Latin Finance - March/April 2012 - 62

Andean peru investments

planned by Minera Yanacocha whose owners include Denverbased Newmont Mining, Peru’s Buenaventura and the World Bank’s International Finance Corporation. Work on Conga was suspended in November during an increasingly violent anti-mining strike. The state government in Cajamarca, where Conga is located, has vowed to stop the mining from moving forward. The Humala administration has farmed out to three international experts the task of reviewing the project’s controversial environmental impact study. Premier Oscar Valdes said the review would likely provide areas that need improvement, but he was confident Conga would go ahead, especially in light of several other projects already underway. Yet, politicians outside the government are not as convinced and fear economic and political repercussions if Yanacocha, which operates Latin America’s largest gold mine also in Cajamarca, were to give up on Conga. “Conga could create a chain effect that could set back the mining sector for years to come,” says Fernando Rospigliosi, a government minister early in the last decade.

Value Added Gas

This comes as the government anticipates approximately $15 billion in investment in oil and gas and other related industries. Peru is a minor player in the oil business, producing an average of 69,553 barrels/day in 2011. However, natural gas is more promising, with major investments in recent years in the Camisea gas fields and a liquefied natural gas plant, the first in South America. The plant, operational since June 2010, required nearly $4 billion. Oil and gas exports, thanks to Peru LNG, topped $4.5 billion in 2011, and are now the second largest source of export income after mining. The Peruvian government is pushing for the construction of a second pipeline and petrochemical complexes to add value to natural gas. Kuntur Gas Transport, a consortium formed by US investment firm Conduit Capital Partners and Brazilian builder Odebrecht, holds the concession for a 1,000-kilometer dual pipeline that would transport gas and liquids from Camisea to the southern coast. The Peruvian Congress in December passed legislation declaring construction of the pipeline and a petrochemical complex on the southern coast in the nation’s interest. The legislation also calls for the state-run oil company to have a role in the project, which will require approximately $3.5 billion. Petroperu will make a final decision in May on the upgrade of its Talara refinery, on the northern coast, that would increase production to 95,000 barrels/day, from the current 65,000 barrels. “We do not believe it will be difficult to raise the capital for Talara,” says Petroperu President Humberto Campodonico, who estimates investment at $1.7 billion. “There are banks with resources available that are looking for opportunities. Peru is seen as an attractive and secure option for investment,” he says.

with a number of crops thanks to free-trade agreements. Combined agro exports, including traditional and nontraditional crops, in 2011 were close to $4.3 billion. Coffee, which Peru exported only a few years ago at a discount for blending with other low-end beans, brought in $1.4 billion last year and the country has positioned itself as the leading producer of specialty gourmet coffees. The government plans to sell tens of thousands of hectares new farmland this year thanks to major irrigation projects recently completed or underway. The estimated investment would top $1.6 billion for the land, which would be used to plant crops that only a few years ago generated next to nothing in exports. These include grapes, which brought in $301 million in 2011, avocadoes, $164 million, and mangoes, $153 million. In each case, Peru takes advantage of a window of opportunity in the southern hemisphere’s summer when few other countries are producing. The free-trade agreements with China and the United States have provided important stimulus. Vladimir Kochera, who operates a consulting firm focused on China, sees China playing a major role in the development of Peru’s agro-export sector as China imports more food stuffs. “We need to be more aggressive with China, because the Chinese market is changing very quickly and there are a number of fast-growing imports that recently had no market in China, such as wine and coffee, that we can exploit,” he says.

Moving Growth

Farming Boom

The rising star that could overcome oil and gas export earnings in the near future is agriculture, with Peru making great strides

The private sector and government officials recognize that meeting investment targets also means attracting resources for infrastructure. AFIN, the association of private companies that operate public services, estimates that Peru needs $31 billion in investment in infrastructure if it hopes to sustain growth between 5%-6% annually. The most significant need is in transportation. AFIN estimates that the country needs to invest $7.4 billion in roads, $3.6 billion in ports, $2.4 billion in railroads and $571 million in airports. Transportation and Communications (MTC) Minister Carlos Paredes announced last December that investment would be even greater than the AFIN figure, with $20 billion coming from the treasury, private sector through concessions and in publicprivate partnerships (PPPs). There are currently two infrastructure funds, one created by the government and the other by the country’s four private pension funds (AFPs). The government initiated a $400 million fund last year, which is managed by Canada’s Brookfield and Peru’s AC Capitales, has not yet made any investments. The AFP fund has invested $300 million so far in two water and sanitation projects in Lima. The government’s investment promotion agency, ProInversion, plans to award long-delayed concessions for several deep-water ports, as well as a new airport in Cusco, the country’s prime tourism destination. Gonzalo Prialé, head of AFIN, said the country does not have the luxury to continue putting off infrastructure investment. “Peru’s is in an exceptional position right now, but this will not last if there is not a strong focus to attract investment in infrastructure,” he says. LF

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March/April 2012

Latin Finance - March/April 2012

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