Petroperu´s inability to restart refinery once key for Panama Canal defense separates Peruvians from $1.5 billion: a case study on a century of crude oil business in the tropics
Thirty million Peruvians learned slowly about a 30,000 barrels-per-day capacity expansion project, add to that a unit to process residuals, that has so far taken at least a decade and a half and demanded anywhere from $5.5 billion to well over $8 billion, not counting fuel imports needed for the extended shutdown.
But the consequences of actions by Peruvian politicians and the individuals they empowered 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.
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 oldest 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. 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 decisions 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 courtesy of Peruvian State News Agency Andina.
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 apparently 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 then Petroperu´s 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 through third parties that are supposedly cooperating with justice (without any connection of that amount to him) 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 helped finance 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.
The use of urgent decrees can result in fast withdrawals from state coffers but at the cost of opacity that is supposedly justified by an urgent need to access funds for matters of national security.
In the past, such use of urgent decrees has been associated to acts of corruption, and such acts have been investigated years after taking place. The Peruvian Executive can use an urgent decree for economic matters even when the Congress is in session if this results in an urgent release of funds that is absolutely necessary for the country´s immediate viabilility. Otherwise, controls to release funds do take much longer and must meet transparency steps.
For example on July 17, 2009, according to Peruvian state news agency Andina, former President Alberto Fujimori (1990-2000) had to explain a Peruvian court why he had used an urgent decree near the end of his government to release $15 million to his spy chief Vladimiro Montesinos. Fujimori said at the time that the urgent decree was needed to get money as soon as possible to give to Montesinos, or else his former spy chief would have used his control of the military to stage a coup and destabilize the nation therefore it was for national security.
Montesinos, like Fujimori, is as of 2022 jailed under special conditions. One of his sentences, from 2010, involved 25 years of prison for participation in operations of a death squad involved in killings with victims including university students, according to information from Infobae on June 21, 2022. The report was published at the time Montesinos was transferred back to the main base of the Peruvian navy, where he has a special cell. The government of President Castillo had moved him after the 2021 elections from that special cell in the ocean front base to a regular prison after audios of his supposed conversations were aired in some Peruvian media that caused a scandal as apparently he was talking to a subordinate about bribing electoral judges and other actions to favor the three-times presidential candidate Keiko Fujimori, daughter of former President Alberto Fujimori. To some Peruvians this may have been seen as evidence that Montesinos remained actively involved in Peruvian politics. Montesinos, who in the navy base is completely removed from the Peruvian overcrowded jails, controlled in Peru for at least nearly a decade a network of judges, according to investigations that led to his trials and those of many he interacted with that ended up being accused of traffic of influences. The 2021 audios did put into evidence that Montesinos had access to cell phones despite supposed restrictions by the navy. Many Peruvian navy officers, along with air force and army, were filmed in the 1990s standing in line to salute Montesinos in special acts like the spy chief´s birthdays with recordings available in YouTube, easy to find along with those that have been subject of traffic of influence trials as they involve key entrepreneurs in Peru.
The Peruvian navy was very sensitive to the 2021 criticism and angrily reacted to a La Republica newspaper cartoon depicting Montesinos with his legs up resting on the desk of the Peruvian navy director, while he used the navy director´s landline telephone, while many cells laid on the desk. The navy asked the newspaper to remove the cartoon to avoid "confusing" public opinion, media reported at the time.
The transfer of Montesinos to a regular prison in 2021 was opposed by several Peruvian legislators, including some former military that were elected as legislators in 2021. Representative of this group is retired Peruvian navy admiral Jorge Montoya Manrique, who had staunchly opposed Montesinos transfer on grounds that supposedly the navy base was more secure and stricter.
Another former military turned legislator, actually the President of the Peruvian Congress (since Sep. 12, 2022), retired army general Jose Daniel Williams Zapata had gone a step further. Williams Zapata tweeted on Aug. 21, 2021 that the transfer of Montesinos "obeys to the demands" of a group named Movadef, a political organization that Peruvian military and police associate with a rebel organization formerly active in Peru from the late 1970s to mid-1990s.
Daniel Williams Zapata run for Congress in the party of economist Hernando de Soto. If efforts to remove Castillo from office, ongoing in the Peruvian legislature as of Nov. 2022, meet success then Williams Zapata may occupy the presidency of Peru in his capacity of President of Congress. There have been efforts underway to remove both the president and the vice president.
According to a report published at 10.36 am on May 22, 2019 by Grupo La Republica´s online newspaper La Republica and titled "Detention of Williams Zapata Ordered Over Massacre of Accomarca" (Ordenan detencion de Williams Zapata por Matanza de Accomarca), a judge had ordered the arrest of Jose Daniel Williams Zapata and 28 Peruvian military over accusations of genocide in relation to a massacre of 72 indigenous farmers in Accomarca, Ayacucho, on Aug. 14, 1985. According to witness testimony provided by La Republica at the time, the group of military arrived to an isolated, remote community and called everyone out, gathering 69 people in the main square. Then men, women and children were separated. First, women were raped, after being accused of having provided food to supposed guerrillas in the area. Later grenades were thrown to the community building where the rest of the community was ordered to wait, setting the place on fire after everyone was considered dead, including the minors. However, a few farmers had escaped the initial roundup and survived to describe what they saw happen to their families and neighbors. The group of military did manage to kill some of the indigenous farmers that had escaped the slaughter after combing the area, but couldn´t kill all, according to the testimony published in La Republica.
Those 72 farmers are part of an estimated 35,000 deaths in Peru associated with political violence. Indigenous communities in Peru took by far the heaviest toll of the guerrilla wars activity in Peru. Accomarca wasn´t an isolated incident.
Andean indigenous communities, according to experts, were actually the ones that fought and defeated the rebel groups, turning the tide against Shining Path in the Andes. The government of Fujimori was credited at the time by security analysts with providing weapons to communities for self-defense after learning the groups had defeated those rebel groups just with stones and sticks. The bet of Fujimori, while weary that supplying weapons had the danger of adding more fire to a highly volatile situation of political violence, did result in the defeat of Shining Path by indigenous farming groups organized for self-defense as "ronderos." Peruvian President Castillo is a former "rondero" or member of rural, farmer civilian groups that help maintain law in the absence of state institutions.
Crimes against indigenous populations in Peru have included forced sterilizations, that ocurred systematically under Fujimori, according to multiple investigations going back to the 1990s.
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). The time when Burneo worked at the Finance ministry as deputy minister was 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.
Chavez has provided interviews to Peruvian media Exitosa noticias in March and in August 2022. 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, LPG and gasoline imports 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, resulting from roughly four-to-five monthly shipments of methane compressed cryogenically 600 times into LNG since 2010 --with all parts of the business from upstream to final sale run by private consortia-- have been described as resulting in irrisory compensation to Peru by Manuel Dammert Ego Aguirre, legislator between 2016 and 2019, and foremost expert in Peru on Camisea who described in detail roles played by each government official, as well as explained the terms and conditions. Dammert (1949-2021) is the author, among other publications and conferences, of a book titled The Lobbyst Republic and the Bicentennial Peruvian Nation (2009). Royalties from Camisea do relatively little to compensate the hard currency that leaves Peru every day to pay for downstream oil and gas goods imports like fuels, plastics, fertilizers and all other petrochemicals.
The former Petroperu general manager, Chavez, recalled that the only requisite Castillo made during work interviews 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” addenda signing?
Carlos Paredes Lanatta, who according to Peruvian press 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.
Paredes Lanatta resignation in February 2020 made front news in Peru for a couple of days, and this was no small feat as it occurred during the quick spread of the Covid pandemic. Paredes Lanatta´s resignation grabbed national attention because of what many considered was the use of vulgar, sexist language against then Economy and Finance Minister Maria Antonieta Alva, at the time 34 years old.
Since the dispute was really over Talara spending --and considering the force the project had gained under Paredes Lanatta, as he had described himself during his Nov. 2019 presentation with developments like doubling the number of workers and signing "addendas"-- it was a milestone worth some detail.
State media TV Peru reported on Feb. 24, 2020 that Paredes Lanatta, born in 1959 and who before Yale attended Peru´s Universidad del Pacifico, confirmed that audio recordings that had been presented around those days in media as being of his voice, in a conversation with a third party, over a request for money he made from then Economy and Finance Minister Alva, were indeed of his own voice.
In the recordings Paredes Lanatta had described his efforts to get the Peruvian Economy and Finance ministry to part from $1.5 billion that he said he urgently needed for Talara.
"I asked my great friend Toni Alva, the Economy minister, to give me the $1.5 billion I am asking for and she doesn´t want. Then I tell her (...) if you don´t give me the money you will end up as responsible," TV Peru reported.
The problem for the Peruvian media at the time laid in the language that he used (ommitted here) and in that he didn´t appear to apologize. He instead said he never disrespected her, TV Peru reported. Funds needed to advance and complete the refinery work were, however, provided later. That $1.5 billion urgent request, for refinery work, is not to be confused with the $1.5-billion urgently needed of October 2022 that was strictly related to fuel imports.
Paredes Lanatta is widely reported by Peruvian press, and with biographies listed online that cannot be confirmed, to have been adviser with former Peruvian Economy and Finance Minister Victor Joy Way nearly at the end of the decade-long government of former President Alberto Fujimori.
Victor Joy Way was Economy and Finance Minister and Cabinet Chief very late in the government of Fujimori, when pretenses of being a democratic government had for the most part suffered as he was preparing his actual second re-election, but that under an "authentic interpretation" of existing laws would have been in reality only his first re-election (Peruvian laws at the time allowed one re-election only). That interpretation was pushed to hold elections but it led to the disputed vote results and to much of the political volatility Peru has endured since that time.
Joy Way, born in 1945, served jail time in Peru over corruption. According to a report from state news agency Andina from April 20, 2005, Peruvian authorities at the time were opening proceedings against Joy Way, already jailed, for charges related to having made payments to media owners to manipulate coverage of how news were presented to Peruvians. That Andina report stated that the proceedings had taken place at one of the local Lima jails, Penal Castro Castro, and that Joy Way had been already sentenced to eight years in prison over graft.
Joy Way could be described as part of the core group of Fujimori, holding important positions throughout the entire 1990s decade when Fujimori --with the help of his spy chief Vladimiro Montesinos-- ruled Peru almost without opposition, with support from the military. Joy Way had started as his industry minister (1991-1993). Between 1992 and 1995 he had represented Fujimori´s party in Congress as legislator, repeating in 1995-2000. He was President of Congress during 1996-1999. Then in the 2000 general elections he was re-elected to Congress with Fujimori´s party. He was jailed on Sept. 2001.
A native of the Peruvian central highland region of Huanuco with Chinese roots, Joy Way, who earned his undegraduate degree from Peruvian state university for engineering, UNI, was known as amiable, cared very much about social forms, and shared a passion with elites for Peruvian horses, known in Peru for genetics competitions and with a gaited step said to resemble a 4/4 metronome. The breed is a relic of when at one time Peru was the center of power of Spain in South America and the best horses that arrived from Spain stayed.
Vargas Llosa´s fond Talara memories: A "Fish" in the Pool
“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 book that isn´t fiction but, as the title states, "Memoirs."
“Of those Talara vacations, I remember the nice Juan Taboada, the butler of the club of the International Petroleum and union leader and leader of the Apra party… He served in the house and liked me. He took me to watch soccer games" and to the movies, Vargas Llosa added.
“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. Bustamante y Rivero seemed more like a close friend to his grandfather, that he said had left Peru to work in Bolivia for the Said family. Like the Romero family group, the Said family also has an established, significant presence in commerce and production in countries in or near the West Coast of South America. Arequipa, as of 2022 with a population of just over one million, had under 81,000 residents in the early 1940s.
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. Cochabamba is 240 miles driving distance away from Bolivia´s capital of La Paz.
Another interesting information provided by Vargas Llosa in this book (in page 14) 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 "Casa Romero."
Romero, a family group from Piura, is behind the biggest business conglomerate in Peru, including administration of port terminals, agriculture ventures, manufacturing, fisheries, as well as fuel retail through fuel company Primax. The Romero group also 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 calculated would certainly account for a measurable fraction of Peru´s GDP. The group is currently led by his son.
It is noteworthy to point out that in the absence of oil regulators at the time it was one of the functions of prefects to oversee compliance of obligations with the state so as to meet the needs for roads, schools, public works in regions under their jurisdiction. Yet much of the population of Talara (about 100,000), still even as of 2022 lacks reliable running water access to the point of safey issues. A report from Correo newspaper on Jan. 9, 2022 in a story titled "Talara Residents Desperate Over Water" said that authorities had informed the populations of the northern Peru areas of Talara, Lobitos, Zorritos, and El Alto were going to continue to receive water in trucks as some work went on. The report said Talara had become a "battlefield" with people fighting one another trying to fill buckets with water. Homes in Talara couldn´t even flush toilets creating health concerns, it said. Peruvians endured cholera outbreaks as recently as in the 1990s. During the pandemic statistics showed some of the world´s highest per-capita number of deaths from Covid-19 amid lack of basic health infrastructure in much of the nation.
The refinery operation has long owned a desalinization plant for the plant and complex so it wasn´t impacted.
The Planta Alta, that included two top homes with one for the general manager and the special guest house --where perhaps Vargas Llosa and his mother stayed that mid-century summer (Jan.-March is summer in southern hemisphere)-- was demolished long ago. These bungalows with ornamental lawns were home to Americans for the most part between the 1940s and 1970s. The units had gas connections, climatized air and outlets with 110W current like in the U.S., compared with 220W elsewhere in Peru. Punta Arenas had pool areas, beach access, and there was also education from elementary to high school that followed the American model. Punta Arenas was home to supervisors and administrators of the refinery. By the 1980s few Americans remained and the complex had seen already significant changes.
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 a dual role as both his Police minister and 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 Talara´s expropriation, and later empowered others that had a key role in developing the Camisea natural gas fields as an export business.
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 run by private groups, under government supervision, 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 Cerrutti (1975-1980), in the key Economy and Finance post.
On Feb. 9, 2022 the Italian Supreme Tribunal ratified a life sentence against Francisco Morales Bermudez Cerrutti over his participation along with some members of military juntas that operated a coordinated repression network in Latin America and caused the disappearances of people, including Italian citizens. Italian Justice had issued an initial sentence in 2017 when it said Morales Bermudez Cerrutti was part of a group of former Latin American military officers involved in the deadly repression.
Morales Bermudez Cerrutti became president of Peru after he and other high ranking military officers announced the government change on Aug. 28, 1975, following a sickness of President Juan Velasco that had resulted in a leg amputation. Soon afterwards, policies were reversed and elections were held in 1980 that were won by Fernando Belaunde Terry.
In 2021-2022 Vargas Llosa, the former Peruvian presidential candidate who resides in Spain as a Spanish citizen, was very active in raising awareness through international literature conferences and related pressers, or opinion writing in one of the leading newspapers in Spain, to warn about alleged dangers to democracy and freedom posed by Castillo. Some press in Latin America re-published Vargas Llosa´s comments about Castillo, rival of Keiko Fujimori in the elections. He had supported Keiko Fujimori in the 2021 elections in Peru with his son participating in political meetings before masses in Peruvian public spaces by giving speeches next to her while surrounded by flags, like Vargas Llosa did himself with Toledo ahead of the 2001 vote.
Viva la "nueva" 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 much needed fertilizer production capacity for Peru, 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 in Nov. 2018 a 10-year, $1.3 billion loan from a group of banks with the backing of the Spanish Agency for Exports Credits (CESCE), also for Talara.
On Feb. 4, 2021 Petroperu sold an additional $1.16 billion in bonds in international markets by reopening the bond issue maturing in 2047.
The international debt total committed in 2017, 2018 and 2021 adds up to $4.5 billion.
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.
During the years of the borrowing and addendas Petroperu kept long-term international debt ratings reflecting being a relatively safe investment, even as its balance sheet showed the company´s total assets and debt repayment capacity reality.
As a fuel distributor without significant refining capacity --apart from Talara owns very small plants in the Amazon and near Lima with total combined capacity well under 50,000 bpd (not including Talara), its profitability depends on spreads between fuel imports and what gets distributed. Peruvian fuel prices, already about the highest in the region, never had much room for increases. The government has long collected heavy taxes on fuel (at one point they were half the price), but also has long used a so-called fuel stabilization fund from where it draws to avoid price spikes contributing to the fund at times when prices are lower by keeping prices relatively higher at those times.
In 2021 and 2022 there has been noticeable rating action. The need to support elevated fuel pricing in coming years to service the debt Petroperu contracted may help Spain´s Repsol which owns the biggest Peruvian refinery of La Pampilla near Lima, as well as a network of service stations (many, arguably the best locations, formerly under Petroperu flag), as well as help support the margins for earnings from fuel sold to drivers that is brought to Peru by private fuel importers and retailers like Primax, owned by Romero. The outlook for Peruvian fuel consumers in coming decades looks grim, without even taking into account possible carbon pricing developments forced into that part of the world. Many large hydrocarbon companies have announced plans to become carbon neutral by 2050. The trend since the pandemic has been to reduce refining capacity, and own assets integrated with chemicals and renewables, with care through investments to minimize the carbon footprint including undeground carbon storage to prevent emissions from reaching the atmosphere. Places like California have announced future bans for new gasoline-powered cars and light trucks.
Back to the CAF
The approach Peruvian Economy and Finance Minister Kurt Burneo has announced seems like a return to the beginning: a consultancy with an organization known in Latin America for its Spanish acronym CAF.
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 for decades and has had some Peruvians --that at at times occupied high ranking governemnt post-- as key officials.
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.
That report also said that Petroperu had awarded to consulting company Arthur D. Little a contract related to studies for Talara.
The consultancy of 2008 by Arthur D. Little told Petroperu to review "carefully alternatives before a decision on the flexicoking," even as it had presented a cost comparison showing flexicoking technology as less expensive than delayed coking.
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 option.
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 could run on flexigas, or any alert about potential added costs as a result of any type of impact from the need to adapt to an operation with flexigas.
Flexigas is said to have a relatively lower BTU, based on information that has been available in websites with open-forum style information for those with interest in refining operations, with participation of professionals and engineers but open for any reader, with records of conversations on multiple refinery-related issues, since the mid-2000s, and available through a search by typing relevant key words in Google.
Flexicoking and delayed coking have been available for many decades so there has long been plentiful information readily available even to non-specialists in such forums to allow comparisons. Delayed coking, a way to process residuals in batches, or only once at a time and not continuously, can be a cheaper alternative to flexicoking. However, in places with little natural gas availability, flexicoking could be a better option. Natural gas has long been available in that hydrocarbon-production region around Talara.
Luis Rebolledo Soberon (1948-2012), who was appointed President of Petroperu late on the second term of former President Alan Garcia, precisely on March 10, 2009 --and who was the top Petroperu official that signed the Jan. 27, 2010 agreement for the flexicoker technology with ExxonMobil-- had been before that, since 2006, the head of Peruvian financial state institution Cofide, and before that was director of the CAF, according both to information presented during a posthumous publication of a collection of economy essays he wrote as well as by RPP online at the time of his naming. RPP radio did not specify the dates when Rebolledo was at CAF other than saying it was before 2006. Rebolledo was also said to be Dean of the Economy School of the University of Lima and to have had a Ph D in Business Administration from Pacific International University in San Diego, California.
It is also worth mentioning that there was the appointment in the board of directors by 2010 of an official named Miguel Atala Herrera.
Atala Herrera, as well as his son, were to gain notoriety in investigations of funds related to former President Alan Garcia around the time of the former president´s suicide in April 2019. Garcia, then 69, had shot himself in the second floor of his house after authorites had entered the first level with the intention to detain him. Ojo Publico reported also on April of that year that the same judicial warrant used to search and go get Garcia was at the time also directed against Atala Herrera, then 73, and against his son Samir Atala Nemi, then 41, also under suspicion of having received illegal funds from Odebrecht. Since Garcia´s death Atala has reportedly confirmed he received bribes but has said that they were for Garcia. Garcia´s estate disputes before Peruvian authorities a claim that transactions that left a record as having gone into accounts controlled by Atala were turned to cash and given to Garcia before his suicide.
Cabinet Chief of Garcia had ruled out expansion
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 Peruvian officials was followed by the resignation of the President of Petroperu at the time, Cesar Gutierrez, 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 project´s back-and-forths, on Jan. 27, 2010 Petroperu officials signed the contract with ExxonMobil related to the use of flexicoking technology for Talara. There wasn´t at the time, however, any indication that the Economy and Finance Ministry would transfer funds. Chances of Petroperu officials getting access to about $1.5 billion dollars, even through an equity sale in local or international markets, looked slim, particularly after the audio scandal that also disrupted efforts by Petroperu to start exploring offshore blocks in partnership with a European company in a venture where Petroperu wasn´t going to invest.
The political work that unleashed the funds spent in Talara 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 in 1922 within a week of an agreement between the second government of former Peruvian President Augusto Leguia (1919-1930) 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. The title of first president of the Central Bank fell on a first cousin of Leguia.
Peruvian opposition to the agreement and resentment that built up after the 1922 accord resulted in the 1968 coup. Many Peruvians considered the terms had been imposed on Peru, with Leguia later using force to consolidate the agreements within Peru.
In 1917-1918 Wilson Cumberland worked as trade expert for the War Trade Board in Washington. He started to hold positions in Peru in 1921, first as Financial Commissioner and Superintendent General of Customs, Republic of Peru, in 1921.
Prabook, an open biographical encyclopedia, also lists his other position as Governor of the Reserve Bank of Peru from 1923 until 1924. Prior to those roles he had been involved in foreign trade advising at the Department of State between 1920 and 1921. After Peru he went to work between 1924 and 1927 as Financial Adviser, General Receiver, Republic of Haiti, and then in 1927 and 1928 in Nicaragua as Financial Expert for Department of State in Nicaragua.
Some reports in Haiti may help picture the man relevant in the creation of the Peruvian Central Bank of Reserve. The publication Haiti Sun published a short vignette on Feb. 27, 1955 titled A Parting Word on Cumberland, around the time of Wilson Cumberland´s death, that quoted Haiti Journal´s description of a man Haitians nicknamed “Dr. I-am-opposed” as having an attitude “like that of a master toward a conquered country.”
The Oral History Project at Columbia University is said to have a recording of his spoken memories.
As for Peru´s central bank, it is known in Peru as a relatively elite state institution, where many workers are related to one another. According to a Bloomberg News story from May 7, 2001, Central Bank employees at the time included 52 married couples, 54 brothers-in-law and sisters-in-law, 52 uncles or aunts and their nephews and nieces, 40 cousins and seven father and sons. The central bank had then 1,059 employees, Bloomberg reported. The information was obtained from a congressional investigation of potential nepotism at the bank. That investigation didn´t find violations because the hirings took place before laws aimed to prevent nepotism were first enacted in Peru in 1997.
The root of the problem: Simon Bolivar
The Republic of Peru may have 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 closer to him. Peru did not see such state asset privatization 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 the Republic of 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 landed with the London Pacific Petroleum Co., that then transferred it to Standard Oil of New Jersey. Anecdotically, when two experts were sent from Lima in the 1910s decade to survey the desertic region hydrocarbon properties being exploited and prepare a report with up-to-date information for royalty purposes, they were denied water and object of hostilities from local populations in that desertic area. Still the expedition learned by far most production there wasn´t even declared. That work resulted in efforts to get better compensation and more control. The 1922 accord ended any previous claim from Peru.
Saving Petroperu from Castillo
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 through equity markets in the 1990s (with Arthur D. Little working as consultant). That re-purchase included some of the world´s richest shale deposits discovered under Repsol, 328,000 bpd of refining capacity and service stations.
Representative of the Peruvian press coverage of Petroperu 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,” Lauer wrote.
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.
Petroperu has its own advertising and public relations budget that reflects the fact that by volume, number of workers and other metrics is often considered --along with Romero´s Credicorp holding and Spain-based Repsol-owned La Pampilla-- one of the three biggest business organizations in Peru. Petroperu also promotes aspiring writers through an annual award named Cope, and has financed cultural events and publishing of books.
Petroperu´s influence in the Lima literature and arts circle is however small in comparison with that of Spain´s Repsol, which promotes cultural activities including literature in both Spain and Peru, as well as in other countries. In one example of such activities the Repsol Foundation, according to information published on Jan. 27, 2012 by blog.cervantesvirtual.com, had contributed to the support of an exhibition called "Mario Vargas Llosa: Freedom and Life" to celebrate the 2010 Literature Nobel Prize winner.
Peruvians may have indeed reason to be concerned about graft as in the past 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 assets carried out during the 1990s under the government of former President Alberto Fujimori didn´t last long as most of the proceeds were lost or used to finance his failed re-election bid around the turn of the century, according to investigations at the time.
Alberto Fujimori won his 2000 re-election bid but fled the country shortly after amid protests over the vote results 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. But there is a big difference and they could arguably be described as opposites.
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 that indicates that intention.
Perupetro, is currently managed by Daniel Hokama Kuwae, who has been there in that position since April 2019. 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, according to a report from specialized Peruvian energy news media El Gas Noticias on April 25, 2019 had at the time of his naming experience that included having worked for Brazil-based Odebrecht. The name of the Brazilian family-based business group Odebrecht, after the last name of the founders, has been involved in multiple corruption investigations in Peru including in charges 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´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 Canada´s 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 (from Jan. 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 the start of one more legal arbitration process against Peru by Odebrecht: The arbitration process against Peru over the gas pipeline project announced on Feb. 5, 2020.
It is noteworthy that, as reported by LexLatin.com on Nov. 5, 2019, Odebrecht --according to Peruvian prosecutors-- didn´t just use slush funds over bribes-for-contracts with politicians but in the case of Peru had built up a network of legal arbiters in dozens of arbitration courts.
According to LexLatin, The Peruvian judiciary had ordered 18 months of preventive prison against 14 out of 19 lawyers that had acted as arbiters in cases that the Peruvian attorney office had been investigating. They were accused of bribery, money laundering and illegal association to commit crimes. Those investigated also involved two Peruvian officials from the Transportation ministy, specifically a concessions director for road works. The alleged modality was to get a concession, start works but then stop and start an arbitration against the state that would be seen by arbiters. Just between 2003 and 2010 Odebrecht initiated 42 arbitration proceedings against Peru over road works, of which 35 were won, LexLatin said. From those arbitrations Odebrecht earned $250 million while the total bribes paid to arbiters only added up to $5 million, according to the investigations by the Peruvian judiciary, LexLatin said at the time. In Peru the use of arbitration courts was promoted starting around the 2000s decade as a means to alleviate the Peruvian judiciary from the load of trials that could be solved through conciliation as well as to tackle corruption.
According to a Dec. 21, 2016 release 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.”
According to investigations by Peruvian prosecutors, Keiko Fujimori may have received millionary contributions from Odebrecht, as well as from Peru´s Romero group, for her political campaigns that weren´t declared.
Besides Keiko Fujimori, another Peruvian politician facing charges that could lead to decades of prison in Peru in relation to Odebrecht is former Peruvian 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 under house arrest in Lima, also 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 delay 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.
Saving Perupetro from Castillo (not to confuse with Petroperu)
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, as the head of the Peruvian state oil licensing agency Perupetro, which regulates oil and gas companies in Peru, 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 the 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, and not to confuse with the state oil company) in January 2022 by Castillo was met with staunch opposition also by many members of the legislature close to Fujimori or groups with whom Fuerza Popular has had coincidences in recent years, by the nation´s comptroller 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 explained, 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 irregularly naming someone, is a crime contemplated 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. Castillo never backed down on the naming but Salaverry fizzled out amid intense negative exposure in media, similar to what Castillo has faced on a daily basis since he became president.
Changes in Perupetro would impact not only decisions over concessions to operate old fields producing crude, once owned by Petroperu, that Peru pays at international market prices but also may affect Camisea, by far the biggest hydrocarbon operation in Peru. Castillo´s government already tried without success to seek changes related to Camisea in Oct. 2021. Those efforts resulted in the sacking of his first choice for Cabinet Chief, Guido Bellido, and haven´t been brought back.
Salaverry quit under massive media pressure in just days and without even taking office. But even so, the Peruvian state attorney office was still investigating him for three crimes, one of them "falsehood" against the Peruvian state, and he may be criminally prosecuted, Infobae reported on June 30.
While Peruvian President Castillo, 53, has so far been seemingly prevented from gaining any control over some Peruvian public spaces related to oil and gas, he has resisted pressure to resign or attempts to be impeached. He has assured he will finish his mandate and said that he, as a poor Peruvian from an Andean community, was born amid adversity.
“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,” Castillo said in Aug. 2022. He said that people in Andean communities like his own, familiar with hunger, weather challenges, state neglect or even racism, must learn to live with extreme adversity from birth.
The comments were made around the time his 26-year-old sister-in-law --but that he refers to as his own daughter as she was raised by him and his wife after she had become an orphan-- was ordered into prison preventively, supposedly to avoid the possibility she may flee prosecution. A judge had ordered her into prison for a period of two years and a half, but she only stayed about two months in jail.
Yenifer Paredes had been arrested on Aug. 10, 2022 after she turned herself in to face accusations of alleged corruption. She was freed on Oct. 25, 2022 but continues to face charges. She has consistently said that she only worked to prepare a list of residents as part of preliminary surveys to try to assess needs of an Andean community with the intention to later find ways to get water pipes installed in an area of the region of Cajamarca where she grew up that currently lacks running water installations, like much of the department of Cajamarca. While its residents face poverty, Cajamarca has been since the mid-1990s the leading gold producing region of Peru. Cajamarca is home to the Yanacocha gold mine, biggest precious metals mine in Peru, majority owned by Newmont Mining, based in the Denver metro area. Peru relies on taxes on gold and silver sales abroad, as well as of base metals, by companies that operate in the country, mostly foreign based firms under concessions. Exports from Peru include precious metals bars, and copper cathodes, as well as concentrates of copper, lead, zinc , silver, iron ore, tin and other metals that get refined abroad.
Petroperu´s social environment
Peru is unique in part because of institutional damage due to money laundering from cocaine trafficking, which started to become increasingly visible since the early 1980s when formal banks started to move large amounts in agencies in small Amazon communities until then underprivileged and suddenly seeing large transactions.
Peru is also unique as it is home, along with Bolivia, to the biggest indigenous American population. A 2007 report from minorityrights.com from 2007 said there were in Peru eight million Quechuas and 500,000 Aymaras. Amazon natives speaking dozens of languages number some 400,000.
Peru may also be unique for the role played by religious authorities, that answer to hierarchies based in Europe.
On a national front, Cardinal and Huancayo City Archbishop, Pedro Barreto Jimeno, led much of the criticism against Castillo during 2021-2022 with an intensity comparable with that at an international level by Vargas Llosa, named Marquess of the Kingdom of Spain by King Juan Carlos.
Barreto, born in 1944, is Great Chancellor of Pontificia Universidad Catolica del Peru (PUCP), with 24,000 undergraduate students in 2022. He was named on March 11, 2022 by the apostolic nuncio (Pope´s representative) in Peru. PUCP also has graduate programs, like a Masters in Energy Administration.
Pope Francis, who was in Peru in Jan. 18-21, 2018, announced on May 2018 the naming of Pedro Barreto as one of 14 new cardinals.
According to Noticias Jesuitas (Jesuit News), Cardinal Barreto was on Sept. 2021 in Spain for an event at the University of Deusto, in Bilbao, and had participated in another event at the same venue, discussing work of the order in the Amazon, two years before.
Bilbao is the biggest city in the Spanish Basque Country. The founder of the Society of Jesus, Saint Ignatius of Loyola, a former nobleman and military, was born in the Basque Region.
Basque migrants arrived to Peru in the mid-1800s, when a labor dispute between migrants and their employer resulted in a killing. A Spanish official in Lima issued an ultimatum for a trial of the murderers that wasn´t met. On May 2, 1866 a Spanish fleet used many of its 250 cannons against Callao as punishment. It caused deaths, injuries, severe port damage, and left.
The Basque Country´s per-capita GDP is one of the highest three out of 17 regions in Spain. Banco Bilbao Vizcaya Argentaria (BBVA) is an example of a multinational there, with presence from Argentina to Turkey, including Mexico and Peru.
When the Argentina-born, Jesuit Cardinal Jorge Bergoglio became Pope Francis in 2013, for those within the Church it was remarkable to see for the first time a member of the order of the Society of Jesus, or a Jesuit, as Pope.
A report from the U.S.-based National Catholic Reporter on March 12, 2014 helps understand. It said that the Jesuit order “(…) quickly became (and remains) the largest order in the Catholic Church. Its leader was called ´the Black Pope´ for his distinctive, austere black cassock as well as his perceived power. It's little wonder the cardinals never wanted to elect a Jesuit as the actual pope.”
La Republica said on April 17, 2022 that Cardinal Barreto arrived to the Executive offices seeking “radical change” because the country was under “intensive care.” Six months later, Barreto said on Oct. 25, 2022, according to Infobae, that “the big favor that he (Castillo) could do is to step aside.”
On Nov. 1, 2022 in an interview with RPP, Barreto said “the ineptitude has been the decisions he took in the naming of his ministers (…) And this opportunity the country gave him (…) he didn´t know how to use it despite, I repeat, that the Catholic Church (…) my person, had offered a bridge for dialogue.”
According to a separate report in Peruvian newspaper El Comercio published on Oct. 25, 2022 Barreto had also asked Congress leaders to move elections forward.
Tax Environment around Petroperu
Banco de Credito issued a statement, as well as used social media on Aug. 29-30, about an egging incident in Tacna against President Castillo. Throwing raw eggs is very rare in Peru, a country where one million Peruvians live in extreme poverty.
Castillo changed outfit and continued. His security just said eggs were thrown within a block, that of Banco de Credito´s main office.
Banco de Credito put a statement on Aug. 30, 2022 confirming its team was out there but just to watch the annual parade and didn´t egg anyone or do anything illegal. It strongly rejected insinuations taxes may have had anything to do with anything. Banco de Credito didn´t owe taxes, it said.
But It wasn´t the first government´s confrontation mentioning taxes.
Culture Minister Alejandro Salas had said on July 29, 2022 after Castillo´s presentation in Congress the previous day, that many of those that had insulted and heckled may represent anger with unprecedented efforts by the tax agency to try to collect taxes owed for years.
La Republica said on Aug. 27, 2022 the total owed to Peru in taxes is $7 billion with 100 companies accounting for 93%. Spain-based Telefonica owes about $1.4 billion. Telefonica Moviles (mobile services), Gasoducto Sur Peruano (Odebrecht-owned, in arbitration against Peru), Odebrecht Peru Ingenieria, Hunt Oil, Alicorp (owned by Romero), are in the group too.
In 2021 Castillo took the unprecedented step of ratifying the chief of the tax agency, who had been named in May 2020 and has only worked at Sunat for the past decades, according to media reports. The official had replaced Claudia Suarez Gutierrez, named in 2018. Before that, she had been vice president of the Committee of Tax Matters of the National Society of Mining, Oil and Energy (SNMPE).
The SNMPE was the only oil guild in Peru until 2013, when the Peruvian Society of Hydrocarbons (SPH), under former Cabinet Chief (2003) and former tax chief (2001-2003) Beatriz Merino as its first president, was created. Two SPH members are Camisea participants (Pluspetrol, TGP) and state oil Petroperu. SNMPE´s hydrocarbon-area members include Romero´s Primax and Spain´s Repsol.
Gestion said Suarez replaced in 2018 Victor Shiguiyama Kobashigawa, in the post since the 2016 election of former Peruvian President Pedro-Pablo Kuczynski. Shiguiyama left Sunat´s direction after prosecutors added him to money laundering investigations, Gestion added.
Suarez was a former partner of a law firm that as of Nov. 2022 indicated in its website that its expertise lies in “design and implementation of defense strategies in tax processes (…) with successful results in administrative and judicial stages.”
Tania Quispe Mansilla was tax chief for the first four years of President Ollanta Humala´s term (2011-2016), a time when Ollanta´s wife Nadine Heredia (born 1976), according to media reports, played a prominent role with namings of ministers and possibly big infrastructure project decisions, particularly Talara.
Still as of 2022 Quispe Mansilla and Nadine Heredia are often referred to in Peruvian press as cousins, even as Quispe said publicly at least once that they were only close friends. Quispe was previously a former transfer pricing expert at Deloitte.
In one reported judicial case involving Quispe, her subordinates were said to have brought attention to an alleged failure to enforce tax laws. El Comercio said on Feb. 22, 2020 that prosecutor Bersabeth Revilla had started investigations over “not ordering” audits.
Bersabeth Revilla resigned in July 2022 after her superior Patricia Benavides, who is also leading prosecution efforts against President Castillo, removed her from another case, one involving the sister of Patricia Benavides, a judge named Emma Benavides. Revilla had been investigating Emma Benavides over alleged schemes of bribes-for-freedom involving high-profile drug trafficking suspects, according to media reports.
Quispe replaced in 2011 Nahil Hirsch, who lasted the entire period of Alan Garcia (2006-2011).
Hirsch was as of 2022 public policies manager for Minera Yanacocha, majority owned by Denver-based Newmont Mining, Yanacocha, developed in the mid-1990s, is the biggest gold-producing property in Peru. Since then it flies bars out of Cajamarca, a region with 1.3 million residents that is also where the Spaniards once captured and executed Inca Atahualpa, even after he had met a ransom demand to fill a room with gold objects. President Castillo is from Cajamarca.
Cia. de Minas Buenaventura, owned by the Benavides family, is Newmont´s minority partner in Yanacocha. Buenaventura was the 46th biggest tax debtor in Peru with about $25 million in debt in May 2022, according to the debtor list published by La Republica in August.
The political environment around Petroperu
Cesar Acuna Peralta, 70, founder of the university Universidad Cesar Vallejo in 1990, leads the party Alliance for Progress (Alianza para el Progreso). Acuna and Castillo, 53, were both born in the District of Tacabamba, province of Chota, a mountainous area with about 15,000 inhabitants in the department of Cajamarca, northern Peru. Castillo has an undergraduate degree in education, as well as a masters in psychology applied to education, from Cesar Vallejo university.
On Sep. 5 the former President of Congress (July 26, 2022 to Sep. 5) Lady Camones, born in 1975, saw her presidency end abruptly after an audio appeared that made Camones seem as taking orders from Cesar Acuna for actions in the legislature to benefit him politically, as he was a candidate for regional governor at the time (and later won). A later vote in Congress led to the naming of former military officer, current Congress president Williams Zapata.
Beatriz Merino and Marisol Espinoza, two former high-ranking government officials who have had important roles related to hydrocarbon business operations in Peru, were later part of Acuna´s organizations.
Beatriz Merino Lucero (born in 1947) started as legislator with Vargas Llosa´s Fredemo In 1990 and later held top positions (first tax agency chief and later cabinet chief during 2001-2003) with former President Toledo (2001-2006). Between January 2013 and Dec.2015 she was the first president of the Peruvian Society of Hydrocarbons. At the time of her leaving the institution, she said that she would continue to represent the guild as its past president.
Espinoza, born in 1967 in Piura, a department with 1.9 million inhabitants where Talara is located, was Peru´s vice president with Ollanta Humala (July 2011 to July 2016). She completed three terms (2006-2011, 2011-2016, and 2016-2019) as legislator, the first two with Humala´s group and the third with that of Acuna.
In 2013 Espinoza worked in Congress to get the bill for spending in Talara approved. El Comercio newspaper quoted her on Dec. 12, 2013: “It will be an important project that includes nine main plants and three secondary.”
Petroperu deserved the investment because “most of the taxes we get come from there,” she added, El Comercio reported.
A story from El Comercio on Dec. 13, 2013 quoted Espinoza saying the law to declare the upgrade was “a public necessity.”
It was approved with 88 votos in favor, only two against, and 13 abstentions. This made it possible for Ollanta Humala to oversee a ceremony on May 29, 2014 for the contract with Spain´s Tecnicas Reunidas.
International environment around Petroperu
Beatriz Merino is as of 2022 executive president of the university “Universidad Cesar Vallejo” (cesarvallejocollege.com), the flagship institution of Acuna´s educational organization that in Peru serves over 80,000 students. The university, according to its websites, has facilities in Peru and in Miami, Fla.
The university´s name, Cesar Vallejo, (1892-1938) taps the reputation of the most studied writer in Peru. Vallejo, author of the poem The Black Heralds, did most work in exile but endured prison in Peru for defending rights of indigenous, according to Britannica.com. Like Castillo, Vallejo was a rural, Andean, elementary public school teacher. Unlike Castillo, Vallejo was member of the Communist Party.
Merino, 75, is a former state-run San Marcos University student but she would have been too young at the time to have witnessed an attack with stones in that campus against a U.S. delegation.
An Associated Press report from May 8, 1958 said students at San Marcos university in Peru had “stoned and spat upon Vice President Richard M. Nixon (…) One stone grazed his neck. Another hit secret serviceman Jack Sherwood in the face, chipping a tooth.”
That 1958 incident occurred when both Vargas Llosa and Silva Ruete, who had met in a Catholic School in Piura, would have been among the oldest walking in the San Marcos university campus. Vargas Llosa´s entered in 1953 San Marcos, said to have awarded him an undergraduate degree in Humanities precisely in 1958.
The Peruvian ambassador in Washington at the time was Berckemeyer. U.S. former President Dwight Eisenhower (1953-1961) wrote to Nixon at the time: “(…) vast majorities of citizens both in Peru and in the United States deplore the incident caused by a few.”
According to an interview of Vargas Llosa published by Cuadernos Hispanoamericanos on July 27, 2020, Vargas Llosa was very active politically, including publications targeted to students. He said he was part of a group named "Cahuide" during the 1953-1958 period when Vargas Llosa was at San Marcos. He said about Cahuide that: "We were few but very sectarian. We made collections for jailed students. We held debates in centers and distributed propaganda. Once we met the government director (of Odria´s dictatorship)," Vargas Llosa told the literature media. Vargas Llosa focused his thesis on the study of Nicaraguan author known as Ruben Dario (1867-1916). Dario is author of poems including "To Roosevelt" from 1905.
As for the man that later became U.S. President Richard Nixon (1969-1974), he didn´t act against Peru despite the fact that the Talara 1968 expropriation took place within six years of the Hickenlooper Amendment to the Foreign Assistance Act of 1961, specially created for those cases.
Equally understanding with fellow Peruvians appeared Fernando Berckemeyer, a career diplomat who had long been Peru´s ambassador in the U.S., and with his American wife had readied a Washington D.C. house to serve as the Peruvian embassy, before Belaunde Terry (elected in 1963) opted to replace him to appoint as new ambassador to the U.S. the husband of his sister. Berckemeyer led diplomatic efforts in early 1970s that helped Peru avoid sanctions. He was a career diplomat who had previously represented Peru in London, and had before that completed university studies in the U.S.
Much of the political violence Peruvians endured around the mid-1950s was related to Talara and its nearby oil fields, source of discontent since the mid-1920s. The decade after the end of the war was also marked by quick growth of parties with names including words like democracy, or Christian, or popular, that offered new alternatives to communism.
In one example of deadly political violence at the time of Bustamante y Rivero, Francisco Grana Garland, editor of Peru´s La Prensa newspaper and described as a charismatic business and social leader, was murdered with killers getting away and the motive remaining largely an unsolved mistery.
El Comercio newspaper published a report on Jan. 6, 2017 titled “70 years after the murder of Francisco Grana Garland” that recalled him as a bright 44-year-old businessman “with innate leader qualities within conservatives in the country.”
Grana Garland, also administrator of the country´s main citrus exporter Huando as well as manager of chemical company applied to health Sanitas, was killed while driving his car on Jan. 7, 1947, during the government of Manuel Bustamante y Rivero (1945-1948).
The murder occurred when Bustamante y Rivero´s minister of government and police was military general Manuel Rodriguez Davila (Jan. 31, 1946 to Jan. 12, 1947). Manuel Rodriguez Davila (1883-1952) had replaced Rafael Belaunde Diez Canseco, who was also Cabinet Chief under Bustamante y Rivero in 1945-1946.
Manuel Odria Amoretti later replaced Manuel Rodriguez Davila as minister of Police with a term starting on Jan. 1947 and ending in June 1948. Both Odria and Belaunde Terry, son of Rafael Belaunde Diez Canseco, would later become presidents of Peru. Odria Amoretti was president first to complete Bustamante y Rivero´s term and later after an electoral process, during 1948-1956.
As for Belaunde Terry, he had returned to Peru in his 20s from the U.S. with an architecture undergraduate degree from the University of Texas in Austin before starting in the 1930s an architecture publication in Lima. Later, running with Bustamante y Rivero, he was elected to the Peruvian Congress in 1945. Belaunde started his party Accion Popular in 1956 and became president in 1963.
Fernando Belaunde Terry, president during 1963-1968, had had,as legislator, a visible public role immediately after Grana Garland´s murder in 1947 questioning Bustamante y Rivero´s officials over Grana Garland´s execution-style killing. Despite much investigation, there was nothing conclusive.
El Comercio newspaper´s report from 2007 indicated that Garland´s deputy editor, Ricardo Alcalde Mongrut, around the time of the murder had “declared from Mexico that what had occurred was a political crime (…) Alcade virtually accused the government (…) and its allies from Apra (…) of perpetrating the homicide. He indicated that having gotten Senate to stop a fast approval of laws to sell out our oil reserves (…) was what the murderers of Grana didn´t forgive.”
By Renzo Pipoli