Intangible Fruits of Peruvian Economic Development

“Between 2004 and 2009, approximately $1.13 billion in revenue generated by the Camisea natural gas project was transferred to local governments in Camisea’s sphere of influence. However, more than five years after the start of operations, critical gaps in meeting the basic needs of local citizens remain.” -Oxfam

The natural gas industry in Peru has boomed since mid-2004, when natural gas from the Camisea Project, located in the Urubamba Basin in the southeastern Peruvian Amazon, began to flow. At approximately 1.7 billion USD, Peru’s Camisea Project represents the largest investment in the country’s history. Since the project’s 2004 launch, according to an Oxfam report published in July of 2010, Camisea has been satisfying part of the external market demand for natural gas, albeit at alarmingly low prices dictated by the existing contract. These low prices, along with the sub-par royalties awarded to Peru in comparison to other gas-exporting Latin American countries, have become a liability for the Peruvian economy. Indeed, in terms of natural gas exports, Peru is currently not getting a fair deal.

While high domestic natural gas prices act as a deterrent to domestic industries and individual consumers, low royalties charged by the government to foreign exporters mean a paucity of compensation for what some see as the usurpation of Peru’s natural resources. Consequently, President Alan García’s administration now must contend with a good deal of political and social pressure to increase export gas prices in order to reverse this trend of inadequate compensation. At the same time, there is counter-pressure from both foreign and domestic investment firms that insist upon the fixed low prices ordained by the prior contract. Negotiations for an increase in the price of exported natural gas will therefore prove to be tricky, if not entirely out of the question.
Government leaders and political elites justify the low natural gas export prices as necessary to promote economic growth, pointing to the unyielding benefits of overall trade and foreign investments as an illustration of the positive impact that such low prices have on the economy. Nevertheless, the dilatory and seemingly unconcerned attitude on the part of Peruvian government officials demonstrates their unwillingness to take a more comprehensive view of the nation’s prospective economic growth, and its potentially critical social, economic, and environmental impact on the state.

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