fDI Supplement

December 2014/January 2015 www.fDiIntelligence.com 1

CONTENTS

OvErviEw

02Peru has undergone a renaissance in recent years, embracing a free-market economy and putting thedays of hyperinflation behind it, finds Michael Deibert. But sluggish growth in 2014 is spurring the

government into action.

iNTErviEw

05Peru’s new finance minister is facing a challenging first few months in the job, as the country’s stellareconomic performance of the past decade appears to be stalling. He tells fDi how a series of PPP

projects and a more diversified economy means that the country’s future is still bright.

iNfraSTruCTurE

07For centuries a country of isolated settlements and impassable terrain, Peru is realising the benefits ofroad and rail links when it comes to increasing productivity.

TraNSpOrT

09Few cities needed a metro system as badly as the Peruvian capital of Lima. Now foreign money ispouring in to further extend the network and relieve pressure on the overcrowded streets above.

ENErgy

10Investments in Peru’s energy sector are helping to diversify the country’s economy beyond its traditionalcommodities exports, and the push for greater diversification presents opportunities for investors.

gaS

12A $4bn gas pipeline project is the largest and one of the most ambitious projects of its kind in Peru’shistory, but when it is completed, it promises to transform the country’s electricity supply chain and help

it along the path to industrialisation.

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2

OVERVIEW

Peru looks tobeat theblip

A visitor returning to Perufor the first time in 20 yearscould be forgiven for think-

ing they have arrived in an entirelydifferent country.

This South American country,whose Pacific Ocean coastline ofbeaches and deserts rises eastwardinto the Andes and then sinks intothe dramatic torpor of the Amazonrainforest, boasts many of the sametraits as before. The bracing mix of

European, indigenous and African cultures,the distinctive genres of music and the deli-cious cuisine are still there, but the politicaland security landscape of the country havechanged to such a degree as to be unrecognisa-ble, and, with it, Peru’s appeal as a destinationfor foreign investment.

TeeteringwreckBy the late 1980s, Peru was a teetering wreck.Its then-president, Alan García, presided overa country where inflation ran at about 7600%,made lunges to nationalise Peru’s bankingindustry and defaulted on the country’s debtrepayments to the International MonetaryFund. Two rebel groups, the Shining Path andthe Túpac Amaru Revolutionary Movement,strode about the country and into the heart ofthe capital, Lima, with ever-more brazen attacks.

When Mr García finally fled into exilefollowing the end of his term, he was replacedby Alberto Fujimori, an academic of Japaneseancestry who defeated novelist Mario VargasLlosa, perhaps the best-known Peruvian in theworld, for the presidency. Mr Fujimori closeddown Peru’s congress and rapidly blossomedinto the kind of military-style leader thatSouth America had long known and feared,nevertheless managing to break the backsof the rebel movements at a terrible humancost before he was overthrown after a decadein office and also forced into exile in 2000.Mr Fujimori has since returned to Peru,where he is in prison having been convictedof human rights abuses and financial mis-deeds during his rule.

Then, as the new millennium beckoned,something surprising happened. Mr Fujimoriwas succeeded as president by AlejandroToledo, a Stanford University-educated econo-mist of indigenous descent, who in turn wassucceeded in 2006 by the formerly disgracedAlan García, now reborn as an evangelist offree trade and investment.

In 2011, Mr García was succeeded byformer army officer Ollanta Humala (who hadlaunched an inconclusive uprising against MrFujimori just before the latter’s impeachment,and defeated the former president’s daughter,Keiko, in the general election). Despite the dif-

Peru has undergone arenaissance in recentyears, embracing a free-market economy andPutting the days ofhyPerinflation behindit, findsMichael Deibert.but sluggish growth in2014 is sPurring thegovernment into action

Peruvians understand thatyou can’t Play with economics

www.fdiintelligence.com december 2014/January 2015

3

ferences in profiles and temperaments of thethree men, and despite the pockets of povertyand inequality that remained, Peru began totake off economically.

FDI floodgatesAlthough Peru remains one of the world’s larg-est producers of copper, gold and silver, newopportunities for foreign investment rangingfrom infrastructure to energy began to ariseacross the country and foreign firms floodedin. They are still coming.

In the past year, Peru has witnessed thestart of such large-scale foreign investmentprojects as the second line of the Lima Metro,work on an international airport at Chincheroin the colonial city of Cusco, and the earlystages of the massive Gasoducto Sur Peruanoproject, a $4bn private investment structuredthrough project finance that will see an esti-mated 1200-kilometre gas pipeline snake fromdeep in the Amazon, across the Andes andfinally down to Peru’s southern coast.

Peru’s president, Mr Humala, who had rununsuccessfully as a fire-breathing compadre ofVenezuela’s populist left-wing president HugoChávez against Alan García in 2006, struck afar more moderate tone in the 2011 vote, seek-ing to identify himself more with the moder-ate progressive governments of countries suchas Brazil, where the left-wing Worker’s Partyhas been in power since 2003. It is a stance that

has continued during Mr Humala’s presidencyand which, in the words of the country’s newminister of finance, Alonso Segura, “has servedPeru well”, an assessment that most foreignfinancial observers would agree with.

Lima the pleasantLima, once referred to by the poet SebastiánSalazar Bondy as “Lima the horrible”, is nowone of the most pleasant cities in LatinAmerica, with a vibrant cultural and diningscene, and bohemian neighbourhoods suchas Barranco abutting posh districts such asMiraflores. The poverty rate in Lima has beenreduced to less than 13% from nearly 45% adecade ago.

But the salubriousness of the capital canbe deceiving, and the poverty rate in rural Perustill hovers around the 50% mark, where work-ers are likely to earn at least 20% less thantheir counterparts in Lima. Many indigenouscommunities still live in poverty and many ofthe children in these communities still sufferfrom high rates of malnutrition.

Civil unrest, much of it linked to develop-ment projects and mining endeavours, stillfeatures in Peru’s landscape and the policeresponse has frequently been lethal. Eightypeople have been killed by the police in suchprotests since 2006, with more than 800wounded, according to Peru’s NationalCoordinator for Human Rights.

december 2014/January 2015 www.fdiintelligence.com

lessons learnt: ollanta humala, who ran unsuccessfully in Peru’s 2006 presidential elections as a far-left populist, struck a moremoderate tone in 2011, which finally led to victory

Picture:diego

Giudice/Bloom

berg

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Stormclouds gatherAnd during the past year, clouds have begunto cross the country’s sunny economic hori-zon. Peru’s economy, which grew by 9.8% in2008 and 6% in 2012, grew only 2.75% duringthe first eightmonths of 2014. The govern-ment has blamedmuch of the downturnon such factors as a drop in export prices,adverse weather conditions caused by the ElNiño phenomenon, which affected fisheriessignificantly and some agricultural staples,and also the fact that Peru’s mines havereached veins of lower quality minerals.

Nevertheless, the slowdown spurreda significant government shake-up, withMrHumala’s long-servingminister of finance –Luis Castilla, widely viewed as one of the gov-ernment’s most powerful members – replacedby Alonso Segura in September. To stimulatethe economy, the Humala government alsoannounced a reduction in import duties andspending packages, and – worryingly for some– a streamlining of environmental permits forbusinesses operating in Peru.

Given other governmentmeasures such as

the promotion of capital markets access,cracking down on tax evasion and reformingthe civil service, it would seem that the admin-istration is serious about tackling the slow-down before it gets out of hand. Many observ-ers, though, still caution that the performanceof Peru’s overall economy is linked to thehealth of its extractive industries.

“Everything is tied to themining industry,”says Pedro Tuesta, an economist at 4Cast Inc inWashington, DC.

With elections scheduled for 2016,many observers believe former president AlanGarcía could be pitted against Keiko Fujimori.Whoever wins, however, it is unlikely that Peruwill see a dramatic departure from the success-ful economicmodel that has thus far seemedso effective.

“Peruvians have understood that you can’tplay with economics,” Peru’sminister of energyandmines, EleodoroMayorga, tells fDi. “Thecost of populistmeasures is too high to pay.A serious orthodox handling of the economy, astate of law, a respect of contracts – that pays.”

And so it has done for Peru. ■

PeruOVERVIEW

lima is nowone of themostPleasant cities in latin america,with a viBrant cultural scene


the miraflores neighbourhood of lima

PeruFinanceminister

Peru’s new finance minister is facing a challenging first few months inthe job, as the country’s stellar economic Performance of the Past decadeaPPears to be stalling. he tells fDi how a series of PPP Projects and amore diversified economy means that the country’s future is still bright

Regainingmomentum

P eru’s minister of finance,Alonso Segura, was appointedto the role in September

2014, replacing his former boss, LuisCastilla, who had held the post sinceJuly 2011. A 44-year-old with degreesfrom both Peru’s PontificiaUniversidad Católica and theUniversity of Pennsylvania in theUS, Mr Segura assumes his role assteward of Peru’s economy at a keymoment in the country’s history.

With an average growth rate ofmore than 6% over the past decade,Peru has been the envy of many moremodestly performing South Americaneconomies. However, by June 2014,that growth had appeared to havestalled with the country’s economyincreasing by only 0.3% comparedwith June 2013, a worrying numbergiven the country’s accustomed rateof expansion. By October, Peru’s cen-tral bank had revised down its growthprojection for 2014, from 4.4% to 3.1%,and predicted 5.5% growth for 2015.

Mr Segura therefore has the trickytask of assuring international inves-tors that there will be continuity inPeru’s economic growth, while at thesame time replacing Mr Castilla, whowas considered by many to be themost powerful member of presidentOllanta Humala’s cabinet. Mr Seguraa sat down with fDi in Peru’s capital,Lima, to discuss the country’s eco-nomic prospects and the role FDIwill play in its economy.

QWhat are the most importantprojects in the infrastructure

and energy sectors in Peru, espe-cially with regards to foreigninvestment in the country?

AOf the two largest projects, interms of infrastructure it is the

second line for Lima’s metro, whichhas an investment value of more than$5.7bn and is a co-financed public-pri-vate partnership [PPP] project, and, interms of the energy sector, it is thesouthern gas pipeline, which is a self-sustainable PPP and has an invest-

ment value of $4bn with a mainte-nance operation of about the sameamount for 30 to 35 years.

These are the largest, but we havea very large portfolio of projects. Wehave the airport of Chinchero inCusco [costing] about $500m, andwe have several other projects in thepipeline. What we want to do now isbuild social infrastructure throughPPPs, particularly in the health andeducation sector, so in the next fewmonths we are going to start award-ing some hospitals and groups ofschools through PPPs.

We have ports, we have anothergroup of airports, transmission

2014Perufinance ministerPreviouslychief of staff at the ministry offinance, manager of economicresearch and investment strategyat the banco de crédito del Perú,advisor to the internationalmonetary fund

curriculumVitaealonso segura

Q&a: alonso segura

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Potentially thegrowthof Peru is still veryhigh

PeruFinanceminister

lines, hydroelectric plants… there’s ahuge portfolio. Some of them are self-sustainable, some are co-financed.

QWhat do you think the impactof the Gasoducto Sur Peruano

project [involving the constructionof a gas pipeline in the south ofthe country] is going to have onPeru both in terms of domesticsupply of energy and also interms of exportation?

A It has different objectives.The first brings us energy secu-

rity because right now about 40%of Peru’s energymatrix comes fromthe Camisea pipeline. If you run intotrouble with the Camisea pipeline,there is no alternative. So this willgive us an alternative to bring gasto the coast.

But [this project will also pro-vide] cheap energy to industrialisethe southern part of the country, thesouthern highlands, which are someof the poorest regions of the country.So it also has this development objec-tive. It will also allow us not only toensure energy over the long term,but also to export it.

One thing to keep inmind is thatwe have a balanced energymatrix,and we will continue to have one inthe future. We have cheap naturalgas, but we also have the potentialto develop hydroelectric energy...so we will have clean energy for theforeseeable future.

QCan you tell us about the signif-icance of the new Lima metro

in terms of foreign investment?

A The subway is fundamental,and it is critical that we continue

developing the subway system inLima.We have already started studiesfor a third line. They are very largeprojects, so we are aware of what ourfiscal constraints are. Since these pro-jects have a very large component ofgovernment participation, we cannotjust launch them every year, so this isa gradual approach. This willmodifythe picture of transportation in Peruand save people [a lot of time].

QHow is awareness within thegovernment about the need to

diversify Peru’s economy away froma concentration on mining?

ACopper production [is growing],andwill double by 2017, so that’s

huge. Gold production – our second[largest] export – is declining becauseour largemines have a decreasingquality of themineral right now,

but in terms of the volume of exportsthey’re going to increase substan-tially through to 2017.

We have been diversifying theeconomy, [but] we need to keep ondiversifyingmore. For 10 years –up to 2011 – therewas double-digitgrowth in prices for ourmain com-modity exports, and yet the share ofnon-traditional exports didn’t drop,whichmeans that they too grew atdouble digits formore than a decade.

We assume that prices are slowlygoing to continue trending down-wards, so we needmore than everto find alternative engines ofgrowth. That’s what we’ve beenworking on, and we are doublingour efforts. We have two or threebroad efforts towards that [whichinclude] improving the competitive-ness of the country’s economy.

[There is] a national productiondiversification plan [coordinated bytheminister of production and] acompetitiveness agenda that basicallylooks into how to best to diversify theeconomy and increase productivity,and tomake better use of our free-trade agreements and the preferen-tial agreements we have signed.

The second one is a fight againstexcess costs [charged] to the privatesector, basically combating redtape and increasing efficiency.The third is lookingmore into thecountry and smaller companies andregions and how to tackle the lowproductivity outside of Lima, to lookinto what kind of government actioncould tacklemarket failures or gov-ernment failures.

We are very aware that we needto improve upon our human capital,that is why we are prioritising andrefocusing our projects towards anincreasing share of education andhealth. For our future growth poten-tial, we needed a better educated andhealthier population.

QThere has been a lot of coher-ence between different govern-

ments in Peru and their approachto foreign investment in the coun-try. Do you envision that consist-ency continuing?

A Yes. At the national governmentlevel there is a conviction and

awareness across all themajor par-ties that this has been themodelthat has served Peru well. We havereduced poverty over the past decadefrom 55% to 24% [and] themiddleclass is growing significantly. In gen-eral, there’s awareness that theseeconomic policies based on attrac-tive investment are a way to generateemployment and reduce poverty.

QThe economic developmentof Peru has been above the

average for South America formany years, but lately it has notbeen as energetic as many peoplehad hoped. What steps is the gov-ernment taking to address that?

AWe faced a perfect storm. Therewas an external shock [the dip

in commodities prices], whichwasparticularly [challenging] for Perubecause of the composition of ourexports. Therewas an almost 9%decline in [exports] over the first halfof 2014.We’re going to face head-winds, the question is: for how long?

We had adverse weather condi-tions, such as the El Niño phenome-non, which affected fisheries signifi-cantly and some agricultural staples.And then we had some problemswithmines. Our biggest coppermine, Antamina, is going through avein of lower quality mineral whichis expected to last about year, andthat decreased production by about20%. And Toromocho [coppermine]found some problems with the qual-ity of its mineral and it has beendealing with that. But we expectthis all to be normalised by earlynext year, so you will see anupward tick in production again.

Many things are normalising,but that’s just the short-term [out-look]. We also need to keep pushingfor reforms, and whatmeasures wecan work on to foster the recoveryof private investment, consumption,etc. We have a short-term agenda,but also an agenda that improvesthe efficiency of the economy.Potentially the growth of Peru isstill very high. We are workingtowards pushing it up [further],hence the competitiveness agendaand hence the diversification plan. ■

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shining on: the volume of Peru’s gold exports is rising

7

For centuries a country oFisolated settlements andimpassable terrain, peru isrealising the beneFits oF roadand rail links when it comesto increasing productivity.Michael Deibert checks in

Peru’s infrastructurebonanza

One of Peru’s greatest charmsas a country – its extraordi-narily dramatic and varied

landscape – has also proven one ofthe greatest challenges to its eco-nomic development. The tapestryof river towns wreathed byAmazonian jungle, far-flung, mist-shroudedmountain settlementsand desert pueblos means large por-tions of Peru have for decades beenvirtually cut off from one another.

This was true to such an extentthat only 20 years ago, Peru’s mostfamous living author, Nobel Prize-winner Mario Vargas Llosa, couldmake the entire plot of his novelLituma en los Andes (Death in the Andes)revolve around disappearances inthe fictional remote Andean townof Naccos, a place so cut off it might

as well be on another planet (aconceit that at the time was com-pletely believable).

Such isolation also providedfertile ground, both logisticallyand sociologically, for rebel groupssuch as the Shining Path and TúpacAmaru, to operate in rural and indig-enous communities that often sawlittle outside presence save for brutalmilitary personnel and rapaciousmining interests.

Making the connectionThat being the case, it is no surprisethat recent governments in Peruhavemade strengthening the coun-try’s infrastructure a high priority,with the current administration ofpresident Ollanta Humala (himselfthe son of an indigenous Quechua)no different. In Peru’s sprawlingcoastal capital Lima and beyond,the country’s infrastructure sectorremains one of themost robustareas for foreign investment.

“Infrastructure is key to variousaspects of our development,” saysJosé Gallardo Ku, Peru’s ministerof transport and communications.

New horizons: projects such as the IIRSA Norte (left) and IIRSA Sur highways are opening up opportunities for Peruvians and investors

peruInfrastructure

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peruInfrastructure

Among the large-scale infrastruc-ture projects that have been under-taken with the assistance of foreigninvestment are two highway projectsspanning hundreds of kilometres(the IIRSA and the IIRSA Sur), asecond metro line for the country’scapital, Lima, and a metro line forits second largest city, Arequipa.

Built by a consortium of twoBrazilian companies, Odebrecht andAndrade Gutierrez, as well as Peru’sGrana y Montero, IIRSA Norte aims toconnect relatively remote regions ofPeru to Brazil, and was awarded theGlobal Road Achievement Award bythe International Road Federation forits efforts to help preserve the envi-ronment. Odebrecht is also the chiefdriver behind IIRSA Sur, which isbuilding and maintaining 656kilometres of road between thePeruvian city of Urcos in the provinceof Quispicanchi to Iñapari in the stateof Acre on the Brazilian border.

Given the company’s deepinvolvement in the country’s infra-structure sector, Odebrecht’s direc-tor in Peru, Ricardo Boleira, tells fDithat the country is “one of the mostevolved countries in Latin Americain terms of foreign investment”.

Beyond connectivity between cit-ies, connectivity within cities has alsogiven rise to some interesting projects.

An expansion of Línea 1 of theMetro de Lima by the ConsorcioMetro de Lima (again Odebrechtworking with Grana y Montero)extended the capital’s subwayline to 35 kilometres, dramaticallyimproving the commutes of hun-dreds of thousands of residentsfrom the city’s coastal boundaryto its eastern suburbs.

“The concession business isexactly that; it gives you predictablecash flows. So that is that main rea-son we’re involved in infrastructure,”says Grana y Montero presidentGonzalo Ferraro Rey. “And we havebeen very successful transmitting theconcept [of public transportation].”

In 2014, the Peruvian govern-ment awarded a $5.7bn project tobuild a second subway line connect-ing Lima’s eastern suburbs with theprovince of Callao to the ConsorcioNuevo Metro de Lima, a group ledby Actividades de Construccion yServicios, a Spanish builder.

Concern has been expressed insome quarters about the potentialcost of Línea 2. The country’sChamber of Construction andEngineers Association said the pro-ject could be completed at a lowercost, and two other bidders with-drew from competition for the pro-ject after the government declinedto accept the changes they requested.

amodel developmentIn the city of Arequipa, an importantmanufacturing hub and Peru’s sec-ond largest city with a population ofalmost 1 million, the proposed metrocould have an important impact onthe city’s future development. Somebelieve that the metro systems beingestablished in Lima and Arequipacould serve as models for other citiesin the country, reducing commutingtime and increasing productivity.

“We think [that the metro sys-tem] could be a solution [to transpor-tation issues] in certain cities in thecountry,” says Mr Ku.

As Peru continues to makestrides in allowing its people greaterfreedom of movement throughprojects such as IIRSA Norte, IIRSASur and the Metro de Lima, newhorizons are being opened up notjust for the Peruvians themselves,but also for investors interestedin supporting ambitious long-term projects. ■

PeRu ISoNeof themoStevolvedcouNtRIeSIN lAtINAmeRIcA INteRmSoffoReIgNINveStmeNt


cutting through: lima’s rail system is improving the commutes of many Peruvians

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PeruLimametro

December 2014/January 2015 www.fDiIntelligence.com

Few cItIes neeDeD a metro system as baDly as the PeruvIan caPItal oF lIma.now, saysMichael Deibert, ForeIgn money Is PourIng In to Further extenDthe network anD relIeve Pressure on the overcrowDeD streets above

Undergroundmovement

T hat the sprawling Peruviancapital of Lima, home tonearly 9 million people, needs

a more comprehensive transporta-tion infrastructure will come as nosurprise to anyone who has triedto traverse the city on an ordinaryweekday. Getting from the moneyedbusiness district of San Isidro to thehistoric centre of town, for example,can take up to an hour even thoughthe distance is only a few kilometres.Overcrowded public busses and pri-vate cars crawl along at a snail’s paceas vehicles choke arteries originallybuilt to transport a fraction of thenumber of people travelling now.

“What we’ve tried to introduceis the concept of cultura-metro, tochange the mentality of the people,”says Gonzalo Ferraro Rey, presidentof the company Grana y Montero,which alongside Odebrecht Perúundertook a massive expansion ofLínea 1 of the Metro de Lima under

the umbrella of their joint entity,the Consorcio Metro de Lima. Theline now runs 35 kilometres.

“Before the metro people wouldgo out into the street, they raisedtheir hand and when the micro-buswould stop they would jump in, butnever knowing when the bus is com-ing or when he would arrive to his[destination]. Now the train says itwill arrive at the station at 15:14 andit arrives at 15:14. Here, that didn’texist at all. The mentality of the peo-ple is changing,” says Mr Ferraro Rey.

mass transitThe metro currently runs from thecoastal suburb of Villa El Salvadorto Lima’s most populous district,San Juan de Lurigancho, in the city’seast, and has a ridership in theregion of 300,000 people per day.

“Infrastructure has been impor-tant to this government,” saysRicardo Boleira, director of

Odebrecht Perú, referring to theadministration of Peruvian presi-dent Ollanta Humala, in officesince 2011. “Urban transport,improving the connectivitybetween cities, is an opportunityfor investment,” he adds.

There are plans to expand themetro system even further, thoughthey have not been without somebumps. In March, Peru awarded a$5.7bn project to build Línea 2 –which will connect Lima’s easternsuburbs with the province of Callao,where the port is located – to theConsorcio Nuevo Metro de Lima,a group led by Actividades deConstruccion y Servicios, a Spanishconstruction company. The projecthas come under fire for what somesee as excessive expense.Nevertheless, third and fourth metrolines for Lima are planned, as is ametro for Peru’s second largestcity, Arequipa. ■

Green light: Lima is extending its metro network

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Investments In Peru’s energysector are helPIng to dIversIfythe country’s economy beyondIts tradItIonal commodItIesexPorts, and the Push forgreater dIversIfIcatIon PresentsoPPortunItIes for Investors,saysMichael Deibert

PerupowersaheadT hough Peru’s energy invest

ment opportunities are mostcommonly linked to the coun

try’s mining industry – Peru is oneof the world’s largest producers ofcopper, gold and silver – new opportunities for investment, involvingresources such as natural gas andhydroelectric power, are becomingincreasingly important in the country’s economic landscape.

“The investment climate in Peruis very positive,” says Javier GarcíaBurgos Benfield, the general manager of Kallpa Generación, a branchof Israel’s IC Power. “The opennessto foreign investment in Peru ismuch higher than in some othercountries we operate in. After someterrible years in the late 1980s,[Peru’s politicians] – regardless ofwhat they say in their campaign –realised that there is only one way[to facilitate investment], and fortunately they’ve been intelligentenough to maintain that.”

Big hittersIC Power started its activities in Peruin 2007 with its first natural gas turbine and, since 2009, has investedabout $2bn, including almost $1bnin a hydro project in central Peru.

Last year it made an investment inNodo Energético del Sur del Perú,a $400m project to construct andoperate an electric generation hubin the south of the country. As partof the project, IC Power is constructing a plant in the town of Mollendowhile local generator companyEnerSur will construct a plantin the city of Moquegua.

An even larger project,Gasoducto Sur Peruano, is underway to construct a giant gas pipeline,starting in the Amazon jungle,spanning the Andes and endingat Peru’s southern coast. Theproject is scheduled to becompleted at a cost of $4bn(see article on page 12).

“Peru has a very stable legalregulatory framework, it’s a growingeconomy and demand for electricityhas been growing every year for thepast 20 years,” says the country’sminister of energy and mines,Eleodoro Mayorga. “This is a countrythat has abundant gas, abundanthydro [power], and therefore thereis opportunity.”

Mr Mayorga’s words appearto be borne out by the plans for theAmazon’s Camisea gas fields, whichwere first discovered in 1986, and

Fuelling investment: Peruvian president Ollanta Humala, centre, is surrounded by workers at the Camisea gas project (left), while workers attendto the gas condensers of the Malvinas gas distribution plant, part of the Camisea project

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PeruEnErgy

to the suspension of the project, andthe arrest of the most vocal leaderof the protests, Gregorio Santos.

“There are challenges on thephysical side that can be solvedthrough engineering, so there’salways a solution, it’s just a questionof price,” says Mr Benfield. “Thenthere are the other type of problems,especially the social problem, whichare more unpredictable and [canhave] more volatile consequences.”

Steppingup its gameA global drop in prices has hit Peru’smining exports recently, but thesector is still seeing significantactivity and investor interest. China,in particular, has been an extraordinarily active investor in Peru, withthe MMG subsidiary of ChinaMinmetals purchasing coppermine development project LasBambas from Anglo–Swiss multinational Glencore for $7bn in July2014. With projects in the countryapproaching an aggregate $20bn,China looks set to help Peru regainits status as the world’s secondlargest copper exporter

One of Peru’s chief competitorsfor energy investment comes fromMexico, where the government of

president Enrique Pena Nietorecently passed a bill that will allowforeign investment in the country’soil and natural gas industry for thefirst time in 75 years.

The longviewSome in Peru appear to understandthe need for the country to up itsgame in this new atmosphere ofcompetition and make investmentsnot only financially attractive butalso easier to access, a double assetin a country where many regionsstill remain relatively remote.

“In the coming years, we arelooking at the possibility of furtherdeveloping petrochemicals and natural gas… But we are also workingto improve the infrastructure of thecountry,” says Carlos Herrera, theexecutive direct of Peru’s PrivateInvestment Promotion Agency.

Whether or not Mr Humala,who has two years left of his currentpresidential term, is able to transform Peru’s energy sector beyondmining, thus diversifying the country’s economy and making it less susceptible to the vagaries of the mining market, is one of the most important questions Peru must answer inthe coming years. ■

THis is a COunTry THaTHas abundanTgas,abundanTHydrO[POwer], and THereFOreTHere is OPPOrTuniTy

where production is slated to beexpanded in the coming years. Suchexpansion comes at the same time asenvironmental regulations are likelyto be scaled back in a bid to stimulate Peru’s economy, which, afteryears of continuous growth, hasslowed in the past year.

rising tensionsThese advances do not come withoutrisks. The development of Peru’s natural resources has, at times, beenmet with protests from local communities who remain unconvincedof the longterm value of such projects. Protests have, on occasion,turned violent and the country’ssecurity services have respondedin an equally heavyhanded manner.

Early on in the term of Peru’scurrent president, Ollanta Humala,cabinet chief Salomón Lernerresigned, citing failings to ease tensions between protesters and policein Peru’s northern Cajamarca regionas one of the reasons for his decision.

Police and protestors clashed inCajamarca over proposals byUSbased Newmont MiningCorporation and local firmBuenaventura to exploit local goldreserves. The dispute eventually lead

december 2014/January 2015 www.fdiIntelligence.com

12

peruenergy

A $4bn gAs pipeline project is the lArgest And one of the most Ambitiousprojects of its kind in peru’s history, but when it is completed, writesMichael Deibert, it promises to trAnsform the country’s electricitysupply chAin And help it Along the pAth to industriAlisAtion

Pipedreams

A t $4bn, the nearly 1200-kilo-metre gas pipeline stretchingfromPeru’s jungle interior

across the vaulting Andesmountainrange and down to its southern coast,the Gasoducto Sur Peruano project isthe largest investment of its kind inPeru’s history and represents amile-stone for FDI in the country.

“The south of Peru is one ofthemost populated but also poorestparts of the country, and gas is thecheapest and certainly the cleanestof Peru’s resources,” says EleodoroMayorga, Peru’s minister of energyandmines.

“Gas is an abundant resource thatis badly needed to generate electricity[and be used] for industrial purposes.The plans are to develop a petrochem-ical industry in the south. The projecthas all of these components: [it willaid the] development of a poor area,[helpmeet the] electricity demand ofthe country and [meet the country’s]need for industrialisation, of petro-chemicals in particular.”

High expectationsThe project, a 75/25 split betweenLatin American infrastructureinvestment firm Odebrecht Latinvest

Peru Ductos and Spanish gascompany Enagás Internacional,is a 34-year concession that willemploy 6500 people at the peak ofconstruction, and will be under-taken in three separate stages.

Gasoducto Sur Peruano willbe both financially and logisticallyhighly complex, with financingcoming from a number of banksfrom the US, the UK, France andChina. Starting in the Amazonrainforest, the pipeline will snakethrough the Andes up to an eleva-tion of 4900metres – with abouthalf of the pipeline above 3000m– before descending to the coast.

These factors provide an addedchallenge as, above 3000m, theequipment used to build the pipe-line will lose about one-third of itspower due to a lack of oxygen, whileabove 4000m, snowwill be presentall year round.

One section of the pipeline,which stretches about 80km, is sodeep in the Amazon that the onlyway to get to the construction pointswill be either via river or helicopter.On top of this, more than 400km ofroads will need to be either refur-bished or built from scratch in order

to transport equipment into and outof construction sites, as well as forthe long-termmaintenance needsof the finished pipe.

All hands ondeck“Youhave the logistics challenge,the access challenge, theheight-of-the-Andes challenge and the environmen-tal challenge,” says Luiz Cesar Costa,Gasoducto Sur Peruano’s generalman-ager in Peru. “Weneed to be sure thatwe’re preserving the ecosystem.”

After raising a $600m bridgeloan, Odebrecht has already begunwork on some of the roads neededto construct the pipeline, and will beenlisting the help of foreign profes-sionals who worked on a recentlycompleted pipeline in Argentina tohelp address the needs of specialisedequipment operations, welding andother endeavours.

Of the 12,000 families who willbe impacted in the area of influenceof the pipeline, Odebrecht says thatit plans to implement social projectsand to employ some residents in theconstruction project itself.Construction on the GasoductoSur Peruano project is slated to becompleted by December 2017. ■

A life line: the Gasoducto Sur Peruanogas line project will help meet Peru’sgrowing demand for electricity

www.fdiintelligence.com december 2014/january 2015

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