly confident the indoor plumbing is working fine. And even being Canadian, I know that if I were to step outside right now, get hit by a streetcar and break my leg I would be able to get to the hospital down the street and have it treated without anyone billing me extra. I certainly feel secure knowing I have somewhere to go and they won't turn me away. Pretty sweet really, all that, when you think about it. And we do a lot of mining, in this country and around the world. Almost makes you think there might be a correlation.)

I started to think a lot about this stuff recently after I attended a screening of the great documentary film Under Rich Earth directed by Malcom Rogge a couple of months ago at the Toronto Human Rights Film Festival. Its about the people of Junin, a tiny village in the Intag Valley of northeastern Equador. They are basically a group of small organic coffee and sugarcane farmers who band together to oppose the plans and plots of Mesa Copper (then Ascendent Copper) to mine the Junin porphyry copper deposit which lays beneath their homes. At one point the company goes so far as to hire this collection of freelance paramilitary thugs to come and try and intimidate these villagers. But the villagers stand their ground. They fight back by not only filming these confrontations but by ultimately, eventually 'arresting' this wayward mercenary crew themselves. They then marched them into town, locked them up in the church, and called the government and the international press.

The film was riveting and captured perfectly many of the issues involved in these kind of conflicts we see going on all over the world. And lucky for me during the screening I attended a couple of the activists themselves, including Carlos Zorilla , from the organization DECOIN - the group that originally opposed and organized against the mine - were on the premises. They just happened to be in town filing a one billion dollar lawsuit against the Toronto Stock Exchange and Copper Mesa - so they were kind enough to make themselves available for questions afterward.

Somebody asked them if, even after everything they had gone through, would they ever look to develop the Mine themselves? Provided they could do so in such a way they felt adequately addressed their environmental and equity concerns?

They took a moment, before answering - 'no'.

They explained that they saw themselves primarily as stewards of the land whose ultimate responsibility lay in handing it off to their children as they themselves had found it. Zorilla himself explained that 60% of the world's minerals go to 15% of the world's population and then they are gone. It was, according to him, a manner of doing business that was not only unjust but totally unsustainable - so why would he want a part of it? He pointed out that the stock exchanges of Canada are amongst the easiest places in the world to raise money for this kind of enterprise. He then asked poignantly why we didn't just leave them alone.

Good question.

For me it was another reminder that not everyone wants what we necessarily think they want. i.e. - they may not want to be like us. But they certainly deserve our respect.

And second, I kind of like this concept of Net Present Value - in that I think I can now go and apply it to a whole host of other issues.

Broadly taken I imagine Net Present Value as representing compromise. Just how much are you (dear reader) prepared to give, or give up, in order to get what you want and need. The perfect balance in this particular equation would be your Net Present Value.

FURTHERMORE:

Mining Watch Canada

Comments

[celebrity tube]

Hello Dolly. What if we believe in present, not future?