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FINANCE-PERU: Bank Clears Controversial Gas Project

Jim Lobe

WASHINGTON, Sep 10 2003 (IPS) - In a major defeat for environmentalists, the Inter-American Development Bank (IDB) voted Wednesday to approve 135 million dollars in financing for a controversial pipeline project in Peru.

The Camisea project will transport natural gas from the Amazonian Andes to Lima and a terminal on the Pacific coast, close to a protected marine reserve.

The United States, on which green groups had pinned their hopes for stopping or at least requiring a major overhaul of the project, abstained on the vote, which was approved by the 45 other members represented on the IDB’s executive board.

The abstention came just one week after the board of Washington’s main export credit agency, the Export-Import Bank (EximBank) voted against a proposed 214-billion-dollar loan for the project on environmental grounds. Although the EximBank chairman voted to approve it, his two colleagues on the board out-voted him.

”This shows the Bush administration failed to demonstrate moral courage and send a clear signal by voting no on this project,” said Nadia Diaz of the Washington-based Institute for Policy Studies, which opposed the project.

In a statement, Diaz said a no vote by Washington, whose shares on the board represent 30 percent of the vote, could have persuaded other countries to change their positions.

”Camisea violates international environmental standards and U.S. law," said Jon Sohn of Friends of the Earth, one of the many U.S. and international groups that lobbied against public financing for the project.

”The companies (which have financed the project and stand to gain from its completion) will still get U.S. taxpayer funds and IDB management and executive directors shall be held accountable,” Sohn added in a statement.

Peruvian officials, who have also lobbied hard for the project’s approval, on the other hand, were ecstatic at the result. The project’s completion, said Roberto Danino, Lima’s ambassador in Washington, ”signifies one percent of GDP (gross domestic product) increase per year for the life of the project”, he told reporters at a press conference at the IDB after the vote.

”It means clean energy; it means we will become self-sufficient in energy, (and) we will have cheaper electricity rates for Peruvian consumers,” he said, stressing that natural gas is far less polluting than the oil and diesel fuel on which much of the country’s economy and transport system currently depend.

Danino also insisted that the government and the IDB are putting in place unprecedented safeguards to ensure that damages to sensitive environmental areas, both in the Andes and along the pipeline route, will be minimised.

Construction of the pipeline and the operation of the multi-faceted project are expected to exceed 3.2 billion dollars.

Because of the controversy surrounding the project’s financing, Wednesday’s final vote had been delayed at the request of the administration of President George W. Bush for more than a month.

Government was pressed in both directions: by environmental groups and sympathetic lawmakers in Congress to vote no; and by Peru, the IDB management, and some of the administration’s most important business backers to vote yes.

Along with Argentina’s Pluspetrol, Texas-based Hunt Oil was the leader of a large consortium of energy companies behind the project, which is already about 70 percent completed.

Hunt’s chief executive, Ray L. Hunt, who was a major contributor and fund-raiser for Bush’s presidential campaign, also sits on the board of directors of the Texas construction giant Halliburton, which is tipped to get a two-billion-dollar contract to build a plant to liquify the gas for export.

Until Bush tapped him as his running mate in 1990, Vice President Dick Cheney was Halliburton’s chief executive officer.

Peru’s biggest development project, Camisea is designed to exploit a huge gas field in the Amazonian region of the country by running two pipelines – some 1,140 kms and 520 kms, respectively, through over and across the Andes to Lima and the yet-to-be-built liquefaction plant adjacent to the Paracas National Marine Reserve, a protected area that is home to extremely rare animal species, including green sea turtles, Humboldt penguins and other water birds.

But the project also cuts through some of the world’s most pristine and remote jungle areas, including the Nahua-Kugapkakori Reserve, where several hundred members of indigenous tribes have avoided contact with outsiders and lack immunity to common diseases.

Nearly 75 percent of the project’s gas-extraction operations are located in the Reserve.

When Shell undertook exploratory operations in the region in the 1980s, almost one-half of Nahua people living there died from introduced diseases, and anthropologists and green groups have reported over the past year that contractors working for the Camisea project have actively sought out uncontacted groups.

In a letter to IDB President Enrique Iglesias earlier this year, five non-governmental groups, including Amazon Watch, Friends of the Earth, and Environmental Defense, charged that the Pluspetrol and Hunt Oil were ”forcibly contacting groups living in voluntary isolation” in violation of internationally recognised rights of indigenous peoples.

That action could be responsible for reports of steeply rising death rates among Nanti children, they added.

In addition, larger indigenous communities living just outside the Reserve have reported sharp declines in fish in local streams and lakes over the past year due to severe soil erosion and landslides resulting from the pipeline’s construction along steep ridges high in the Andes. The result, the groups said, is rising malnutrition, particularly among children.

Both the Peruvian government and project officials insist they are taking measures to mitigate or eliminate these problems and have also earmarked seven percent of the revenue for local populations along the pipeline route. Danino also said the government was establishing a commission to ensure the protection of Paracas Bay.

The IDB, which has made little secret of its desire to be involved in the project, has also advised the government and project officials how to mitigate environmental and social damages. Danino said those recommendations ”played a major role in making this project a better project”.

In its statement announcing approval of the financing, the IDB extolled the project as a major breakthrough for Peru’s development that will save the country 4.1 billion dollars in energy costs between 2004 and 2033.

Camisea will also provide Peru with ”an improved trade balance, more competitive industry, higher tax collections, greater national income from royalties, employment opportunities and the strengthening of the government’s institutional capacity to monitor and enforce environmental regulations and undertake social investments,” the bank added.

But the environmental groups, noting that the World Bank, the U.S. Overseas Private Investment Corporation (OPIC), and now EximBank have all kept their distance from the project, stressed that the IDB’s looser standards could be costly in the long run.

”By scrutinising Camisea, many influential people have learned about the IDB’s non-existent standards,” said Amy Gray of the Bank Information Centre (BIC), a group that monitors lending by multilateral development banks. ”The IDB is very vulnerable to what on-going monitoring of this project will reveal,” she added in a statement.

But with the IDB and the Andean Development Corporation – which approved 75 million dollars in loans for the project Monday – now on board, said Danino, coming up with the rest of the money needed to complete the project should be much easier.