Peru launches ambitious plan to privatize assets

Peru Launches Ambitious Plan To Privatize Assets

March 01, 2000

By Luis Torres

Peru’s privatization program for this year is underway and it includes some high-profile concessions, most notably the Camisea gas project, Lima’s international airport and possibly the Callao seaport. The need to finance these sizable projects has attracted the interest of project financiers, especially large commercial banks and multilaterals active in Latin America.

The Commission for the Promotion of Private Investment (known by its Spanish acronym as “COPRI”) released an updated schedule of privatizations for the year 2000 in January. After a lackluster 1999 in which the government only raised $300 million in privatization revenues (rather than the $800 million that had been targeted originally), this year COPRI expects to raise $600 million in revenues and $5 billion in investment commitments. However, government officials have acknowledged that the program may proceed at a slower pace than scheduled due to their limited experience with infrastructure concessions.

Electric Utilities

Most of the revenue will derive from the sale of shares that the government maintained in a handful of partially-privatized electric utilities. The government raised approximately $85 million by selling its 17.5% stake in generator Edegel in January. In upcoming months the government will sell its remaining stakes in generators Etevensa (38%) and Empresa Eléctrica de Piura (40%) and distributor Edelnor (36%), the largest electricity distributor in Lima with 50.6% of the market. The stock will be sold through public bid or tender in Lima’s stock exchange. The shares will be priced using the Dutch auction system, and all offerings are open to international investors. There is no limit on the amount of shares that a single investor may purchase.


Investment commitments will relate mostly to concessions in the gas and transportation sectors. Concession of the Jorge Chávez international airport, the country’s largest, is tentatively scheduled for the second week of March. The airport has attracted the interest of international operators partly because Lima’s location in the central western part of South America gives it the potential of becoming a hub for air traffic from North and Central America to South America and from Brazil to the Orient. The winner of the public tender will administer, operate, maintain and develop the airport for a period up to thirty years. The concession will include all the airside and landside services, with the exception of the air traffic control and meteorological services.

Eight companies, mostly consortia consisting of local and international operators, have pre-qualified to bid. The government is requiring a minimum investment of $120 million for the first eight years. The original deadline for presentation of bids was February 20, but it has been postponed indefinitely because the licensing contract is undergoing substantive revisions related to the construction of the airport’s second runway and the expropriation of lands to expand the current terminal. Once the Lima airport is given in concession, the government will begin to work on the concession of four other international airports: Iquitos, Trujillo, Cuzco and Arequipa.


The Callao port, the country’s largest, is expected to raise $50 million in revenues and $350 million in investment commitments. The concession process is tentatively scheduled for the last trimester of this year. Bidding documents are being prepared. Smaller regional ports are expected to be given in concession throughout the year.

Toll Roads

COPRI also expects to give eleven toll roads in concession this year totaling 6,750 kilometers in length and covering 75% of the national highway network. The first scheduled concession is Road Network No. 5, a 410-km road that connects Lima with mining towns in the central part of the country and requires approximately a $140 million investment. The concession will consist of a twenty-five year build-own-transfer, or BOT, contract that requires the concessionaire to build a second lane on an existing road, an additional highway, crossroads and bridges, as well as perform maintenance work. Ten consortia that include European companies have pre-qualified for the bid. The original deadline for submission of bids (January 25) has been postponed due to requests by the pre-qualified bidders.

Camisea Gas Field

A consortium consisting of Pluspetrol from Argentina, Hunt Oil from the US, and SK Corporation from South Korea won the upstream concession of the Camisea gas reserves last month, one of the world’s largest gas fields. Bids for the downstream license are due on March 6 and the government is expected to announce the winner on March 9.

The Camisea gas fields contain an estimated 13 trillion cubic feet of gas and over 600 million barrels of condensate. The winning consortium won a forty-year concession by offering the highest royalty, 37.24%, almost two percentage points higher than the second bid, 35.5%, offered by a consortium of Total and Elf. Each of Pluspetrol and Hunt Oil has a 40% stake in the consortium with SK Corporation controlling the remaining 20%. Pluspetrol, which is already active in Peru’s oil industry, will be the operator of the project.

The project consists of extracting natural gas from the fields and transporting it to Lima and Callao, the capital city and main seaport, through two pipelines, one for the dry gas and one for the liquids. The dry gas will be distributed in Lima and Callao for domestic consumption; the liquids are likely to be exported overseas. Before transporting the gas, the upstream licensee will separate the gas into dry gas and liquids. It must sell the dry gas at the wellhead, where the price will be set and the government royalties will be calculated based on that price. The buyer will have to pay transportation costs separately. The upstream licensee is not required to sell the liquids at the basin; hence, the licensee, for a fee, will transport the gas liquids to a processing plant in Lima and then sell them. No export restrictions apply to the sale of the dry gas or the liquids.

The winner of the downstream concession will have the right to transport the gas (both the dry gas and the liquids) to Lima and distribute it there. The winner also has the right to assign the distribution portion of the concession within the first five years of operations.

Financing Camisea will probably require a great deal of creativity. Commercial risk is high since Peru’s market for natural gas is green. However, the government has undertaken efforts to develop the market as quickly as possible.

The government commission in charge of the project, known by its Spanish acronym as “Cecam,” has signed a “take-or-pay” contract with Electroperú, a state-owned utility, and a second contract with a consortium made up of six large industrial consumers.

According to press reports, additional “take-or-pay” contracts with other industrial consumers are on the works. Sources indicate that these contracts would guarantee a flow of income sufficient to get the project started. The government also has put in place other incentives, including a reduction in the minimum royalty from 15% to 10%, substantial tax deductions for the importation of capital goods, a five-year moratorium in the concession of hydroelectric projects and is drafting legislation to encourage the development of a petrochemicals industry.

Infrastructure risk is also significant given the location of the gas fields and a nonexistent distribution infrastructure. Camisea is located in the remote jungle east of the Andes while the main markets, Lima and Callao, are located west of the Andes. Also, Camisea is located in the tropical rainforest. Thus, extraction of the gas is likely to demand an engineering effort.

The bidders for the downstream phase of the project are large and experienced international companies, and so far they seem willing to face the infrastructure challenge. Supply risk should not be disregarded, although this seems to be one of the lesser risks. Camisea is close to another large gas basin, the Parogeni gas fields, also discovered by the Shell/Mobil consortium, that could guarantee enough supply of gas for high-demand consumers.