Need for certainty: Energy vs the environment in Peru’s government policy

Peru

Legal and consulting group Laub & Quijandría has advised on some of the most important energy projects in Peru including the Camisea field development and the country’s 2010 LNG export deal with Mexico since its founding. Partner Anthony Laub Benavides talks to TOGY about the country’s future prospects for exporting energy and attracting more foreign investment and how to approach environmental concerns.

What is Peru’s outlook as an energy exporter?

We are already exporting energy. We have a huge LNG factory, Peru LNG, and we already export natural gas in the form of LNG. Peru also exports electricity to Ecuador. We already have power up and running there, but we have been expanding that power line because it was small.

Now we are building a 500-kW line to Ecuador, so we will soon be in a position to begin much larger transactions. Chile is also a natural market for electricity exports, though we have not yet built a link to export there. Electricity is three to four times more expensive in Chile than it is in Peru.

How could the Southern Gas Pipeline affect exports to Chile?

The construction of the pipeline to the south will be an enormous task and cost around $7 billion to build. We should be thinking about bringing more people into the project to help us with some of the burden. The best way would be selling electricity to Chile. We can sell the finished product already transformed into electricity.

A lot of oil and gas development seems to be on hold right now due to environmental concerns. What is the solution to this problem?

We need to do some serious restructuring at the different levels of government. We have a local layer, a regional layer and a national layer. Secondly, we need to have a clear set of rules regarding environmental and social issues. We cannot keep working the way we have been, with a Ministry of Energy and Mines that is not aligned with the Ministry of Environment.

Not only do we need better communication, but we need to redefine the goals of each of the ministries to make sure that there are clear spheres of authority and no interference. If we are talking about energy, the leading voice needs to be the Ministry of Energy and Mines.

What is the root of the conflict between the energy and environment ministries?

There is a quarrel between them because the Ministry of Environment has gained popularity among a small group of people, non-governmental organisations and communities that want Peru to become like Switzerland, with its very stringent environmental legislation.

We don’t have the wealth to support such an initiative. If they want us to be like Switzerland, how about first raising the income of the whole country? Once we do that we can start thinking about implementing types of rules like prior consultation and the interminable permitting process.

Peru is not a major polluter. That needs to be absolutely clear. We do not have many industries here, and large companies in Peru are very serious about following international standards. The problem in Peru is not with legal businesses but with criminal activities such as illegal mining, deforestation and logging. We need better enforcement of our existing standards. However, right now we have this conflict between the energy industry and the environmental lobby, and it is severely inhibiting development. It will affect the Southern Gas Pipeline.

Environmental regulations also affect foreign investment in Peru. In order to attract investors do you need to change the regulatory structure?

No, we don’t need to change the regulatory structure to attract investors. We just need to send the right signs. If you are going to say something, say it and then do it. If you want the market to respond to you, fix a set of rules, then respect that set of rules.

If you are going to attract serious investment, you do not need to worry about the environment. You want to have transparency and you want to have certainty about what is going to happen.

Companies here comply with international standards. Serious companies don’t harm the environment. The companies that damage the environment are pirates, and we do not want pirates. We need to attract the good guys.

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