HERE ARE PROVISIONS OF PERU'S NEW OIL AND GAS LAW

Here are the main points of Peru's new oil and gas law: It eliminates all monopolies held by Petroleos del Peru and its subsidiaries in conventional oil and gas operations. Private local and foreign companies now can market and import oil and gas as well as participate in refining and petrochemical operations. Petroperu's monopoly on workovers and secondary and tertiary enhanced recovery operations also is ended. An autonomous presidential oil and gas tariffs commission will set

Dec. 9, 1991

4 min read

Here are the main points of Peru's new oil and gas law:

It eliminates all monopolies held by Petroleos del Peru and its subsidiaries in conventional oil and gas operations. Private local and foreign companies now can market and import oil and gas as well as participate in refining and petrochemical operations.

Petroperu's monopoly on workovers and secondary and tertiary enhanced recovery operations also is ended.

An autonomous presidential oil and gas tariffs commission will set domestic fuel prices in steps toward a free market.

CONTACT TERMS

Petroperu can sign contracts with domestic and foreign private investors to participate fully or partially in all activities undertaken by Petroperu and its subsidiaries.

Petroperu is authorized to negotiate and renegotiate exploration or development contracts signed by ministers of mines and energy and economy and finance and with approval by the full cabinet of ministers.

In all partnerships or joint ventures in which Petroperu or subsidiaries participate with private local or foreign firms, the venture will be fully autonomous and operate under rules governing private activity without the limits applied to state companies.

Contracts cover exploration and development in two phases. The exploration phase covers an initial 4 year term with 2 year extension option and a one time 1 year added extension in exceptional cases.

Article 72 of the environmental code is changed to require companies involved in resource development within protected wilderness areas to conduct environmental impact studies as well as studies of restoration costs.

Contractors will sell Petroperu enough liquids to supply domestic needs if Petroperu pays them in local currency pegged to foreign exchange rates and within the contract period.

Contractors paid in cash have the right, if Petroperu does not make payment, to claim the equivalent in oil for export within a maximum 30 days.

FISCAL REGIME

The Central Reserve Bank will guarantee private contractors free access to foreign currency for all funds generated from export of hydrocarbons received as payment in kind and conversion of all local currency received from domestic oil and gas sales and from crude oil deliveries to Petroperu.

Contractors are free to distribute, remit, or hold all funds, including net profits, abroad without restriction.

Contractors are required to use funds received from abroad or derived from exports, domestic sales, or crude payments to finance investments and cover costs, including operating costs, without recourse to domestic financing.

Foreign currency requirements to cover contractor capital out lays, overhead costs, and operating expenses paid for in local currency will be converted through the central bank at the most favorable free exchange rate.

Companies that have current contracts or are negotiating contracts with Petroperu can take advantage of the new regulations, including approval procedures, within 90 days of the law's taking effect Sept. 6.

TAXES, ROYALTIES

Contractors will pay income tax according to general tax laws.

Contractors that receive payment in oil will make payments against annual income tax liability by delivering in oil 20% of the value of domestic and export oil sales. Debit balances of annual taxes also are to be paid in kind as well as tax on income remitted to the foreign companies' headquarters.

Payments on account made in oil will be valued at the oil sales price or at the average weighted price of domestic and export sales for the taxable year. Overpayments not used to cover future accounts will be repaid in cash. Underpayments plus fines and interest will be collected in cash.

The 8%/year royalty that Petroperu has paid since 1980 on total national oil and gas production is canceled. The law also extends for another 8 years Petroperu's income tax exemption for equipment and materials used for exploration and secondary and tertiary recovery.