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PERU: Contradictions and confusion

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Prime Minister Guido Bellido's threat to nationalize the consortium that operates the Camisea natural gas field unless it agrees to pay higher taxes is unsettling – though not for what might seem the most obvious reasons. Camisea is a consortium whose members include Pluspetrol (Argentina), Hunt Oil (US), and Repsol (Spain), among others.

  • Some form of contract renegotiation for natural gas operations was always a possibility given that the idea had support from presidential candidates on the Right (e.g., Keiko Fujimori and Rafael Lopez Aliaga) and the center (e.g., Julio Guzman)., and not just from leftists, in this year's presidential election campaign. The global surge in natural gas prices has no doubt added urgency to the issue.
  • The government cannot unilaterally nationalize assets without a vote in Congress. The governing Peru Libre (PL) party plus its much smaller ally, Together for Peru (JPP), do not have a majority in Congress, while most opposition parties oppose strong-arming companies to the negotiating table.

In this context, the more problematic issue is the way Bellido framed the issue and what his actions say about the government.

Most obviously, Bellido's threat undoes all of the work by Finance Minister Pedro Francke last week to reassure international investors that expropriations are not on the cards – very probably with deliberate intent and possibly to counter Francke's announcement that the respected Central Bank (BCR) governor Julio Velarde has been asked to stay on in his role. Even if President Pedro Castillo subsequently said that any renegotiation would be strictly by the book, business confidence is clearly shaken.

If Bellido occupied a lesser portfolio and Francke had his own power base within the PL, the incident would be easier to minimize. However, Bellido is the top minister who voices what the PL party boss Vladimir Cerron thinks. Meanwhile, Francke was a late addition to the administration who has already once been on the brink of exiting this government.

Castillo does not appear willing and/or able to discipline Bellido, which will heighten existing concerns that Castillo is often politically AWOL. It is difficult not to see Castillo's hesitancy as something that derives from Cerron's power. Moreover, the more Castillo sits on the sidelines, the more Bellido and Cerron may be tempted to advance. It remains to be seen whether municipal action to block access to a Pluspetrol liquid petroleum gas (LPG) plant located in Pisco in the last 24 hours is directly related to the wider situation; it is difficult not to see Bellido's hand in the action.

Bellido's threat is symptomatic of a simplistic, improvised approach to policy designed for quick public approval. If the goal is to deliver cheaper natural gas to the local population, more than just melodramatic threats will be necessary. The first indications of how the government really intends to approach the issue will come on 6 October when Bellido has invited Pluspetrol representatives to talks.

The government's internal ructions mean that the most militant opposition parties in Congress will remain on the offensive against the cabinet; Labor Minister Iber Maravi faces congressional questioning tomorrow, 30 September, as a prelude to a possible motion of censure over his links to the Shining Path (SL) terrorist group. Political noise will, in turn, reverberate in the economic sphere.

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PERU: Contradictions and confusion

Prime Minister Guido Bellido’s threat to nationalize the consortium that operates the Camisea natural gas field unless it agrees to pay higher taxes is