Peru could follow path of Venezuela, Bolivia
FROM THE ECONOMIST INTELLIGENCE UNIT
Peru’s market-friendly mining and energy sectors are likely to undergo considerable change regardless of which presidential contender—ultra-nationalist Ollanta Humala or centre-left former President Alan García—is elected in a runoff set for June 4th. Given the wave of energy nationalism spreading through Latin America, the changes could be unfavourable to foreign investors.
Against the backdrop of Bolivian President Evo Morales’s May 1st announcement that he would nationalise his country’s oil and gas fields and installations, Mr Humala and Mr García have also sketched out the broad outlines of the energy policy each would implement in a new government to take office on July 28th.
Change either way
Mr Humala, a politically inexperienced former military officer running under the banner of the Unión por el Perú (UPP) coalition, rejects the market-oriented and orthodox economic policies of President Alejandro Toledo’s government and its predecessors. On May 5th, he accused Mr Toledo of “bowing down” to multinational companies and reiterated that current oil and gas contracts would be revised. He said the state should participate in all phases of the industry, which his government programme calls “strategic.” He denied, however, that there were plans to carry out expropriations.
A Humala government would sit down with companies holding oil and gas contracts, and, if investment rules have to be changed this would be done “democratically” and “within a legal framework,” Mr Humala said. He also said he did not expect companies to leave Peru even if investment rules were changed.
Gonzalo García, architect of the candidate’s programme, has spoken of joint ventures or associations between the public and private sector in the energy industry. Yet he has offered few details on how much acquisition of a share of these ventures by the state would cost and how it would be financed.
Former President García, of the Partido Peruano Aprista (Apra) party, also favours renegotiating the contracts of the Camisea natural-gas project, which he says has resulted in constant rises in the price of natural gas and liquid petroleum gas (LPG), a fuel produced at Camisea that is used widely by Peruvians for cooking. Mr García, who served as head of state in 1985-90, has also said that his government might apply a windfall tax on excessive oil profits.
Officials in Mr Toledo’s government, by contrast, have stressed the need to respect investment contracts despite soaring international oil and gas prices.
US$15bn on the line
Currently, there are 27 oil and gas production contracts and 23 exploration contracts in place in Peru, including Camisea in Block 88, according to Peru’s oil and gas licensing firm Perúpetro. All of the contracts are held by private firms, which produced around 3m barrels of oil and 2.69bn cubic feet of natural gas in March. Peru’s state oil company, Petroperú, was partially privatised in the 1990s and currently only refines and transports crude.
Carlos del Solar, president of the private National Mining, Petroleum and Energy Society, called on the two candidates to respect investment rules that have brought US$5bn in investment to Peru’s oil and gas sector since 1994.
Another key sector in Peru is mining, which in 2005 generated 57% of Peru’s overall exports and 40% of the income tax paid to the state. Peru is a major world producer of copper, gold, zinc, lead, silver and tin. Over the last 13 years, some US$9.9bn has been invested in the sector, largely as a result of a privatisation programme carried out in the 1990s.
Mr Humala’s government programme chief, Mr García, said the mining sector would not be considered strategic, in contrast to oil and gas. But he did say that multinational mining companies that do not pay royalties on sales could be subject to contract renegotiations. These companies include Minera Yanacocha (gold), majority owned and operated by Newmont Mining of the US; Antamina (copper-zinc), part owned by BHP Billiton of Australia; and Sociedad Minera Cerro Verde (copper), owned by BHP Billiton and Phelps Dodge (US).
Former President García has said that if he is elected—and polls show he has an advantage over Mr Humala—he might also apply his proposed windfall tax to the mining sector, which is currently enjoying some of the highest metals prices in a generation.
The waiting game
Gold miners attending Peru’s Seventh International Gold Symposium on May 3rd-5th expressed both concern and realism about new investment rules that could be implemented in the next administration. “Of course we are nervous,” Pierre Lassonde, president of Newmont Mining, said when asked about the Peru runoff vote.
Nervousness among investors is being fuelled by the recent nationalist actions taken in Bolivia as well as in Ecuador and in Venezuela, whose governments are forcing foreign investors in natural resources to renegotiate contracts. “This is every foreign investor’s nightmare, that you invest billions of dollars and all of a sudden you find that your investment has been nationalised,” said Mr Lassonde.
Newmont has around US$2bn in investment planned for Yanacocha, but its president warned that the company could cancel those plans if the investment climate was not right.
Yet not all companies are apt to walk away from Peru should a worst-case scenario materialise. Richard Graeme, general manager of a subsidiary of South Africa’s Gold Fields said that dealing with changing host governments is part of the mining business. “We work worldwide and you assume that in countries, governments change and policies change and with it, you adjust,” he said. Gold Fields will launch the US$277mn Cerro Corona copper-gold mine in northern Peru in October 2007.
Source: ViewsWire Latin America
Peru’s market-friendly mining and energy sectors are likely to undergo considerable change regardless of which presidential contender—ultra-nationalist Ollanta Humala or centre-left former President Alan García—is elected in a runoff set for June 4th. Given the wave of energy nationalism spreading through Latin America, the changes could be unfavourable to foreign investors.
Against the backdrop of Bolivian President Evo Morales’s May 1st announcement that he would nationalise his country’s oil and gas fields and installations, Mr Humala and Mr García have also sketched out the broad outlines of the energy policy each would implement in a new government to take office on July 28th.
Change either way
Mr Humala, a politically inexperienced former military officer running under the banner of the Unión por el Perú (UPP) coalition, rejects the market-oriented and orthodox economic policies of President Alejandro Toledo’s government and its predecessors. On May 5th, he accused Mr Toledo of “bowing down” to multinational companies and reiterated that current oil and gas contracts would be revised. He said the state should participate in all phases of the industry, which his government programme calls “strategic.” He denied, however, that there were plans to carry out expropriations.
A Humala government would sit down with companies holding oil and gas contracts, and, if investment rules have to be changed this would be done “democratically” and “within a legal framework,” Mr Humala said. He also said he did not expect companies to leave Peru even if investment rules were changed.
Gonzalo García, architect of the candidate’s programme, has spoken of joint ventures or associations between the public and private sector in the energy industry. Yet he has offered few details on how much acquisition of a share of these ventures by the state would cost and how it would be financed.
Former President García, of the Partido Peruano Aprista (Apra) party, also favours renegotiating the contracts of the Camisea natural-gas project, which he says has resulted in constant rises in the price of natural gas and liquid petroleum gas (LPG), a fuel produced at Camisea that is used widely by Peruvians for cooking. Mr García, who served as head of state in 1985-90, has also said that his government might apply a windfall tax on excessive oil profits.
Officials in Mr Toledo’s government, by contrast, have stressed the need to respect investment contracts despite soaring international oil and gas prices.
US$15bn on the line
Currently, there are 27 oil and gas production contracts and 23 exploration contracts in place in Peru, including Camisea in Block 88, according to Peru’s oil and gas licensing firm Perúpetro. All of the contracts are held by private firms, which produced around 3m barrels of oil and 2.69bn cubic feet of natural gas in March. Peru’s state oil company, Petroperú, was partially privatised in the 1990s and currently only refines and transports crude.
Carlos del Solar, president of the private National Mining, Petroleum and Energy Society, called on the two candidates to respect investment rules that have brought US$5bn in investment to Peru’s oil and gas sector since 1994.
Another key sector in Peru is mining, which in 2005 generated 57% of Peru’s overall exports and 40% of the income tax paid to the state. Peru is a major world producer of copper, gold, zinc, lead, silver and tin. Over the last 13 years, some US$9.9bn has been invested in the sector, largely as a result of a privatisation programme carried out in the 1990s.
Mr Humala’s government programme chief, Mr García, said the mining sector would not be considered strategic, in contrast to oil and gas. But he did say that multinational mining companies that do not pay royalties on sales could be subject to contract renegotiations. These companies include Minera Yanacocha (gold), majority owned and operated by Newmont Mining of the US; Antamina (copper-zinc), part owned by BHP Billiton of Australia; and Sociedad Minera Cerro Verde (copper), owned by BHP Billiton and Phelps Dodge (US).
Former President García has said that if he is elected—and polls show he has an advantage over Mr Humala—he might also apply his proposed windfall tax to the mining sector, which is currently enjoying some of the highest metals prices in a generation.
The waiting game
Gold miners attending Peru’s Seventh International Gold Symposium on May 3rd-5th expressed both concern and realism about new investment rules that could be implemented in the next administration. “Of course we are nervous,” Pierre Lassonde, president of Newmont Mining, said when asked about the Peru runoff vote.
Nervousness among investors is being fuelled by the recent nationalist actions taken in Bolivia as well as in Ecuador and in Venezuela, whose governments are forcing foreign investors in natural resources to renegotiate contracts. “This is every foreign investor’s nightmare, that you invest billions of dollars and all of a sudden you find that your investment has been nationalised,” said Mr Lassonde.
Newmont has around US$2bn in investment planned for Yanacocha, but its president warned that the company could cancel those plans if the investment climate was not right.
Yet not all companies are apt to walk away from Peru should a worst-case scenario materialise. Richard Graeme, general manager of a subsidiary of South Africa’s Gold Fields said that dealing with changing host governments is part of the mining business. “We work worldwide and you assume that in countries, governments change and policies change and with it, you adjust,” he said. Gold Fields will launch the US$277mn Cerro Corona copper-gold mine in northern Peru in October 2007.
Source: ViewsWire Latin America
posted by Marko at 5/09/2006 12:54:00 PM
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