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FINANCE: Bank Rejects Rapid Review of Controversial Pipeline

Emad Mekay*

WASHINGTON, Mar 1 2006 (IPS) - The main public investor in a controversial gas pipeline in Peru’s Amazon rainforest that has ruptured four times already appears adamant not to bow to pressure from green groups demanding a full investigation after a study asserted that the pipeline is shoddily built and likely to break again.

The main public investor in a controversial gas pipeline in Peru’s Amazon rainforest that has ruptured four times already appears adamant not to bow to pressure from green groups demanding a full investigation after a study asserted that the pipeline is shoddily built and likely to break again.

The Washington-based Inter-American Development Bank (IDB) says it will review the study before it takes a formal position.

On Monday, the California-based engineering and environmental consultancy firm E-Tech International published a report that found that the pipeline was sloppily built, the welding was done by unqualified staff and that 40 percent of the pipe used was old and corroded.

A Bank official told IPS that they haven’t seen strong evidence in the study yet to merit an immediate review of the project, as requested by environmental and rights groups.

“I think we have no information after five years of involvement with the project that supports those allegations,” said Robert Montgomery, head of the Environmental and Social Unit in the IDB Private Sector Department.

“If you look at the statements that are in there, they are very strong statements that need to be supported by fact and not opinion and not hearsay and so forth,” he said.

Montgomery said the findings, especially that 40 percent of the pipe was actually leftover from previous projects, were so grave that the consortium building the pipeline would request a retraction from the authors of the report if no further evidence is given.

“That is a pretty serious allegation,” Montgomery said. “The project is only a year and a half in operation. Nothing like this has been raised in the past. There’s been no statement of that. The IDB and its independent engineers and consultants have never heard of that or have no knowledge to support that.”

While environmental groups hoped that the study would prompt the IDB to change its course on the rest of the pipeline, the bank appeared unfazed and is continuing talks with the project consortium, including lead shareholder Texas-based Hunt Oil, over financing for future phases of the deal.

Green and rights groups gathering in Washington this week for their periodic consultations with the IDB about the Camisea natural gas project saw further reluctance by the IDB to reconsider its work on the Camisea when senior management of the bank snubbed the meeting, leaving it to lower level staff.

IDB Executive Vice President Ciro de Falco came in, stayed for several minutes, delivered a prepared statement, took no questions and missed the other presentations.

The groups, including Amazon Watch and World Wildlife Fund-Peru, pointed a finger at the IDB, saying if it weren’t for its lax oversight, the environmentally sensitive area and indigenous people living there would not have suffered damage from the spills, including contaminated drinking water and food.

The bank, established in 1959 and under the management of President Luis Alberto Moreno since October 2005, is the main source of multilateral financing for economic and institutional development in Latin America and the Caribbean.

The Camisea pipeline is one of the bank’s flagship investments, and was marketed as a model project when it was first put on the table in 2001. It consists of two phases: the natural gas pipeline, which runs 714 kilometres to the city gate at Lurín south of Lima, and a liquids and diesel pipeline, which runs for 540 kilometres from the Las Malvinas field to the Pisco area across the Andes.

It is operated by Transportadora de Gas del Perú (TGP), a consortium that includes Argentina’s Pluspetrol and Techint, Texas-based Hunt Oil, Algeria’s state-controlled Sonatrach and South Korea’s SK Corp.

But the project has come under immense heat from environmentalists who fear it would be harmful to the Camisea area, globally renowned as a biodiversity hotspot. It is home to up to 1,000 indigenous peoples who have little contact with the outside world, and to 7,000 traditional Machiguenga people.

Anxiety among Peruvian and international organisations monitoring the project was compounded by the new report, which argues that the company was in such a rush to finish the work in order to avoid up to 90 million dollars in penalties that they relied on untrained workers and sloppy monitoring.

“When you have a project of this scale in an area as sensitive as the Peruvian Amazon rainforest, then you need your A-team,” said Bill Powers one of the authors of the report. “Unfortunately, the construction work on this pipeline was hastily [done] and without adequately qualified supervision.”

Powers said that the four spills the pipeline suffered in its lifespan of 15 months were predictable. He warned Tuesday that without a complete review of the pipeline construction process and measures to assure the damaged areas are fully stabilised and restored, there will be further ruptures.

The findings were also seized on by concerned groups in Peru, with the chairman of the congressional environment commission, Walter Alejos Calderón, saying that he will hold hearings on the issue and study the possibility of an investigation.

“The conclusions of the E-Tech report are extremely serious,” Calderón told IPS. The allegation that there are “shortcomings that could potentially cause new accidents calls the construction and transport company’s responsibility into question”.

“The Ministry of Energy and Mines must take immediate action, to determine how the question can best be resolved. I believe there are two options: either the company guarantees the adequate distribution and transportation (of the product), or the work is brought to a halt, which would be catastrophic,” he said.

“To ‘guarantee’ would mean replacing the pipes with good quality ones, and carrying out the construction in accordance with international standards,” added the lawmaker. “It is important to set up a dialogue group, including the Ministry of Energy and Mines, the National Environment Commission, and the engineers association of Peru, to come up with the best technical solution for these shortcomings.”

Magnolia López, an activist with the Peruvian Society for Environmental Law, said E. Tech International study should clearly signal to the IDB the need for a change in how it does business in Latin America.

“We believe that a change in the policy on hydrocarbons is important. A more exhaustive review and oversight of the projects are necessary. Camisea should mark the start of that major change, and the IDB should understand that,” she added.

“We believe it [IDB] should take far-reaching actions, because its image could be damaged,” noted Marlene Canales, of the Interethnic Association to Defend the Peruvian Jungle (AIDESEP), in an interview.

“We have been calling for a long time for the work to be brought to a halt until an environmental audit has been carried out, and we believe that this should happen with Lot 56, where the same irregularities are being committed. The modern technology that they promised to use is not being employed…and methods dating back to the 1970s are still being used, which is prohibited,” said the activist.

*Angel Paez in Lima contributed to this report.