Peru: Hope in hydropower

Gracias a zweiosterei

Oliver Moss for Oxford Business Group

October 27, 2011

Investors are increasingly looking to Peru’s vast and relatively untapped resources as economic worries are blighting much of the Northern hemisphere.

However, recent power shortages, particularly in some of the industrial and mining heartlands of the north, have put the spotlight back on the need to develop the country’s energy infrastructure.
With energy demand increasing by about 9% annually, the new government has extended an emergency decree to guarantee power supply in the national grid.

Prime Minister Salomon Lerner highlighted the need to reassess the country’s energy policy in his speech to congress on August 25, saying, ”National development requires a new energy generation that combines a variety of sources so that the country has different, safe, accessible, clean and cheap energy.”
Peru currently generates 59% of its energy from hydropower, according to International Energy Agency statistics.

However, the remote locations of many hydroelectric plants and the lack of investment in transmission line infrastructure have led to an uneven supply of energy across the nation.
“Development in this sector has been disorganised and has lacked a coherent plan.

As a result, we now have sufficient capacity, but in the wrong locations,“ Carlos Herrera Descalzi, the minister of energy and mines, told OBG.
Latin America currently harnesses around 35% of its hydroelectric potential, but in Peru that figure is as low as 5%, according to ProInversion, the Peruvian Agency for the Promotion of Private Investment.

The Ministry of Energy and Mines hopes to secure investments of around $40bn in the mining, electricity and hydrocarbons sectors by 2016, with investments expected to reach $15bn alone in developing a series of hydroelectric power stations in the Marañon basin of the Amazon region.
The Ministry of Energy and Mines, in coordination with ProInversion and the Commission for Energy and Agricultural Development of the River Marañon, will study how to implement the project, which will involve the construction of up to 20 hydroelectric plants providing a generation capacity of an estimated 12,430 MW.

In April 2009 the former presidents of Brazil and Peru signed a memorandum to strengthen bilateral relations, which included an agreement to develop the joint construction of six hydroelectric dams in Peru.

As a result Brazilian companies are particularly active in this area, bringing their domestic hydroelectric expertise and technology to the country’s valleys and rivers.
Concessions can be directly requested from the Ministry of Energy and Mines or by using ProInversion to become guarantors of the projects.

“Investors can operate the concessions through their own initiative, or they can come to ProInversion and we can guarantee them a fixed energy deal for a determined period, usually of about 15 years,” Luis Ortigas, the project chief in electricity and hydrocarbons at ProInversion, told OBG.
However, investors have expressed concerns over the strictures of the environmental impact assessment (EIA), which has slowed progress in developing projects in the energy and mining sectors by creating additional bureaucratic hurdles.

The Ministry of Energy and Mines has stated that it will launch an investigation proposal into a revision of the EIA in order to quicken the process.
Multinational companies have faced further problems with the recent social conflicts that have brought many projects to a halt.

These have led to the government recently passing the Law on Prior Consultation (LPC), which will result in a period of negotiation between energy companies and local residents.

However, Herrera defended concerns over the LPC, telling OBG, “With the basis of legality and legitimacy that the LPC offers, instead of holding back investment, it will lead to fairer negotiations and allow local residents to give the green light to these important projects”.

Pedro Martinez Carlevarino, the president of the National Society of Mining, Petroleum and Energy, welcomed the opportunity to improve relations with local communities, saying, “In this new area of dialogue we are beginning, we hope to be able to explain very clearly what these projects involve and what benefits they can bring to the local population by providing the tools necessary to bring development.”
Despite social and environmental concerns over fully harnessing the country’s hydroelectric potential, the new government plans to throw its weight behind developing renewable energy sources as part of its aim of achieving total energy independence and becoming a net exporter of power.

With Peru’s economic growth showing no signs of slowing down, hydroelectric power represents a potential solution to the government’s search to balance social and environmental responsibility with economic development.

Peru this Week