PERU STEPS UP PUSH TO ATTRACT OIL INVESTMENT

Peru's government is stepping up efforts to attract more foreign investment in its oil and gas sector. Since taking over in July 1990, the government of President Alberto Fujimori has taken a number of steps to privatize the oil sector, improve the fiscal regime for oil investment, and streamline regulations on oil and gas investment. In the most dramatic step, the Fujimori administration ended state oil company Petroleos del Peru's monopoly on downstream operations as well as imports

Dec. 9, 1991

4 min read

Peru's government is stepping up efforts to attract more foreign investment in its oil and gas sector.

Since taking over in July 1990, the government of President Alberto Fujimori has taken a number of steps to privatize the oil sector, improve the fiscal regime for oil investment, and streamline regulations on oil and gas investment.

In the most dramatic step, the Fujimori administration ended state oil company Petroleos del Peru's monopoly on downstream operations as well as imports and exports of oil and gas as part of sweeping new oil and gas legislation (OGJ, Aug. 26, p. 38).

In addition, officials of the Fujimori administration have been traveling to key oil centers around the world with a presentation on Peru's hydrocarbon potential, trying to spark interest in E&D investment there.

At the same time, the cash strapped government faces major hurdles in obtaining that investment despite an attractive resource base.

Cutting subsidies for domestic fuel prices carries significant political risks. And the interminable guerrilla war in that country poses a major risk for any oil and gas investor- notably because the jungle regions that offer the country's most attractive petroleum prospects also serve as guerrilla strongholds.

CABINET SHUFFLE

Another recent cabinet shuffle points to the Fujimori administration's continuing efforts at privatization and attracting private investment.

Jaime Yoshiyama has replaced Fernando Sanchez as minister of energy and mines. Yoshiyama, previously minister of transport and communications, has been working for privatization and increased foreign investment in Peru.

In his first public statement as energy minister, Yoshiyama said he expects to follow through in signing exploration contracts with international companies that had been delayed under Sanchez (see table).

Despite recent legislation intended to promote private investment in Peru's oil sector, those contracts have been snagged by delays in reaching agreement with Peru's Central Reserve Bank on guaranteeing supply of foreign exchange currency to oil companies. The bank had maintained a guarantee is not needed because Peru now has a free foreign exchange market.

However, the bank recently agreed to guarantee companies foreign exchange would be available if there were a shortfall in the market or if foreign exchange restrictions lifted earlier this year were reestablished.

Petroperu this month said it is drafting a financial clause along those lines to be added to contracts. All that would be needed then is cabinet approval before signing the final agreement.

INDUSTRY RESPONSES

Occidental Petroleum Corp., which produces more than half of Peru's current 116,000 b/d, views the new law optimistically but is continuing to study details.

Royal Dutch/Shell Group and Mobil Oil Corp., also key multinational players in Peru, gave similar responses.

With copies of the new law and new resource assessments of Peru's hydrocarbon potential by Petroperu consultants Roberston Group plc, North Wales, Peruvian officials in recent weeks have sought to drum up industry interest with presentations in Houston, Calgary, and London. A presentation also was planned the end of November in Tokyo.

Petroperu Pres. Jaime Quijandria said his company also has been in direct contact with Chevron Corp., Conoco Inc., Consolidated Eurocan Ventures, Maxus Energy Corp., Repsol SA, and Sun Co.

The campaign is partly tied to plans for an international licensing round by yearend for 18 blocks covering 17.5 million hectares in the Maranon and Ucayali basins.

HURDLES

Even with the new law and promotional efforts, Peru still faces major hurdles in attracting more investment in its oil sector.

Security is a critical problem.

The government contends it has taken unspecified steps to improve security for oil companies, while admitting it still has difficulty protecting small crews working in jungle areas.

Industry sources also note it probably will be a couple of years before oil companies develop an interest in refining/marketing projects in Peru as long as the state treasury continues to take two thirds of domestic fuel prices in taxes.

Also needed to expedite major investments in Peru would be that country's return to the international finance system and again becoming eligible for international credits in light of fiscal reforms. The government hopes to receive the blessing of the International Monetary Fund and other international agencies by yearend.