But the consequences of actions of Peruvian politicians that resulted in the tampering with a century-old asset expropriated in 1968, upgraded in the early 1970s, and that did run well until 2019, became visible to all in just two days of unprecedented fuel-supply disruption.
In late October 2022 there were for at least two days long lines of tanker trucks near loading terminals, state TV Peru showed in the last week of October. Truck drivers that had arrived to pick fuel to take to service stations across cities in Peru didn´t find any. Some had waited more than a day.
Peru lacks gasoline or diesel pipelines. Small road truck tankers take to stations gasoline, diesel and LPG, in bulk or in canisters. Peru is about twice the size of Texas. Limited fuel distribution also takes place by rail.
Fuel-loaded ships wait for payment
The impact was limited as the fuel was in ships and it was just the money to pay that was needed, Petroperu´s President of the Board Humberto Campodonico had said in an interview on RPP on Oct. 27 as he announced his resignation. Immediately after the $1.5-billion approval from the central government, fuel was released from ships down the hoses to tanks and into trucks.
The late October 2022 fuel scarcity was a surprise to Peruvians as it occurred just months after Petroperu held a publicized ceremony, attended by the leader of Spain´s Tecnicas Reunidas –the engineering company doing the refinery´s work–, to mark what was billed as the beginning of the process to restart Talara. The plant had been shut for an extended period, since 2019 according to Petroperu´s former general manager Hugo Chavez.
$1.5-billion rescue
To face the late October 2022 crisis, Peruvian President Pedro Castillo´s government had to part from $1 billion as well as put an additional guarantee of $500 million. The $1.5 billion covers only the immediate, fixing Petroperu´s urgent obligations to pay fuel imports and get them. Castillo had named Campodonico as president of the board of Petroperu in April 2022.
The amount is hefty considering Peru´s total GDP in 2021 was $220 billion. The Peruvian proposed 2023 budget, for all areas, including all health, education and defense, only reaches $56 billion. And the need for funds will resurface if the refinery isn´t restarted soon, Campodonico alerted.
One way to measure the magnitude of the challenge for the Peruvian government is by comparing the extraordinary, unforeseen expense with the cost of supporting Peru´s biggest university, the state-run San Marcos university that as of 2020 had about 37,000 students in total and is free of tuition, including for medical and law degrees.
The annual budget for the university is about $133 million in total. That includes support with food, health care and even helps 227 students living in university housing as well as covers the salaries for over 3,000 teachers. Campodonico, who attended state-run universities in Peru and France, teaches economy at San Marcos University.
Old relationship, new names
Talara, a refinery nearly a century old but that reached its 62,000-bpd capacity about half a century ago under Peruvian President Juan Velasco (1968-1975), wasn´t so attractive from a market standpoint compared with the La Pampilla refinery in Lima, a plant that had 102,000 bpd at the time Peru sold to Repsol for $180 million, according to reports at the time of that privatization in 1996. Talara is 680 miles north of Lima, where over a third of all Peruvians live.
The Talara refinery once served a strategic role in the Panama Canal defense. The Talara Air Force Base, located near the refinery, was home to U.S. war aircraft and servicemen starting in March 1942, when the location had its own military postal code. Fuel was supplied not just to aircraft, but to any Allied ship traveling in that area of the South Pacific. Talara is South America´s westernmost point and closer to the Panama Canal than Florida or Texas.
The U.S. air force base was handed to Peruvians in 1947. But Standard Oil of New Jersey´s International Petroleum Co. kept the refinery it had owned from before the war, that also supported the road operations of oil extraction and shipping that the company had long had in the region, and that it continued to own until the late-1960s coup. Oil extracted from fields near Talara was for decades shipped to Standard Oil refineries in North America´s West Coast until the late 1960s.
Standard Oil Co. (New Jersey)´s IPC´s dispute with Peru after the expropriation of that Talara plant resulted in high costs for Peruvians with half a decade of diplomacy efforts. Peru feared during the first half of the 1970s the application of the so-called Hickenlooper amendment, or of reduction of sugar quotas, as well as about decision that could have blocked or delayed lending or assistance.
Fernando Berckemeyer Pazos, a career diplomat with roots in a Peruvian wealthy family, at the time worked closely with Peruvian General Juan Velasco, who had started as an infantry soldier and rose to general before he implemented, once President of Peru, unprecedented policies to support the indigenous and labor. The efforts met success and kept the administration of U.S. former President Richard Nixon (1969-1974) from taking the feared punitive decisions, despite much pressure.
Standard Oil Company (New Jersey), which owned International Petroleum Co. that owned Talara, changed its name to Exxon Corporation in 1972. Exxon then merged with Mobil in 1998.
ExxonMobil has long owned and marketed for many decades the flexicoking and flexigas proprietary technology that Petroperu contracted in 2010, as shown in the image of this article.
A televised resignation
Humberto Campodonico, 72, until Oct. 27, 2022 President of Petroperu´s board of directors, announced his resignation that day in an interview where he was invited to discuss a fuel shortage. A resignation letter separately also informed that his decision was “irrevocable.”
Peruvian President Pedro Castillo, 53, sworn-in on July 28, 2021 for a five-year term, had named Campodonico as President of Petroperu in April 2022.
Campodonico took the position after the March resignation of Petroperu general manager Hugo Chavez.
The resignation of Chavez had followed nearly daily reports involving accusations of alleged bribe payments that were supposedly made through intermediaries. Former Petroperu general manager, Hugo Chavez, is suspected of having paid an alleged corrupt network –that supposedly leads up to Castillo himself– to access the position, based on testimony of collaborators that, however, haven´t provided evidence. Chavez faced also accusations related to biodiesel auctions. Chavez denied all charges, but did resign the position saying it was best to step aside for “governability.” He said the accusation of paying supposedly a $7,000 bribe to access the position is laughable, considering the amounts that Petroperu moves.
As for Petroperu´s current situation, there are “problems of illiquidity that the company suffers, due to the closure of many credit lines,” Campodonico said in the Oct. 27 interview with RPP radio at the time that he announced his resignation.
“The refinery of Talara is one month and a half away from finishing its works and from its inauguration,” he added. That new schedule he provided would place the restart of production of Talara by mid-December 2022.
“What happens in a refinery so complex, that does not get started by Petroperu but by those with licenses and above all the constructors, has moments in which there are delays, abnormal areas (…),” Campodonico said in the RPP radio interview explaining the delay.
The work Campodonico mentioned is under Spain-based Tecnicas Reunidas. There are also contractor companies from Spain involved in the construction. The Spanish investment and export promotion agency financed part of the work.
“We signed an agreement with Price Waterhouse so that they could audit the financial statements,” Campodonico said, listing what he said was a key achievement for Petroperu in his six months during his second term as Petroperu president. Campodonico was President of the Board of Petroperu from Aug. 2011 to Jan. 2013 the first time.
Price Waterhouse, which had done Petroperu´s audits in previous years, had refused to do them when Hugo Chavez, named by Peruvian President Castillo in 2021, was general manager but did accept with Campodonico after his appointment as President of the Board, Campodonico explained.
Campodonico had said in another televised interview on Oct. 26 that the ships that were in October alongside the Peruvian coast withholding fuel from Peruvians while waiting for an “order of payment” were the Minerva Rita, with BB Energy, as well as another ship he said had fuel from Shell.
A report in Peruvian state-run newspaper El Peruano on Oct. 26 said the Peruvian government had to approve the $1.5 billion contributed to Petroperu, including the $1 billion in urgent payment and $500 million to back Petroperu debt in case the company doesn´t meet future payments coming up. A special urgent decree was used as it was the fastest way to get the money.
Consumers avoid price hike, for now
Prices would have seen a significant increase without the Peruvian stabilization fund, Peruvian Economy Minister Kurt Burneo said in early November. Peruvians already pay some of the highest gasoline prices in the region. However, part of the light vehicles in circulation have been adapted to run on compressed methane that is much cheaper.
Burneo, 61. who has held the post since August 2022 when he was named by Castillo –as his third Economy and Finance Minister so far in his term–, said on Nov. 4, 2022 that the government had to give the money as Petroperu urgently needed it.
Between Aug. 16, 2001 and Aug. 22, 2004 Burneo worked as Deputy Finance Minister. A copy of his CV indicates he has been a director at the Central Bank but doesn´t indicate the years. An annual yearbook of the Peruvian Central Bank of Reserve from 2003 lists him as director. This was during the government of former Peruvian President Alejandro Toledo (2001-2006). At that time Burneo worked at the Finance ministry as deputy minister during the minister terms of Pedro-Pablo Kuczynski, Jaime Quijandria Salmon and Javier Silva Ruete. Decisions taken during that time by those officials created the current conditions for energy oil and gas, as well as derived products, in Peru through locking in terms and conditions for the Camisea gas export business.
The devil in the addendas
Chavez estimated in March 2022 that Petroperu, that he said had 2,880 workers in total, had not been producing gasoline at Talara for two years and three months. That places the stoppage in 2019.
Chavez was chief of advisers of the Economy Commission of the Peruvian Congress of 2005 from where the law for the strengthening and modernization of Petroperu came that paved the way for investment decisions in the company. Another legislation key for Talara was a law mandating the use of cleaner fuels in Peru by 2010, fuel grades that Talara couldn´t produce without upgrading.
Asked why the price of the refinery upgrade had increased so much, Chavez blamed it on “addendas” signed in past years to increase the agreed spending.
As for his hiring, Chavez explained Peruvian President Castillo interviewed him in 2021 for the position. He said he considered normal that he was called, through two referrals, because he has worked at Petroperu.
Chavez said Castillo heard his presentation on what he thought about Petroperu´s refinery costs, with Chavez alleging that there was graft likely involved as similar refining capacity elsewhere in the world would cost much less. Chavez also said that Castillo liked his recommendation to approach the Camisea consortium for changes and ask them to pay not with U.S. dollars but instead with the refined hydrocarbon products that Peru needs. In addition to its diesel and gasoline dependency, Peru has struggled in 2022 to get urea, and part of the country is flooded with LPG canisters smuggled from Bolivia where the product is sold for five times less. Meantime, royalties for Camisea exports, described as irrisory in relation to final sales, has done little to help offset the hard currency that leaves Peru every day to pay for downstream oil and gas goods.
He said the only requisite Castillo made was to assure him that he didn´t have any pending legal problems of any type.
Chavez estimated the spending in Talara, when including maintenances of the idled equipment, at over $8 billion. And this doesn´t take into account the additional imports during the shutdown.
“Testosterone” borrowing?
Carlos Paredes Lanatta, who has a Ph.D. and a masters from Yale and was President of Petroperu from April 2019 to Feb. 2020, explained during a conference of Peruvian business organizations on Nov. 2019 that the “addendas”, or clauses to increase budget allocations, were changed during his term to compensate for increases in the project cost.
“In 2008 it was $1.3 billion but the engineering had not been done. When the engineering was done with Tecnicas Reunidas the cost was $3.9 billion,” Paredes Lanatta said.
In 2017 the cost was $4.3 billion “because of the greater costs due to the delay and some exchange orders,” he added. “Now at $4.7 billion this incorporates the costs over projections that we have recognized,” he said in Nov. 2019.
“One must have testosterone to sign addendas and take decisions,” Paredes Lanatta said at the time. He said that when he started his term at Petroperu the construction work only had 3,700 workers that were later under his presidency about doubled.
Vargas Llosa´s fond Talara memories
“So one day it turned out that uncle Jose Luis, ambassador of Peru in La Paz and a relative of grandfather Pedro, was chosen president of the republic in the distant Peru (…) As soon as he became president, uncle Jose Luis offered grandfather either being a consul in Arica or governor (prefecto) in Piura. He chose Piura,” Vargas Llosa wrote in Spanish in El Pez en el Agua, 1993, as translated by this reporter. There is an English version (A Fish in the Water) published at the same time that may differ from the translation.
“We traveled by plane to the north, to Talara, because it was summer and my grandfather, as governor (prefecto) of the department, had a little house there that the International Petroleum Company would put at his disposition during the vacation period,” Vargas Llosa wrote in this non-fiction book but, as the title stated, “Memoirs.”
“Of those Talara vacations, I remember the nice Juan Taboada, the butler of the International Petroleum and union leader… He served in the house and liked me, took me to watch soccer games and to the movies,” Vargas Llosa added in his memoirs.
“I spent all the summer inside the pool of the International Petroleum, reading historietas (comics),” Vargas Llosa wrote in Spanish. “In Talara, that March 28, 1946, I turned 10,” he said.
While Vargas Llosa, born in Arequipa, Peru´s second biggest city, refers to former Peruvian President Jose Luis Bustamante y Rivero (1945-1948) as uncle, he wasn´t his nephew but a more like a close friend to his grandfather, who he said had left Peru to work in Bolivia for the Said family-based businesses in Bolivia. Like Romero, the Said family is another group with a long significant presence in commerce and production in countries in or near the West Coast of South America.
In that book he describes Bustamante as someone who would visit his grandfather´s home in Cochabamba, Bolivia, where he lived with his mother that was raising him alone, and other relatives. He said he took a liking as a child to him because he had left with him money as gift after each visit. His family had moved from Arequipa to Cochabamba, Bolivia because of work. Cochambamba is 240 miles driving distance away from Bolivia´s capital of La Paz.
Another interesting information provided by Vargas Llosa in this book is that at the time his grandfather was governor in Piura, one of his sons –or a Mario Vargas Llosa´s uncle, this time a real uncle–worked back then for the Romero family.
Romero, a family group from Piura, is behind the biggest business conglomerate in Peru, including banking, agriculture, and manufacturing, as well as fuel retail through fuel company Primax, and controls the biggest holding Credicorp and the largest bank, the Banco de Credito.
In fact, Vargas Llosa´s appearance in Peruvian politics, as well as that of his political group Movimiento Libertad, goes back to promotional efforts by the Peruvian banks, led by Banco de Credito, to raise awareness about attempts by then former Peruvian President Alan Garcia to increase the government control of banks during his first term in 1985-1990, according to reports at the time. In the 1980s Dionisio Romero Seminario was known as the most influential out of a dozen Peruvian industrial, mining and banking-related individuals. By the 1990s he was probably by far the single most influential business person in Peru, with activities that if measured would certainly account for a measurable fraction of Peru´s GDP. The group is currently led by his son.
Noteworthy also that Bustamante y Rivero (1945-1948) had named to lead his cabinet another Arequipa-born lawyer like himself, Rafael Belaunde Diez Canseco, who between 1945 and 1946 had served as his Police minister before becoming cabinet chief. Rafael Belaunde Diez Canseco was the father of former Peruvian President Fernando Belaunde Terry (1963-1968, 1980-1985), leader of Accion Popular, who played key roles in relation with accords with IPC that preceded the Talara´s expropriation, and later empowered others that had a key role in Camisea.
Belaunde Terry was deposed in a coup by General Juan Velasco (1968-1975) when the refinery was taken over by the Peruvian military, justifying the decision on alleged opacity in Belaunde´s government dealings with IPC.
Vargas Llosa met shortly after that tenth birthday, as he reminisced, in Piura, his lifelong friend Javier Silva Ruete, the former official under Toledo´s government that occupied key positions at the Economy and Finance Ministry and Central Bank of Reserve at a time when actions that turned the Camisea gas into an export-oriented business took place. Silva Ruete, deceased in 2012, held ministerial positions also with former President Fernando Belaunde Terry in his first term (1963-1968), in Agriculture, and with General Francisco Morales Bermudez (1975-1980), in the key Economy and Finance post.
Viva la refineria de Talara!
Campodonico assumed the post of President of Petroperu for the first time during the government of former Peruvian President Ollanta Humala (2011-2016).
The Talara expansion became possible after Congress approved it in Jan. 2014 as “a matter of national interest.”
A report by Peruvian State News Agency Andina on June 22, 2012 said that Campodonico had traveled to Europe to seek financing for the Talara upgrade refinery project.
Ten years and at least $5 billion in spending later, on April 12, 2022, while addressing a large audience in Talara, Campodonico took to the podium to thank Castillo for the support the president had given to the company with the needed resources to complete pending works.
“Viva (Long live) the new refinery of Talara!” Campodonico said grandstanding to the crowd while Peruvian President Pedro Castillo and his Cabinet Chief Anibal Torres watched.
Minutes later, Castillo took the podium himself.
“Our friend Humberto Campodonico was saying, as to recognizing the reason why we are here, that it was the result of work in Congress that left in the hands of the Executive to build, push, this big refinery,” Castillo said in April.
Castillo added that he wanted to ask Campodonico to help him find a similar way to build a fertilizer plant with the gas available in Peru and urgently help farmers. If given a chance, his government would build a plant, he said.
A “most sophisticated” plant
Carlos Lopez, manager of Tecnicas Reunidas, explained in that April ceremony for the celebration of the coming startup that the main work done mainly involved the expansion of existing primary distillation capacity from 62,000 to 95,000 barrels per day.
“The difference with the previous Talara refinery is that in the global refining process we have incorporated units of hydrotreating to reduce sulphur,” he said.
According to Juan Llado Arburua,chief of Tecnicas Reunidas, the resulting refinery is very complex and advanced.
“I have no doubt that this refinery is the most sophisticated at these moments,” Juan Llado Arburua said in the April ceremony.
“It´s a luck that I can talk now without a mask (…) because my smile is breaking out. The smile of the happiness that we are starting out very complex units that will be very important for the quality of fuels in Peru,” Llado said in April 2022 in the ceremony.
Peruvians in debt until 2047 over Talara
Petroperu officials borrowed $2 billion in June 2017, when the company sold bonds worth $1 billion to be repaid in 15 years and another $1 billion to be repaid in 30 years, for Talara.
Petroperu had also received the 10-year, $1.3 billion loan from a Spanish lending agency, also for Talara.
On Feb. 4, 2021 Petroperu sold an additional $1 billion in bonds in international markets by reopening the issue maturing in 2047.
The Annual Memory of 2020 indicated that, in that year´s published Balance Sheet, Petroperu estimated a total of $5.8 billion of all its property and equipment, including refineries, plants, tanks, land and buildings.
By far most of that figure corresponds to “work-in-progress” in Talara. The asset had been assessed at just a few hundred million dollars in the early 2000s, when initiatives to seek to sell the plant to a private group didn´t prosper.
A third consultancy over Talara?
The approach Peruvian Economy and Finance Minister Kurt Burneo has announced seems like a return to the beginning: hiring a consultancy.
Peruvian Economy and Finance Minister Kurt Burneo said his office is evaluating requesting from the Caracas-based regional development bank Corporacion Andina de Fomento (CAF) a consultancy to determine the real value of the refinery.
The CAF, sometimes referred to in English as the Development Bank of Latin America or Andean Development Corporation, has functioned as a development bank for the region for decades.
Peruvian former Economy and Finance Minister Javier Silva Ruete (Piura 1934, Lima 2012), who was Economy and Finance Minister as well as Central Bank director under Toledo (2001-2006) was at one point a director of the CAF, according to information on an obituary that did not list the dates.
A report from BNAmericas published on July 10, 2007 said that the Venezuela-based CAF was “completing the financial design” as part of the support work for Petroperu´s plans to do the Talara upgrade work. The report said that Petroperu had awarded to consulting company Arthur D. Little a contract related to studies for Talara.
The capacity of Peruvians to follow on the consultant´s recommendations appears limited, based on what followed after the case of the consultancy of 2008 when Arthur D. Little suggested reviewing carefully alternatives before a decision on the flexicoking, that it had recommended.
According to page 44 of the study presented by Arthur D. Little consulting, and published in Petroperu´s website, from its 2008 yearbook: “Arthur D Little strongly recommends Petroperu once again reviews its analysis for the flexicoker compared with delayed coking at the time it selects the coking technology from the licensor,” it said.
Arthur D. Little said the flexicoker had been selected as a better cost option for treating residuals in its recommendation “based on information available from the licensors.” Arthur D Little estimated the capex for an upgraded Talara plant at a cost of $1. 65 billion with the delayed coking, and of $1.5 billion with the flexicoker.
It is unclear if those Arthur D Little estimates included potentially added costs in case of a need to reconfigure other parts of the refinery so they can run on the lower calorie gas, or flexigas.
Flexigas is said to have a lower BTU compared with natural gas and changes may be needed to units that will start to use it as feedstock or else mechanical problems may occur, based on information that has been available in websites, open for any reader, since the mid-2000s, and available through a search by typing relevant key words.
Delayed coking, a way to process residuals in batches, can be a cheaper alternative to flexicoking particularly in places with plentiful natural gas availability, comments indicate. Natural gas is plentiful near Talara.
Cabinet Chief of Garcia had ruled out investment
During the second term of former President Alan Garcia a bidding process to select companies for the upgrade of Talara was interrupted in 2008 when an apparently unrelated scandal of secretly recorded audios, that appeared to involve the President of Petroperu at the time, Cesar Gutierrez, resulted in his resignation of him and other officials.
Garcia´s Cabinet Chief Yehude Simons, when asked near the end of Garcia´s government about the restart of that bidding and a decision on Talara, said that Garcia´s government was not going to proceed with the Talara upgrade due to costs.
Nevertheless, in one of the projects back and forths, in 2010 Petroperu officials signed a contract related to the use of flexicoking technology for Talara. There wasn´t at the time any indication that the Economy and Finance Ministry would transfer funds.
The political work that unleashed the funds was only completed in 2014.
Burneo and the Central Bank
Kurt Burneo Farfan, who graduated from Economic Studies at the University of San Marcos, shared spaces with Campodonico early in the government of former President Ollanta Humala (2011-2016), according to reports at the time.
Burneo Farfan, according to a report published by Gestion newspaper on June 15, 2011, was considered the “strongest candidate” for the Economy and Finance ministry position of then newly elected Ollanta Humala. Gestion said Burneo, known for his participation in Toledo´s government in the finance ministry and for being a director of the Central Bank of Reserve of Peru, had joined Humala after the first-round result and was part of his team preparing the government transfer. Humala didn´t name him Economy and Finance minister but instead minister of Production, a position he held for four months and a few days.
The Central Bank of Reserve of Peru has had a key role in decisions related to hydrocarbons activities in Peru, particularly around the time of Toledo´s presidency.
Noteworthy, the Central Bank of Reserve of Peru was created within a week of an agreement between the government of former Peruvian President Augusto Leguia and Standard Oil´s International Petroleum Co.
The first board of directors of the Central Bank of Reserve of Peru included William Wilson Cumberland, who besides Peru also worked in Haiti and Nicaragua representing U.S. interests.
Peruvian opposition to the agreement and resentment that built up after the 1922 accord resulted in the 1968 coup.
The root of the problem: Simon Bolivar
The Republic of Peru has never had complete control of the region where oil is produced in the north of the country, and where the Talara plant is located.
After the arrival in Peru on Sep. 1, 1823 of Simon Bolivar and following the independence wars in 1824, Bolivar became the “Supreme Military and Political Authority of the Republic of Peru,” or dictator, and his actions included the collection of payments first from the Treasury and later in any form possible, such as concessions to compensate his army for the liberation of Peru.
So during Simon Bolivar´s term there was a sort of unprecedented privatization of assets that formerly belonged to the Kingdom of Spain, or to Spaniard citizens in Peru, that were transferred by Bolivar´s government to those close to him. Peru did not see such state asset sale buoyancy until the 1990s with Fujimori.
Those assets taken by Bolivar that were handed at the time included the hydrocarbon-rich lands near Talara that had been exploited since ancient times both for its caloric content and to treat wood for sea vessels.
The groups that received from Bolivar the oil rich lands near Talara held a dispute for over a century with Peru, with one side arguing it had been a concession and the other assuring it had received perpetual ownership with hereditary rights. So, the hydrocarbon-rich land near Talara was transferred between families in Peru until it fell with the London Pacific Petroleum Co., that then transferred them to Standard Oil of New Jersey. The accord to settle previous disputes is the one that took place in 1922.
The 1922 agreement between those who represented Standard Oil and the administration of former Peruvian President Leguia occurred during the couple of years presence in Peru of Wilson Cumberland, who participated in the setting up of the Peruvian Central Bank of Reserve exactly 100 years ago, in 1922.
To give some comparison to the Peruvians spending in Talara, Argentina used also about $5 billion in debt, in roughly the same period, to acquire back YPF, which had been sold to privates in the 1990s (with Arthur D. Little working as consultant). That purchase included some of the world´s richest shale deposits discovered under Repsol, 328,000 bpd of refining capacity and service stations.
Saving Petroperu from Castillo
Representative of the Peruvian press coverage of Petroperu and Campodonico´s administration was the column of Mirko Lauer, a director and opinion writer of Peru´s La Republica newspaper, who in mid-October forecasted Campodonico´s resignation.
Lauer, with credentials like a Guggenheim fellowship and France´s Chevalier de l´Ordre des Arts et des Lettres, said on Oct. 12, 2022 that Campodonico, whom he described as the main asset of Petroperu, had “discomfort” and was going to quit.
Lauer explained that Burneo had said that Petroperu needed good management. Burneo´s comment was interpreted as a “biased suggestion that Campodonico wasn´t doing it. That´s when the discomfort started in those that must save the oil company from one year of life under Pedro Castillo.”
Castillo has faced three attempts in Congress for an impeachment since becoming president on July 2021. Most Peruvian media have reported nearly daily about alleged corrupt acts supposedly committed by Castillo and his closest family. Castillo´s ministers have said that Peruvian media is upset about reductions in juicy government advertising budgets as Castillo has cut that spending. As for the accusations, “lawfare” is being used in Peru, they said.
Peruvians may have indeed reason to be concerned about graft as in the past the assets of the nation have been taken away and used for purposes far from the interest of most Peruvians.
Billions earned from state asset sales and concessions of air, hotels, mines, deposits, gas, refineries, milk plants, and assets just about across every sector, carried out during the 1990s under the government of former President Alberto Fujimori, didn´t last long with much of the proceeds used to finance his failed re-election bid around the turn of the century, according to investigations at the time.
He won his 2000 re-election bid but fled the country shortly after amid protests over the vote and resigned from Japan, where he remained as citizen of that country for a few years until his return in the mid-2000s that ended with a trial and jail.
The more things change…
It is not a coincidence that Perupetro is often confused with Petroperu. While Petroperu was created on July 4, 1969, after the October 1968 expropriation of Talara, to mark the birth of the state company, the licensing agency Perupetro was created on August 1993. Perupetro was created amid efforts to privatize Petroperu, therefore the name is a play with words to indicate opposites.
Perupetro, is currently managed by Daniel Hokama Kuwae, who has been there in that position since April 2019.
Daniel Hokama Kuwae, according to a report from specialized Peruvian energy news media El Gas Noticias on April 25, 2019 at the time of his naming, has extensive experience in the private sector that includes having worked for Brazil-based Odebrecht in relation to a failed project related to Camisea gas transportation in Peru for Peruvian industrial purposes. The Odebrecht name has been involved in corruption accusations in Peru against Keiko Fujimori, daughter of former President Alberto Fujimori –currently jailed in Peru for crimes including connection to murders by a death squad with victims that included university students.
Daniel Hokama Kuwae is son of Daniel Hokama Tokashiki, born in 1940. Daniel Hokama Tokashiki was former President Alberto Fujimori´s most prominent energy official during his decade-long government that lasted all of the 1990s. Daniel Hokama Tokashiki was Energy and Mines Minister in three terms under Fujimori for a total of at least five years with one from Nov. 1992 to July 1995, the second from April to September of 1996 and the third from Aug. 1998 to Oct. 1999.
Daniel Hokama Kuwae´s resume, as posted on a Peruvian government website, indicates he earned an undergraduate degree in mechanical engineering from Lima´s Pontificia Universidad Catolica in January 2006, with a post-graduate degree in mechanical engineering listed as obtained in January 2007 from HEC Montreal. During that time, according to his CV, he also worked as an “executive in regulation of natural gas and electricity” (during 2002-2011) moving then to Kuntur Transportadora de Gas (Jan. 2012-2012), which is the failed project associated with the Odebrecht group to transport Camisea gas.
If a pipeline to take gas from the Camisea fields to the south would have been completed, it would have rivaled the Camisea consortium for limited natural gas resources in the region that are needed for export. Camisea reserves are uncertain but were 13 TCF in the late 1990s.
Daniel Hokama Kuwae resume also indicated he worked as manager for marketing, institutional relations and regulation at Gasoducto Sur Peruano SA from Jan. 2014 to Jan. 2017. This is also the Odebrecht pipeline, as per Peruvian media.
According to a news report from Nov. 24, 2016 in RPP radio, the Gasoducto Sur Peruano project was a project to transport natural gas from Camisea to the southern Peruvian port of Ilo to feed Peruvian cities and industry there, owned by Odebrecht, that the company wanted to sell but couldn´t find buyers.
On Feb. 5, 2020, Odebrecht took Peru to arbitration over a failed investment of $2 billion in the gas-pipeline and claimed it needed to recover losses, Reuters news agency reported on that day.
The original gas pipeline project to take Camisea natural gas to feed copper smelting, refining and other industry in the area, about 600 miles southwest of Camisea, as well provide gas to support large populations and economic activity in the south of the country, was first conceived by France´s Suez Energy.
Suez had signed an agreement in March 2007 with Peru looking forward to work to build a $500-million pipeline. The pipeline would have taken a route through the coast –which is flat compared with the Andes– with costs around 2008 estimated at no more than $800 million.
But Kuntur appeared around that time as an alternative, a rival to the Suez project. Kuntur was owned by a U.S. fund named Conduit Capital Partners when it appeared in Peru. Its proposal for a pipeline that would take the route of crossing the mountains was much more expensive than Suez.
During Peruvian President Alan Garcia´s second term (2006-2011) a law was enacted that had the consequences of basically eliminating Suez proposal and leaving only that of Kuntur standing.
“There is a law that says it’s a public necessity to build the pipeline in the Andes, and the law is the law,” former Prime Minister Jorge del Castillo, member of the Apra party then led by Garcia, told journalists on May 2008, as reported by Reuters news agency. He was explaining why Kuntur had the favored choice, over the original project where Suez had long worked.
With the Suez project out of the way through legislation, rights over Kuntur were later acquired by Odebrecht but it was never carried out, and resulted in the end in an arbitrage lagainst Peru.
Peru and Odebrecht
According to a Dec. 21, 2016 by the U.S. Department of Justice, Odebrecht and its subsidiary Braskem (Latin America´s biggest petrochemical company) at the time pleaded guilty and agreed to pay $3.5 billion “to resolve charges with authorities in the U.S. Brazil and Switzerland arising out of their schemes to pay hundreds of millions of dollars in bribes to government officials around the world.”
Besides Keiko Fujimori, another Peruvian politician facing decades of prison in Peru in relation to Odebrecht is former President Alejandro Toledo (2001-2006), accused of taking bribes related to a highway construction and awaiting in the U.S. the results of an extradition trial. Former Peruvian President Pedro Pablo Kuczynski (2016-2018) is also under house arrest in Lima, under charges of taking bribes from Odebrecht.
Keiko Fujimori´s group, Fuerza Popular, that lost the 2021 runoff presidential election vote, has within the last year been behind failed efforts to extend the implementation of an EPS plastic import ban. Braskem, owned by the Odebrecht group, is a leading exporter of plastic resin from Brazil to all the region, including Peru.
Perupetro´s door shut to Castillo´s naming
When President Pedro Castillo tried to name the former President of the Peruvian Congress Daniel Salaverry (July 2018 to July 2019), a politician who had once been part of Keiko Fujimori´s group, actually its spokesman, to head Perupetro, the naming was vehemently opposed.
Salaverry had been part of Keiko Fujimori´s group but on Oct. 2018 he distanced himself after secretly taped audios appeared that involved members of Keiko Fujimori´s group in relation to a judicial case. Salaverry resigned to her political organization saying he wanted to be independent to be a better president of Congress. But confrontations followed.
The appointment of Salaverry to head Perupetro (the state oil licensing agency, not the state oil company) in January 2022 by Castillo was met with staunch opposition also in the legislature, in the state attorney offices as well as by the Peruvian press.
On Jan. 12, 2022 the Peruvian general comptroller, Nelson Shack, said Salaverry was at “fault.”
“The fault is that he should not have accepted the designation,” Shack said, as quoted by RPP radio on that day.
Shack told RPP radio that every person must be aware if one meets or doesn´t a required job profile. If one isn´t qualified and accepts, one is committing a crime, he explained. Shack added that irregularly accepting a position, or irregular naming someone, is a crime typified in Peruvian criminal statutes so investigations were started against all levels involved in the naming of Salaverry. He said three levels are normally involved in hirings and all would be probed.
Changes in Perupetro would impact not only decisions over concession to operate old fields producing crude that Peru pays at international market prices to feed Talara but also may affect Camisea, by far the biggest hydrocarbon operation in Peru. Castillo´s government has already tried without success to seek changes related to Camisea in Oct. 2021.
Salaverry quit under massive media pressure in just days and without even taking office. But even so, the Peruvian state attorney is investigating him for three crimes, one of them falsehood against the Peruvian state, and he may be charged, Infobae reported on June 30.
While Peruvian President Castillo, 53, has so far been prevented from gaining more control over some Peruvian public spaces related to oil and gas, he has resisted pressure to resign or attempts to be impeached.
“I know they will use anything to continue to hit my family, parents, brothers. It´s part of the fight. I won´t give up,” he said in Aug. 2022
By Renzo Pipoli
