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PERU
Victory and defeat for environmentalists
LADB
10/13/2003
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Peru gets some loans for controversial Camisea gas project.

Environmentalists were encouraged in late August when the US Export-Import Bank (Ex-Im Bank) voted against funding the controversial Camisea natural gas project in Peru. Less than two weeks later, however, other lenders, principally the Inter-American Development Bank (IDB), came on board to help fund the giant project involving two Texas-based energy companies with close ties to the administration of President George W. Bush.

Hunt Oil Company, whose chairman Ray Hunt was a top fund raiser for Bush in 2000, has a major stake in the project with partners Pluspetrol of Argentina, South Korea’s SK Corp. and Argentina’s Techint Group.

Halliburton’s Kellogg Brown & Root unit is a top candidate to build a US$1 billion liquefied natural gas plant on the Peruvian coast so Peru can export gas to the United States.

The companies were hoping to obtain public financing for the phase of the project that will supply gas to the internal market, including US$214 million in loan insurance from the Ex-Im Bank, a federal agency that helps finance the sale of US exports, and $75 million in loans from the IDB, which would then coordinate another US$240 million in loans from a group of banks.

Peru considers the project crucial to gaining energy independence. It plans to start piping natural gas to Lima by mid-2004. Environmentalists and human rights groups had lobbied banking officials in Washington to deny funding, saying the project would have a negative impact on indigenous people living in isolated areas in the Nahua-Kugapakori Reserve in the southeastern Amazon jungle.

They also say it could destroy one of the world’s most biologically diverse rain forests and the coastal Paracas National Marine Reserve, 300 kilometers south of Lima. An offshore fractionation plant, different from the liquefication plant, to divide gas liquids accompanying natural gas destined for the Lima market into different fuels would be built within the reserve’s buffer zone.

The Peruvian government said 18 possible locations for the plant were studied and that the site selection was made in accordance with Peru’s environmental regulations. Moving the plant would add several years to the project, it added.

The U.S. government sent a delegation to Peru in August to examine some of the more controversial elements of Camisea. Several members of Congress, including Sens. Patrick Leahy (D-VT), Paul Sarbanes (D-MD), and Christopher Dodd (D-CT), wrote to U.S. Treasury Secretary John Snow recommending that neither the IDB nor Ex-Im Bank approve financing.

"The issue is whether these institutions...which are funded with U.S. taxpayer dollars, will protect a pristine area of global environmental importance and unique Indian cultures whose survival is threatened," said Leahy.

President Alejandro Toledo said that the Camisea project "respects the environment, ancestral cultures and our people," and he said he would not let "extremists" paralyze Peru’s development.

The media reported that Toledo telephoned senior Bush administration officials, including National Security Adviser Condoleezza Rice, outlining the importance of the project to Peru.

The Ex-Im staff was concerned about approving Camisea without adequate environmental safeguards. A report by environmental consultant URS, commissioned by the Ex-Im, concluded that the project had significant environmental problems that had not been addressed.

Citing potential damage to Peru’s rain forests and indigenous people, on Aug. 28, Ex-Im Bank, a federal agency that helps finance the sale of U.S. exports, rejected the US$213.6 million in loan guarantees.

The vote was a setback for Ex-Im chairman Philip Merrill. The Ex-Im Bank chairman, a political appointee, sets the bank’s agenda and rarely faces defeat on high-profile votes.

Merrill voted for the loan guarantees while two other directors, April Foley and J. Joseph Grandmaison, voted against them. In a statement, Merrill said the decision was "situation-specific."

Environmental organizations praised the decision. "This was an important test, and the Export-Import Bank made a difficult, historic, and valiant decision," said Aaron Goldzimer of Environmental Defense.

Peru’s ambassador to Washington Roberto Danino said the setback would not delay the project. "The credit is easily replaceable because it is an export promotion credit," said Peru’s Economy Minister Jaime Quijandria. On Sept. 8, the Corporacion Andina de Fomento (CAF) approved long-term loans worth US$75 million for Camisea.

The good news for environmentalists was soon followed by defeat. The IDB voted Sept. 10 to approve US$135 million in financing for Camisea, which included a US$75 million loan and a US$60 million syndicated loan from financial institutions that sign agreements with the IDB. The U.S. government abstained on the vote, which was approved by the 45 other members on the IDB’s executive board.

The IDB extolled the project as a major breakthrough for Peru’s development that will save the country US$4.1 billion in energy costs between 2004 and 2033. It said Camisea will also provide Peru with an improved trade balance, more competitive industry and higher tax collections.

The U.S. Agency for International Development (USAID),which was included in the inter-agency process evaluating the project, had recommended the United States not support Camisea because it violated the Pelosi amendment. Sponsored by House Minority Leader Nancy Pelosi (D-CA), the amendment requires that adequate environmental assessments be undertaken 120 days before a vote at the IDB.

Treasury concluded that the Pelosi amendment was not violated in the legal sense. The decision to abstain, rather than vote No, was to reassure the Peruvian government that the United States understood the importance of the Camisea project to Peru.

Environmental groups, however, said the steps were half-hearted. They said the IDB caved in to pressure and failed to uphold environmental standards before issuing a large multilateral loan.

A No vote by Washington, whose shares on the board represent 30 percent of the vote, could have persuaded other countries to change their positions, said Nadia Díaz of the Washington-based Institute for Policy Studies (IPS).


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