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ARTICLE ~ October 24, 2009 ANÁLISIS QUINCENAL: Latin America Update, October 24, 2009
By Carlos Monge, RWI Latin America Regional Coordinator
One year after the corruption scandal involving Discover Petroleum in Peru, the legal process continues and authorities have yet to determine any responsibility or set any significant penalties for the main players. As reports have shown, in October 2008, a Peruvian news program played four tapes containing wiretapped conversations revealing that five oil concessions were granted irregularly to Discover Petroleum International (DPI) by Peru-Petro, the company that represents the State in hydrocarbon exploration and exploitation deals. Investigations have suffered several delays and setbacks, such as the failure to review the computer files of Rómulo León Alegría—lobbyist and advisor to the Norwegian company in Peru—or emails between him and Alberto Quimper —member of Peru-Petro’s Board—both of whom are directly involved in the corruption case. However, a recent investigative report by the El Comercio newspaper exposed an intimate connection between former Petro-Peru President Cesar Gutierrez and Lily Lemasters, interpreter and representative of Discover. This revelation gave the prosecution's investigation new momentum. It is also noteworthy that Cesar Gutierrez resigned from Petroperú after the taped conversations revealed irregularities in Discover's oil block assignments, as well as the fact that DPI likely formed a joint venture with Petroperú for the auction specifically to increase its chances to win the concession. As a new company with barely three years in operation and very little experience in the hydrocarbon sector, DPI had been disqualified from previous auctions. The association with Petroperú allowed it to overcome these restrictions, but when the relationship between the President of the Petroperú Board and a private company representative involved in the deal became public, widespread suspicion was revived. The Congress and the Public Ministry responded by formally accusing Cesar Gutierrez of passive bribery and inappropriate negotiations. Gutierrez's situation was further complicated by contradictions in his statements: At first he had said he did not know Lemasters, but he later confirmed their romantic relationship; earlier he said the business transaction took place before they met, but this was proven to be false. A further complication arose when his former spouse, Martha Silva, claimed Guiterrez received US $300 thousand to advise and support DPI to help it win the auction. Silva also alleged that Gutierrez was paid to advise oil and gas companies, despite being prohibited to do so by law while he was a public official. Indeed, a year after the corruption scandal, no firm sanctions have been made against those directly involved, nor does there seem to be any political will to go deepen the investigation to examine connections between these events and high level political authorities like Prime Minister Jorge del Castillo and then Minister of Energy and Mines, Juan Valdivia, both of whom also resigned as a result of the scandal. Other underlying issues relating to Petroperú have also entered the public debate, including the excessive autonomy and discretion in auctions that the company has gained through Law 28840 (Law to Strengthen and Modernize Petroperú), which allows it to act as a private company not subject to State control. This problem is exacerbated by a lack of reform and modernization among State enterprises that would be vitalfor the energy sector, as many specialists have pointed out. Finally, the effort to increase transparency in Peru-Petro's contract process for hydrocarbon concessions has not met with notable progress. Chile may export natural gas to Argentina. Since last September 2008, when the new Chilean liquefied natural gas plant GNL Quintero began to operate, Argentinean authorities have been raising the possibility of importing this gas from Chile, drawing the attention of several experts and observers. Some see the idea as a contradiction, since Chile has traditionally been a net importer of gas, and Argentina its main supplier. The GNL Quintero station lies in the Quintero bay, 150 km north east of Santiago. It receives, stores and re-gasifies liquefied natural gas. Since last September, it has been supplying natural gas permanently and safely to central Chile, an area that was previously supplied by an Argentinean pipeline. The project began in May 2004, when Argentina cut shipments of gas to Chile due to the growth in domestic consumption and stagnant production, putting Chile's investment in this type of fuel at risk. The Chilean government assessed its reliance on one source of supply, and decided to diversify, launching the Quintero LNG project. A consortium was formed between the National Petroleum Company (ENAP), Britain's BG Group, the electricity company Endesa Chile and gas distributor Metrogas. The Quinteros plant’s official inauguration was on October 22nd 2009 and it now produces around 10 million cubic meters a day to supply central Chile, according to ENAP officials. Before the end of 2009, the partner companies plan to begin construction of a second liquefied natural gas (LNG) plant in the port of Mejillones, 1,450 km north of Santiago. This project, to be carried out by the Chilean National Copper Corporation (Codelco) and Suez Energy International, will seek to ensure a safe and constant supply of natural gas to northern Chile and an alternative to Argentine natural gas. It this appears that Chile will soon be able to cover its natural gas demands and even have a surplus it can export to Argentina. Faced with this situation, Argentine energy authorities are seeking to take advantage of existing infrastructure—two pipelines that cross the Andes in central and south-central areas of both countries—that could be used for Chilean projects in development, and in this way improve energy integration between the two countries. But this vision will ultimately depend on LNG prices and on upcoming meetings scheduled for late 2009. Meanwhile, Bolivia is closely monitoring the negotiations between Argentina and Chile, in order to track how these markets evolve and take the necessary precautions. However, some analysts are saying that Chile's new gas import and processing, combined with new trade arrangements between Chile and Argentina, has already denied Bolivia access to the Chilean market and an important segment of the Argentine market. In fact, Bolivia had been discussing a strategy to overcome the diplomatic impasses that have stood between Bolivia and Chile since the 1879 war, in order to facilitate future sales of Bolivian gas to Chile. In the case of Argentina, its recent purchases of Bolivian gas have helped to cover domestic demand after a drop in gas reserves and a subsequent domestic shortfall. Furthermore, a report by the Bolivian state oil company YPFB described plans to increase gas sales to Argentina from 5.8 million cubic feet per day (MMCFD) in 2009 to 11.8 MMCFD in 2011. In response, the Bolivian government has begun to consider and evaluate new markets. Indeed, the Minister of Hydrocarbons and Energy, Oscar Coca, announced on October 22nd that they are planning to develop a new pipeline that would take Bolivian gas from El Chaco to Uruguay and Paraguay. International oil, gold and copper prices reach their highest levels in a year. In the final weeks of October, international prices for oil and metals like gold and copper recovered, reaching their highest levels since October 2008. The U.S. oil price (West Texas Intermediate) reached U.S. $81.37 per barrel on Oct. 22, while the price of copper at the London Metal Exchange (LME) stood at $2.89 per pound, a cumulative increase of 125% for 2009 to date. Gold also registered an all time high, at U.S. $1070.4 per troy ounce on October 21st. The explanations for the recovery were different for each commodity. Analysts said gold prices increased due to the uncertainty over the falling value of the dollar, which hit its lowest level in 14 months, leading investors to consider commodity markets as alternative shelters for their assets. In the case of copper, international prices increased due to the high growth rate China, which reached 8.9%, problems with supply—for example the 25% decline in BH Billiton’s 2010 projections for the Australian Olympic Dam mines, and uncertainty over possible strikes in Chile and Peru. Meanwhile, expectations for global economic recovery, reflected by projected increases in 2010 demand for oil released by various agencies as well as OPEC, have also contributed to rising oil prices. Against this backdrop, the Chinese mining company Minmetals Corp. announced it would begin activities in Peru's Galeno mine where it plans to produce gold, silver and copper through a US$6 billion investment over three years. In Venezuela, the increase in oil prices was accompanied by oil strikes, with workers demanding the reinstatement of 588 fired co-workers and the immediate delivery of delayed payments owed them by PDVSA. Rising international commodity prices will Latin American countries in different ways. While oil exporters like Venezuela and Ecuador will receive higher revenues, net oil importers like Peru, Argentina and Chile will face new pressures to increase domestic fuel prices. This will be especially tough in Argentina, where rising natural gas bills have already sparked widespread protests and are still being debated. On the other hand, mineral producing countries will benefit from the continued high gold prices and the recovery of copper. One question fueling discussion is whether these latest price increases are the result of a new speculative bubble. If that turns out to be the case, when the bubble bursts, mineral and hydrocarbon producing countries in Latin America will again suffer a collapse in prices and fiscal revenues. In light of this possibility, a wider discussion about mechanisms to mitigate commodity price volatility, such as stabilization and saving funds for extractive revenues, become extremely relevant once again. Sources: El Mercurio, El Comercio (Peru), Perú 21, Elcomercio.com, Clarin.com, Eldeberdigital.com, El País, El Universal, Jornada, La Razón, La Republica.com.co (Columbia), La República (Peru) ADDITIONAL ISSUES
Topics: Peru MEDIA FEED
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