ANÁLISIS QUINCENAL: Transparency and Extractives Update from Latin America

Fuel prices in Peru start the year on the rise.

The first day of 2010 arrived with news of a sharp increase in fuel prices, which the media called the "gasolinazo" (slang that might translate as "gas debacle" or "gas-sacre"). More than 70% of service stations across the country increased fuel prices by around 10%.

The measure which caused the increase was applied by the Ministry of Energy and Mines (MEM) and the Ministry of Finance (MEF) and consisted of a reduction to weekly government subsidies to refineries from the Fuel Price Stabilization Fund, used to prevent domestic price hikes when international prices rise. This weekly subsidy was cut from S/. 35 million to S/. 10 million. This decision was made in response to reports of low 2009 inflation (only 0.25%), and the continued recovery of international oil prices (up by as much as 33% in late 2009), which put more pressure on the Fund.

Refineries—most notably the state-owned company Petroperú and Repsol—responded to the subsidy cuts by increasing their prices, which transferred to service stations and directly affected consumers.

As expected, consumers complained when they had to pay S/. 1.2 more per gallon of gasoline and S/. 2 more per container. Faced with the strong consumer reaction, the MEF and the MEM decided to reduce the cuts by half. Petroperú management was thus forced to reverse itself and reduce the increase announced on January 1. On January 4, the general manager of Petroperú, Miguel Celi, said the company would adjust its price increase to reduce the impact on customers.

Private refineries such as Repsol and Pluspetrol also decided to lower their prices, in light of the strong consumer and also to avoid inflationary pressures, even though these companies were not required to modify their pricing. However, service stations took three or four days to adjust their own prices, because they had to sell all the stock they bought at higher prices.

The adjustment in the price increase also had an impact on the Fuel Price Stabilization Fund, because since the MEF would have to increase the amount given to refineries to S/. 22 million per week, instead of the S/. 10 million initially planned. Ministry representatives also said that an additional S/. 400 million would be introduced to the Fund for 2010 and a payment of S/. 100 million had been authorized to pay off part of the State's debt to refineries through subsidies from the previous year.

Despite the 50% adjustment, public transport officials announced that they would increase ticket prices by at least 30% in response to the price increases and threatened to carry out a general strike in protest.

Several experts have criticized the increase in fuel prices for a range of reasons. They cited inefficient use of the Stabilization Fund, since, by definition, these resources should be used to shield local consumers from the impact of sharp fluctuations in international oil prices, and the sharp cut in subsidies defeated this purpose. They also criticized the government’s discretionary management of fuel prices and subsidies, as well as the administration of the state-owned oil company.

It is important to note that the Stabilization Fund is a compensation mechanism which reduces the impact of international prices on the local market. Since oil is a very volatile commodity, with a high level of social and political sensitivity, it is extremely important for the Fund's management to be clear and transparent. Furthermore, this incident also reveals the urgency of creating an energy policy based strictly on technical criteria, including a concrete policy for hydrocarbon prices and subsidies.

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Ecuador broadens its activity in the extractive sector: The Yasuní-ITT initiatives are threatened and the National Mining Company (ENAMI) is created.

In June of 2007, the Ecuadorian government presented the Yasuní-ITT project to the international community. This environmental initiative involves the decision to leave unextracted 846 million barrels of oil in the Ishipingo Tiputini Tambococha oil block, located in the Yasuní National Park in Ecuador's Amazon region. The amount represents 20% of Ecuador’s total oil reserves and has an estimated value of US$ 6 billion. In exchange for not extracting the oil, the Ecuadorian State is requesting compensation for 50% of the estimated value from international institutions and governments. The policy prevents the emission of 407 million metric tons of carbon dioxide (CO2)—one of the gases blamed for global warming—protects biodiversity in the Yasuní park, as well as nearby communities of indigenous peoples, including two groups in voluntary isolation. Additionally, the funds raised would help to promote alternative energy sources and sustainable economic activities in Ecuador.

The proposal received the support of the Andean Community, the German Parliament, the Corporación Andina de Fomento (CAF), the Organization of American States, and OPEC, among others. It was presented as a model for stopping the predation of the Amazon by oil and mineral exploitation, and laying the foundations for sustainable non-extractive development.

At the recent Copenhagen climate change summit, the Ecuadorian delegation also achieved concrete support from Germany, Spain and Belgium for funding exceeding one billion US dollars. The delegates also had conversations with France and Sweden about a possible additional 500 million US dollars, which would be designated for a trust called the "Energy Transition Fund." As of December 2009, Ecuador had received commitments approaching 49% of the required amount.

Surprisingly, President Rafael Correa did not attend Copenhagen, even though the Yasuní proposal was expected to be one of the highlights and Ecuador was expected to sign a UN agreement to manage the funds committed by donor countries. A few weeks later, confirming the fears of many, Correa himself announced that the exploitation of the Yasuní block would in fact be allowed to begin in June 2010 if the countries offering financing for the initiative insisted on imposing "shameful" conditions, which, according to Correa, would include control and administration of funds received. Only then did the reason for his absence from the summit become apparent, as well as the reason that the Ecuadorian delegation had not received authorization to sign the UN agreement in his absence.

This situation prompted Fander Falconí, Chancellor of Ecuador, and Roque Sevilla, head of the Ecuadorian team of the Yasuní Project, to resign from their positions. Both say they have tried to explain to President Correa that the donor countries have not imposed the aforementioned conditions for the creation of the fund, and that Ecuador would therefore not lose its sovereignty over the fund if it signed the agreement.

Alberto Acosta, former Minister of Energy to the current government and one of the main promoters of the Yasuní project, said he regretted that the contract was not signed and that he held President Correa directly responsible for putting Yasuní at risk. For Acosta, the president’s decision revealed the lack of an environmental policy and the lack of government will to make the initiative a reality, as well as pressure from interested parties in the oil sector. However, Acosta was adamant in saying that for exploitation to take place in Yasuní, President Correa’s decision is not enough, since the National Assembly has to approve the initiative and then call for popular consultation.

The Minister of Natural Resources Germánico Pinto responded by affirming that the Yasuní project has not been terminated, despite the resignation of its main promoters and Correa’s declarations, but he also added that the procedures negotiated with the donors was not acceptable for the government.

Civil society and Ecuadorian environmentalists have also responded, with a major campaign in defense of Yasuní. They have insisted that any attempt to exploit the area be stopped. They also demanded compliance with Resolution No. 25 DIR-2007-03-30, which stipulates that the ITT Yasuní project should not be subject to any deadlines or conditions.

While this strategic debate over the fate of the ITT oil fields in Yasuni was taking place, the Ecuadorian government continued to expand the scope its extractive activities. Indeed, on January 4, President Correa signed Executive Decree No. 203, which created the National Mining Company (Enami). According to this decree, the state-owned company was established as a corporation with a legal identity, its own resources, as well as budgetary, economic and administrative autonomy. But in reality all its initial resources will come out of the public budget. Enami will participate in all phases of mining activity and it may carry out strategic agreements and alliances, since the state hopes it will become the equivalent of Petroecuador in the mining sector.

Some experts have said that no state mining company has managed to succeed because of the high risks of mining and the large investments required in the exploration and exploitation phases. The only exception to this claim would be the case of state-owned mining company Codelco in Chile, but this company was created with private mining assets that were later expropriated. Experts also note that this new company will confront the discussion already taking place about the questionable management of state-owned companies under the current administration.

In response to these developments, along with the Yasuní controversy, environmental and indigenous organizations have expressed their concern over what they consider to be the government’s intentions to clear the way for large-scale extractive investment projects, while ignoring the worries of these sectors of Ecuadorian society.

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Argentina seeks an agreement to increase gas imports from Bolivia.

The president of Argentina Cristina Fernandez de Kirchner was scheduled to travel to Bolivia on January 22 to attend the second presidential inauguration of Bolivian President Evo Morales. The trip is seen as an occasion to review the agreement signed by both countries in 2006 to import gas, and to seek an increase in the amount of gas imported from Bolivia.

The contract signed in 2006 between the state-owned hydrocarbon company Yacimientos Fiscales Bolivianos (YPFB) and Energía Argentina S.A (Enarsa) stated that Bolivia would sell 7 million cubic meters per day (mcmd) to Argentina for 20 years. The new agreement, which would be implemented as an amendment to the current contract, would allow the purchase of gas to increase by up to 27 million mmcd.

It is important to note that the increase in daily shipments of gas from Bolivia to Argentina would not change the agreed prices, which have not been subject to negotiation and will remain set according to quarterly fluctuations in international oil prices. The agreement has kept the payment periods previously set, with fines imposed if the payment schedule is not met.

The agreement provides a schedule for gradually increasing export volumes, taking as its starting point the volumes of gas Bolivia currently produces. If Bolivia does not meet the agreed volumes on time, Argentina has proposed discounts on the price of gas.

Both countries have previously complained about the lack of guarantees in the contract signed in 2006; Bolivia did not agree to set volumes and Argentina delayed payments. So the new addendum will be stricter and will include two clauses to ensure that this does not happen again: the "take or pay" and "deliver or pay" clauses, which would ensure both payment and shipment. In the "take or pay" clause, the buyer agrees to pay the agreed volume whether it demands the full amount not. The "deliver or pay" clause commits the producer to delivering the agreed volume or paying for the amount of gas it does not deliver.

Bolivian authorities are also negotiating for other mechanisms, such as "intervals" or "ceilings," so that the volumes required would not have significant fluctuations, thus stabilizing energy demand from Argentina. Carlos Villegas, president of YPFB, argued that Argentinean demand varies according to seasonal changes and would therefore cause uncertainty and hinder Bolivia's hydrocarbon industry.

To ensure gas supply, adequate infrastructure is also needed to increase shipments. Currently, Bolivia cannot deliver gas to the Northern provinces, where it is lacking. Therefore, Argentina's Minister of Federal Planning, Public Investment and Services Julio De Vido has prepared the bidding process—together with Bolivia—for construction of a 70 km pipeline, which will be called "Integration" (Integración), to bring 27 million mmcd into Argentinean pipelines through the Northern Gas Transport Company network.

In addition to plans for gas exports to Argentina, Bolivia is currently working to enter new markets in 2010, mainly Paraguay and Uruguay. It has been negotiating the terms and conditions for these exports, but there is no agreement signed to date.

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Sources: El Comercio (Peru), Perú 21, Elcomercio.com, Clarin.com, Eldeberdigital.com, El Universo, La Razón, La República (Peru), Página|12

• February 4 - 22, 2010
• January 20 - February 3, 2010
• January 4 - 19, 2010
• November 25 - December 20, 2009
• October 27 – November 10, 2009
• October 10 – 24, 2009
• September 25 – October 9, 2009
• September 10 – 24, 2009
• August 26 – September 9, 2009
• August 11 – 25, 2009
• July 10 – 25, 2009
• May 23 - June 9, 2009
• April 7 – 21, 2009
• March 21 - April 6, 2009
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• January 20 - February 3, 2009
• January 5 – 19, 2009
• November 9 - November 24, 2008
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• September 24 - October 8, 2008