Peru Govt, Gas Companies Reach Deal on Camisea Contract

LIMA Sep 7, 2006 (Dow Jones Newswires)

The Peruvian government and a consortium developing the Camisea natural gas project have reached an agreement to reduce the ceiling on natural gas prices for the domestic market, and to regulate price increases, government and company officials said.

President Alan Garcia came to office in late July promising to renegotiate the contract signed between the government and the consortium developing the upstream portion of the Camisea natural gas field. Talks between the companies in the consortium and the government have been taking place since then.

Government officials have said that a sticking point in the current contract was the formula to adjust domestic gas prices, linked to a basket of fuel oils based on international prices. The government feared that higher international prices could negatively affect domestic prices.

Pluspetrol Peru Corp. general manager Norberto Benito confirmed Thursday that as well as lowing the price ceiling, the agreement will allow future price increases of a maximum of 5.0% a year until 2012 and then 7.0% a year until 2017.

Under the new formula, prices will be based on a reference to an index made up 40% on a basket of energy prices, including coal, electricity gas and to a lesser extent petroleum, and the other 60% rest on the prices of machinery and equipment for the oil and gas industry.

In 2000, a consortium led by operator Pluspetrol Peru Corporation SA won a 40-year license to develop Camisea's upstream sector.

The project came onstream in mid-2004, mainly fueling factories and electricity generators.

Company officials have said that the companies selling the Camisea gas have voluntarily charged less than they could have since the project started.

Government newspaper El Peruano said Thursday that Pluspetrol could also make a special payment aimed at social programs, modeled after a recent deal in which mining companies in Peru also agreed to make a voluntary "windfall" payment.

The newspaper quoted deputy minister Pedro Gamio as saying that in the first year Pluspetrol's voluntary payment could be between $9.0 million and $10 million, adding that the payment could increase to $20 million as production increases.

Benito said, that the partners in the Camisea consortium had made an offer to the government for social programs, but that the possible contribution wasn't part of the contract renegotiation.

"It (the contribution) shouldn't be more than two weeks. We are trying to make it as quick as possible," he said on CPN radio.

The government also wants to renegotiate with other companies working in the Camisea development, including the pipeline system that transports the gas from the southern jungle regions to the Pacific coast areas.

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

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