Toward a New Energy Paradigm in Peru – Policymaking During an Economic Boom

Toward a New Energy Paradigm in Peru – Policymaking During an Economic Boom

LIMA – Peru is striving to develop a “new paradigm” for its energy sector, one focused on planning against the backdrop of an economic boom, according to Vice Minister of Energy Edwin Quintanilla in his remarks at the Institute of the Americas’ Peru Energy Roundtable.

Just under 100 participants from across the government of Peru, private sector and civil society attended the August 27th Roundtable in Lima. The program, convened two years into the term of President Ollanta Humala, examined the government’s outlook for energy policy, as well as its efforts to balance energy demand and economic growth.

During his keynote address, Vice Minister Quintanilla underscored the tremendous economic success the country has enjoyed, growth that will catapult the Andean nation’s GDP per capita past the global average by 2020. However, economic success presents several energy challenges, including the estimated 10% annual growth in electric demand between today and 2016 and expanding access to energy. Peru currently holds last place in South America in terms of providing access to energy for its citizens and without significant investment, the country could face electricity shortages by 2017.

Discussions and subsequent panels highlighted other challenges, particularly with regards to consummating the enormous success of the Camisea natural gas project as it nears its tenth anniversary. Since Camisea’s launch, the country has created from scratch an important domestic natural gas market. Indeed, Peru has seen over 117,000 residential natural gas users come on line and natural gas-fired generation accounts for over 20% of the nation’s electric portfolio. Government estimates point to over one million residential natural gas users by 2020 and over 400 natural gas vehicle filling stations by that same year.

But some contend that a simmering undercurrent of social unrest in Peru threatens major investment and thus economic development if not properly managed. Rural, and in many cases indigenous, populations in the Amazon and Andean highlands have become increasingly vocal in their opposition to natural resource development projects.

Vice Minister of Energy Edwin Quintanilla responds to audience questions during a roundtable session moderated by Institute of the Americas’ president Charles Shapiro.

Rural residents claim that the windfalls from energy projects have not reached them and, worse, they are left to bear the environmental damage associated with what are largely extractive industries. The Humala administration has focused its efforts to redress these issues through a prior consultation law for indigenous or native peoples (Ley de Consulta Previa a los Pueblos Indígenas u Originarios).  The government is confident that these measures, intended to improve project and local community interaction and consultation, will greatly alleviate the delays and the much-criticized permitting process for major energy and infrastructure projects today in Peru.

Several speakers at the roundtable pointed to the diversity of lessons from the development of the Camisea project as important tools to overcome the current challenges facing energy development in Peru, from the social to the environmental to the multiplier effect of exploiting domestic resources. Moreover, most agreed that as taxing as the energy investment climate is today, the possibility of a “new” Camisea project is within reason. There was much optimism surrounding the country’s energy potential and many participants felt that Peru’s significant traditional energy resources can be developed with the right policy framework and support of the government.

But delays to projects such as the Gasoducto del Sur — viewed almost unanimously as the lynchpin to meeting Peru’s energy demand growth and social inclusion efforts – as well as a downturn in exploratory drilling permitted by the government have made many key players in the sector uneasy.

Panelists from the mining sector also emphasized the link between energy, and sustainable economic growth in Peru. Mining contributes 10% of Peru’s GDP and 60% of exports yet inadequate transmission infrastructure threatens mining projects and, in turn, the country’s economic growth. The speakers agreed that expansion of natural gas supplies in the south, including the completion of the “Southern Energy Hub” will be critical.

As Vice Minister Quintanilla underscored, the key challenge and thus the core of the “new paradigm” is for the government to develop a regulatory and investment framework that makes feasible universal access and energy security without distorting market signals.

Beijing the Matchmaker

Beijing the Matchmaker

As China increases its investment in Brazil, Mexico, Peru and Colombia, Shearman & Sterling partner Michael McGuinness and senior associate Vanina de Verneuil write in International Financial Law Review that China and Latin America are “on the crest of a new wave of strategic investment and development.” The authors note that “this is due to Beijing’s continuing role as a matchmaker — driving outbound investment through its Going Out Policy and encouragement of international financing by China’s state policy banks — the natural maturing of cross-border transactions between the two regions, and the strategic demand for resources and technology.” 
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