Humala to negotiate natural-gas field in Peru
By Robert Kozak
LIMA (MarketWatch) -- The incoming government of President-elect Ollanta Humala is expected to quickly move to renegotiate the contract for use of natural gas from the Camisea gas fields.
Humala, a left-leaning nationalist who will take office on July 28, has long criticized the contract that allows the export of natural gas from Block 88, the main one in the Camisea field. Critics have also charged that Peru's natural gas is being used for export to the detriment of developing a domestic market.
Key members of the Humala team say that renegotiating the Camisea contract and placing a windfall tax in the mining sector are two key short-term goals.
The central government has benefited from strong royalty payments from the Camisea project, which has also drawn large-scale private sector investments into Peru. Any weakening of those investment flows could hurt government revenue and overall economic growth.
"Camisea is a project that was born with a legal framework that was focused on the domestic market, for consumers. So as long as that law, that was never changed, says the domestic market has priority, then we are obliged to comply with that," said Carlos Herrera, a key member of the transition team for the incoming Humala government.
Herrera, a former minister of energy and mines, said in an interview with Dow Jones Newswires this week that the incoming government will have several tools in its favor when it starts to negotiate the Camisea contract.
The government of President Alan Garcia has started talks to increase royalty rates for the gas, although so far those negotiations haven't arrived at a deal.
The Garcia government also tried to quell criticism by passing a decree saying that gas from Block 88 couldn't be exported for a five-year period.
The Peru LNG consortium, which last year started shipping liquefied natural gas abroad, is using gas from another block in the Camisea fields.
Humala officials say the Camisea consortium is using part of a pipeline to send gas for export that was only meant to be used for gas from Block 88 until 2014. This means if the government obliged the consortium to live by the letter of the contract, exports could be limited.
"It is a contract so that the state has the capacity to demand compliance with it," Herrera said.
The Humala administration will also be able to point to a recent decree used by Garcia's government to oblige the use of 1 trillion cubic feet of gas for a planned southern pipeline.
Humala supporters say that if the government can use a decree to make that change then this sets a precedent and the incoming administration can use decrees to modify the Camisea contracts.
Humala's governing party has said it will respect all contracts signed by the state, meaning any changes will have to be negotiated.
The Peruvian government signed a 40-year contract with the Camisea consortium in 2000, and the project came onstream in 2004.
Gas from Block 88 was originally meant only for domestic use; however, in 2005 during the administration of President Alejandro Toledo, export of gas from that block was allowed.
Pluspetrol Peru Corp. SA, is the lead operator of the Camisea project, while other companies include U.S.-based Hunt Oil Co.; South Korea's SK Group; Tecpetrol, a unit of Argentina's Techint Group; Sonatrach Petroleum Corp.; and Repsol YPF SA .
No one was available for comment from the Camisea consortium.
--Ryan Dube contributed to this article.