Peru Kicks Off Contract Talks with Camisea Oil Companies

LIMA Aug 17, 2006 (Dow Jones Newswires)

High-level oil company officials and cabinet ministers started talks late Wednesday aimed at making changes to the contract regulating the Camisea natural gas fields.

Company officials said they realized the need to make changes, while the government representatives said they don't want to scare aware private sector investment.

"We have started conversations on several technical issues. We have found on the part of the companies that there is goodwill to take part in the negotiations," Prime Minister Jorge del Castillo told reporters.

The Camisea project came onstream in mid-2004, giving a sharp boost to Peru's hydrocarbons industry. But the new administration led by President Alan Garcia wants to, in part, stave off complaints that domestic gas costs are too high.

Officials have said a key goal will be to find a new formula to fix domestic gas prices, currently linked to a basket of fuel oils based on international prices.

The current Camisea contract sets a price ceiling, although the companies say they haven't been charging the maximum allowed.

"This has been a right that the companies have, and in a manner we understand that what the government wants is that the companies don't have that right to eventually increase prices," the director general of Pluspetrol, Norberto Benito, said Thursday on RPP radio.

In 2000, a consortium led by operator Pluspetrol Peru Corp. won a 40-year license to develop Camisea's upstream sector. So far, the main customers for the gas are factories and electricity generators. The companies are also selling large quantities of natural gas liquids.

"Today the price of natural gas is well below what it should be. The renegotiation of the formula is not to lower it even more. The renegotiation is to try to stabilize it and to avoid surprises in the future," Benito said.

"What we agree on today will have an affect going forward. The effects will be noted in one year, two years, three years or five years. There won't be price spikes. What won't happen is that someone will sneeze and the price will jump. This won't happen," he added.

The government also wants to look at the leaky pipeline system that transports the gas from the southern jungle regions to the Pacific coast areas.

A consortium known as Transportadora de Gas del Peru SA, or TGP, won a 33-year downstream concession to distribute gas to the coastal regions via pipelines. The liquids pipeline has suffered a number of high-profile leaks in recent years, however.

"This will be a mechanism tied to giving attention or indemnization for people who could eventually be affected by these events," Del Castillo was quoted saying Thursday in government newspaper El Peruano.

A related $2.5 billion project led by U.S.-based Hunt Oil Co. aims to turn Peru into an exporter of liquefied natural gas.

Copyright (c) 2006 Dow Jones & Company, Inc.

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