Getting the Money for Camisea

Abstract: Development of South America's largest natural gas field is waiting for interim financing. Now it appears that the project may have to make some changes before loans will come through.

Analysis: Developers of the Camisea Gas Project in Peru hoped this week for approval of two interim financing agreements--$214 million in loan guarantees from the Export-Import Bank of the United States (Ex-Im) and another $75 million from the Inter American Development Bank (IADB).

Ex-Im and IADB approvals were expected earlier--in late July and then August 5--but both times the boards of the banks delayed votes after intense lobbying from human rights groups and environmentalists who are demanding changes.

The project aims to tap the Camisea gas field, South America's largest, estimated at 13 trillion cubic feet and located about 460 miles east of Lima in the Amazon Valley. Dual pipelines to carry gas and natural gas liquids to the coast are under construction and a gas liquefaction plant is planned for the coast. The project began in 2000 and is estimated to be between 60 and 80 percent complete.

A broad range of human rights groups and environmental organizations have objected to the pending loans and lobbied bank board members.

High Visibility
The pipeline's path through Peru's rainforest takes it through the Camisea River valley, home to some of the last remaining indigenous peoples previously uncontacted by Western civilization. Clearing the right-of-way has resulted in mudslides and angered environmental watch groups. These groups object to parts of the project. They also want operators to change construction practices that have harmed rainforests, driven off wildlife, and destroyed plant life. Native populations use plants as materials and medicines. Human rights groups say diseases brought in by outsiders have spread rapidly among natives who had no immunity to them.

The list of opponents to the project's construction practices includes Amazon Alliance, Amazon Watch, Environmental Defense, Friends of the Earth, The Institute for Policy Studies, The World Wildlife Fund, 13 U.S. Senators, and House Democratic Leader, Nancy Pelosi, of California.

Amazon Watch has charged that diseases have spread among natives whose isolation has left them with no immunity and that mudslides are destroying habitats. Another opponent, CorpWatch, published a website article titled "Peru: Bush, the Rainforest and a Gas Pipeline to Enrich His Friends."

Adding to the project's visibility is a six-part report by Frontline. The PBS unit made the Machiguenga Indian tribe the subject of a documentary series. Frontline said it intends to show the Indians and the Camisea project as an example of the tradeoffs between rising energy needs on the one hand and concerns over the environment and the fate of native populations on the other.

Frontline reported from the Camisea Valley this spring, when IADB and the Ex-Im Bank reviewed the project and considered the loans. The Frontline reporters went to the drill site, a boomtown, the pipeline right-of-way, and a still-isolated part of a rainforest river valley. They found evidence of mudslides along the right-of-way and listened to stories of fuel spills as well.

Frontline took care to balance the report, noting comments by the pipeline's major stakeholders, Hunt Oil Company and Transportadora de Gas Del Peru (TGP), that the project included replanting and restoring the right-of-way. It also noted that the Camisea project stands to enrich the poor Andean nation and make it energy independent as well as a major exporter of liquid natural gas (LNG). The report can be accessed on the Frontline website.

Pipeline operators are not just heedlessly cutting through the jungle. They are under some restraint by Peru. Last November, Osinerg, Peru's energy regulatory agency, fined TGP 3.4 million soles (US$944,000) for environmental violations during construction of the Camisea pipelines. The regulatory agency said TGP failed to live up to its commitments under the environmental impact study for the project. That included excessive deforestation along the right-of-way, causing landslides and endangering the watershed with the risk of erosion.

Fifteen Years in the Making
The Camisea project traces its roots to 1986, when Shell Oil Company discovered the Camisea field. Development finally got underway in 2000, when the Peruvian government's Special Committee of the Camisea Project issued contracts amounting to $2.6 billion. A 40-year contract was issued for exploration and production and a 33-year contract for transportation and distribution.

The government awarded the upstream portion of the contract to a consortium of Pluspetrol (the operator), Hunt Oil, SK Group, and Tecpetrol (the Argentine unit of the Techint Group). By April this year, the consortium had drilled three wells and planned to finish a fourth in May.

Downstream, the consortium issued three contracts: pipeline and transportation of gas from Camisea to Lima, transportation of natural gas liquids (NGL) from Camisea to the Pacific coast, and distribution of gas in Lima and Callao. The gas and NGL contracts were awarded to TGP. TGP is itself a consortium involving the Techint Group, Pluspetrol, Hunt Oil, Graña y Montero (Peru), Sonatrach (Algeria), SK Corporation (South Korea), and Tractebel (Belgium). Last year, Tractebel was also awarded the gas distribution contract for Lima and Callao. A 37.5-mile main distribution pipeline is involved.

In a separate project, early in 2002, Camisea LNG (Holding) Company (a wholly owned subsidiary of Hunt Oil) signed an agreement with Kellogg Brown & Root, a division of Halliburton, for a front-end engineering design (FEED) study of an LNG liquefaction facility and marine terminal to be located on the coast of Peru south of the capital of Lima.

What to Do Next?
What changes do opponents want to the Camisea project to lessen its impact? At least two demands are clear. Environmental groups want the right-of-way replanted and repaired, though loss of the very thin layer of rainforest topsoil may limit what can be done. And the LNG facility slated for Playa Lobena on the Pacific coast will need to be moved. Officials of the World Wildlife Fund say that Playa Lobena is too close to the Paracas National Reserve, a site internationally recognized for its biodiversity.

Other demands relating to rights of the indigenous population are sure to come up if the backers require changes. And even if Ex-Im and IADB grant loan approvals as is, there is more money to be raised and opponents will no doubt be back to make their case again.