‘High-quality’ investors sought in minerals and hydrocarbons

The mining industry is Peru’s principal source of foreign exchange, representing 50% of total currency reserves in any given year. Directly or indirectly, the sector provides jobs to 820,000 citizens, and contributes 12% to GDP. In 2015, mining attracted $7.5 billion in domestically or externally sourced investment flows.

Successive governments, however, have had to deal with the damage mining causes to the environment, especially to essential water resources and soil on grazing land contaminated by toxic runoff.  

“We recycle the water now,” says Carlos Galvez, President of the National Society for Mining, Petroleum and Energy (SNMPE) “and make every effort to ensure that our exploration and survey work is non-invasive.”  

Since the government of President Pedro Pablo Kuczynski took office in July, Mr. Galvez is hopeful Peruvians will be able to benefit from projects that have been languishing “on hold” for years, such as the Tia Maria complex in the south of the country, where two trenches will be developed at a projected cost of $1.4 billion on forecasts of recovering 120,000 tons of copper.      

On a visit to Andean city of Tacna a month after taking office, President Kuczynski reminded supporters that “we are sitting on a mountain range that contains the world’s greatest natural resources.” But can they be exploited without causing extensive environmental damage?

The way to ensure positive outcome is spelled out by Mr. Galvez: “We have to work with high-quality investors, respecting the environment and treading carefully with regard to possible social disruptions. I think Peru can look to a shining future if it makes proper use of its resources and takes advantage of the value they create to educate and generate knowledge, so we can be prepared to take part in the era of knowledge that is the 21st century.”   

Oil and gas
Petroleum output is down to less than half of what it was 30 years ago. There’s not nearly enough to meet domestic demand so purchases from Ecuador and Africa make up the 80,000-barrel annual shortfall. Experts say it doesn’t have to be that way. The oil is out there, no question about it, but so far, no entity, private or public, has been willing to shoulder the risk and expense of determining where exactly “there” is.    

What they do agree on is that 18 potentially viable oil fields have been identified in Peruvian territory, eight of them under its territorial waters, and possibly many more. A grand total of six out of the 18 can be said to have received a more than a cursory survey but indicators of sustainability were mostly positive. Further action, however, may have to wait for world oil prices to make their long-overdue recovery.

In that connection, the lumbering bureaucracy that afflicts the mining sector has likewise been blamed for discouraging sustained exploration with endless requirements for redundant paperwork and government clearances needed every step along the way, especially those impacting on the environment. The SNMPE has offered to work with the new government in drafting a package of reforms that would streamline a process that could last over two decades.

LNG
But what Peru currently lacks in oil, it’s trying to make up for in gas. It has not been all that long since South America’s first liquefied natural gas (LNG) plant was inaugurated in 2010 near the Peruvian coastal town of San Vicente del Cañete, where a pipeline from the Camisea field in Cusco province, 250 miles distant, splices into the Pan American highway and port facilities are within convenient reach.

Operated by Peru LNG S.R.L., the plant has a capacity of 4.4 million tons, and the pipeline that feeds it ratcheted up the total price tag of the project to $3.8 billion, the largest investment in any project ever undertaken in the Andean country. In December, the maritime LNG terminal was recognized with the OAS Maritime Award of the Americas in the category of Environmental Waste Management in Ports.

“Peru LNG has been a clear example of how large-scale investments can be carried out in the country,” former general manager, Igor Salazar, said in an interview with United World before his departure from the company at the end of last year.

While the company has been experiencing tougher times of late, Mr. Salazar said he remained optimistic that the Kuczynski administration will continue to support natural gas as a key resource for Peru’s future development, and Peru LNG will continue to play a key role.

“It is highly positive. An example of this is the restart of the Southern Gas Pipeline (SGP) in Peru, one of the mega-projects emblematic of those being talked about so much, which will contribute enormously to the massive arrival of gas in the southern region of the country.”

Construction giant Odebrecht recently withdrew from the SGP following allegations of corruption surrounding the project and previous Peruvian government officials. Put President Kuczynski has stated that he is confident that the project will still go ahead. When operational, the pipeline will transport 2000 million cubic feet of gas per day from the Anta province in Cusco to the south coast, which will help Peru to meet its growing energy needs in the South and strengthen its position as an LNG exporter.

“For our part, in terms of Peru LNG, we are continuing to support this national plan, and we are planning accordingly to start operating our LNG truck loading facility in March 2017 to contribute with widespread growth,” said Mr. Salazar, who was replaced by María Julia Aybar Solís in late December.

“The idea is that major investments similar to that of Peru LNG exist in the country and what we are returning to, particularly with the new government, is that the Peruvian state works hand in hand with these kinds of investments – encourages them and protects them. The role of the state as facilitator, both for the investor and for the community, is essential if it wants to make projections for sustainable growth.”