Latin Finance - September/October 2009 - 48

Andean peru use its own resources – fish, natural gas, iron ore – for finished products instead of simply exporting them. “We need to give value to our raw materials. This is the only way a nation becomes successful,” he adds. Peru has had other golden opportunities in the past, but none quite like today’s conditions even in the midst of an international global crisis. The economy has expanded almost every year since the early 1990s, with the fastest sustained expansion happening this decade. Peru should grow this year, even though new forecasts predict much slower growth than initially anticipated. Barclays Capital in mid-July estimated growth at 0.9%, down from an earlier forecast of 2.6%, while JPMorgan dropped its outlook to 1.7% from 3.5%. The government for its part maintains that growth will be 3% this year and double that in 2010. Growth through May was 0.8%. Inflation is low, coming in at 0.03% for the first half of the year, foreign reserves passed the $32 billion and the trade surplus was $1 billion-plus through June. A $1 billion international bond issued in July was oversubscribed more than four times. The money was used to pay down the Paris Club debt, taking Peru’s foreign debt below $27 billion. “Peru has registered 17 years of steady growth with low inflation and increasing capital formation,” says Ernesto González, head of corporate affairs for Interbank, the country’s fourth largest commercial bank. Mining Splurge For the time being, the bulk of investment has been in mining and that will continue. There are at least six major mining projects in the final planning stages with investment north of $2 billion. They should come on line in the next five years. Overall, Peru’s national mining, petroleum and energy association (SNMPE) calculates that investment in medium and large-scale projects could top $24 billion in the decade to 2020. Of the major mining investments, the one furthest along is Toromocho, a copper project being developed by China Aluminum Company (Chinalco). The company is finishing final studies and should start construction on the $2.1 billion copper mine in early 2010. China’s Eximbank is financing the development. “We believe that everything is on track and expect few problems,” says Armando Arrieta, Chinalco’s VP for legal affairs. Production should start in 2012 and the plan is to export 1 million metric tons of copper concentrates annually after the third or fourth year of operations, he adds. The other dominant area of investment is hydrocarbons, especially natural gas, a resource Peru only began exploiting in 2004. The Camisea gas reserves are the third largest in South America after Venezuela and Bolivia, according to the IDB. The government anticipates $1.3 billion in private investment in hydrocarbon exploration and production in 2009, according to the hydrocarbon promotion agency Perupetro. and also spawned a new petrochemical industry. Total investment in Camisea-related projects, including the gas fields and pipeline, is already above $6 billion and climbing. Three companies are using Camisea gas for energy production: Franco-Belgian GDF Suez, Israel’s Kallpa and Spain’s Endesa. Each is adding around 190 megawatts this year. There is a long line of other electricity companies waiting to sign contracts with the Camisea consortium, including US-based Duke Energy and AEI, as well as Canadian-Chilean consortium Termochilca. Another $6 billion in investment is expected through 2015 in the development of hydroelectric and other renewable energy projects, according to the ministry of energy and mines. Elsewhere, CF Industries and a consortium formed by Peru’s Brescia Group and Chile’s Sigdo Koppers, are planning to use natural gas for petrochemicals. CF will produce 1 million tons of urea annually, while the consortium, known as Nitratos del Perú, will produce ammonium nitrate. Investment in this plant would be around $650 million and both companies hope to start construction in 2010. Meanwhile, Braskem and South Korea’s SK Corporation have expressed interest in petrochemicals, but in advanced projects to make plastics, among other things. SK has says that it could invest upward to $4 billion in Peru. Braskem has signed an agreement with Petroperú, and Petrobras, which is exploring for gas near Camisea, for an eventual plant. And a Colombian consortium has a contract to build a $270 million pipeline off the Camisea line to Marcona. Kuntur Gas Transport, created by US-based Conduit Capital, has a concession to build a pipeline from the gasfields to the southern city of Ilo. The investment will top $1 billion. LNG Stink Gassed Up The largest and most controversial investment is, however, a $4 billion project spearheaded by US-based Hunt Oil to export gas. The liquid natural gas (LNG) project is fast moving toward a target completion date of December 2010. It is the single largest investment in Peru’s history. The problem is that it will export close to half of Camisea’s proven reserves, or 4.1 trillion cubic feet of gas, over the next 20 years. Opponents claim that exports are being prioritized over serving the local market. They also cry foul over price. The government-established price for exporting gas as a raw material is $0.51 per 1 million BTU, while the Peru-based petrocheamical companies will have to pay $4 per million BTU. Energy generators in Chicla and Lima pay $1.59 per million BTU. Prices are set for gas at the wellhead and the price for exportable gas does not include processing or shipping. There are calls from some opposition politicians and analysts for the government to review the contracts with Hunt’s consortium and the petrochemical companies. Other say the government should stop the Camisea consortium from supplying gas for electricity generation, saying it is crazy to burn the fuel that could be industrialized. LF Gas is revolutionizing Peru much faster than anyone expected. It has lowered production costs, allowed the country to produce energy to meet demand created by rapid economic expansion, UPDATE For daily news on Peru’s markets, see www.latinfinance.com > 48 LatinFinance September/October 2009
http://www.latinfinance.com

Latin Finance - September/October 2009

Table of Contents for the Digital Edition of Latin Finance - September/October 2009

Latin Finance - September/October 2009
Contents
Investment Banking Survey
Who Said That?
OTPP Investment Strategy
Central Bank Scorecards
Brazil Liability Management
Real Estate Equity Resurrected
Structured Finance Forecasts
Grim Outlook. Reform Required
Banorte Seeks to Grow
Peru Spending Hits a Block
BCP Sees Better Days
Caribbean Investment Report
Sustainable Banking
Legal Services Survey
Parting Shot
Latin Finance - September/October 2009 - Latin Finance - September/October 2009
Latin Finance - September/October 2009 - Cover2
Latin Finance - September/October 2009 - Contents
Latin Finance - September/October 2009 - 2
Latin Finance - September/October 2009 - 3
Latin Finance - September/October 2009 - 4
Latin Finance - September/October 2009 - 5
Latin Finance - September/October 2009 - 6
Latin Finance - September/October 2009 - 7
Latin Finance - September/October 2009 - 8
Latin Finance - September/October 2009 - 9
Latin Finance - September/October 2009 - 10
Latin Finance - September/October 2009 - 11
Latin Finance - September/October 2009 - 12
Latin Finance - September/October 2009 - 13
Latin Finance - September/October 2009 - Investment Banking Survey
Latin Finance - September/October 2009 - Who Said That?
Latin Finance - September/October 2009 - 16
Latin Finance - September/October 2009 - 17
Latin Finance - September/October 2009 - 18
Latin Finance - September/October 2009 - 19
Latin Finance - September/October 2009 - 20
Latin Finance - September/October 2009 - 21
Latin Finance - September/October 2009 - 22
Latin Finance - September/October 2009 - OTPP Investment Strategy
Latin Finance - September/October 2009 - 24
Latin Finance - September/October 2009 - 25
Latin Finance - September/October 2009 - Central Bank Scorecards
Latin Finance - September/October 2009 - 27
Latin Finance - September/October 2009 - 28
Latin Finance - September/October 2009 - Brazil Liability Management
Latin Finance - September/October 2009 - Real Estate Equity Resurrected
Latin Finance - September/October 2009 - 31
Latin Finance - September/October 2009 - 32
Latin Finance - September/October 2009 - 33
Latin Finance - September/October 2009 - 34
Latin Finance - September/October 2009 - 35
Latin Finance - September/October 2009 - 36
Latin Finance - September/October 2009 - Structured Finance Forecasts
Latin Finance - September/October 2009 - 38
Latin Finance - September/October 2009 - Grim Outlook. Reform Required
Latin Finance - September/October 2009 - 40
Latin Finance - September/October 2009 - 41
Latin Finance - September/October 2009 - 42
Latin Finance - September/October 2009 - 43
Latin Finance - September/October 2009 - 44
Latin Finance - September/October 2009 - Banorte Seeks to Grow
Latin Finance - September/October 2009 - Peru Spending Hits a Block
Latin Finance - September/October 2009 - 47
Latin Finance - September/October 2009 - 48
Latin Finance - September/October 2009 - 49
Latin Finance - September/October 2009 - BCP Sees Better Days
Latin Finance - September/October 2009 - 51
Latin Finance - September/October 2009 - 52
Latin Finance - September/October 2009 - 53
Latin Finance - September/October 2009 - 54
Latin Finance - September/October 2009 - Caribbean Investment Report
Latin Finance - September/October 2009 - 56
Latin Finance - September/October 2009 - 57
Latin Finance - September/October 2009 - 58
Latin Finance - September/October 2009 - 59
Latin Finance - September/October 2009 - 60
Latin Finance - September/October 2009 - 61
Latin Finance - September/October 2009 - 62
Latin Finance - September/October 2009 - 63
Latin Finance - September/October 2009 - 64
Latin Finance - September/October 2009 - 65
Latin Finance - September/October 2009 - 66
Latin Finance - September/October 2009 - Sustainable Banking
Latin Finance - September/October 2009 - 68
Latin Finance - September/October 2009 - Legal Services Survey
Latin Finance - September/October 2009 - 70
Latin Finance - September/October 2009 - 71
Latin Finance - September/October 2009 - 72
Latin Finance - September/October 2009 - 73
Latin Finance - September/October 2009 - 74
Latin Finance - September/October 2009 - 75
Latin Finance - September/October 2009 - 76
Latin Finance - September/October 2009 - 77
Latin Finance - September/October 2009 - 78
Latin Finance - September/October 2009 - Parting Shot
Latin Finance - September/October 2009 - 80
Latin Finance - September/October 2009 - Cover3
Latin Finance - September/October 2009 - Cover4
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