' I •' UNCLASSIFIED n a Page 1 ACTION EB-00 INFO LOG-00 DOTE-00 UTED-00 NSAE-00 FMP-00 sAs-o·o NP-00 CIAE-00 COME-00 INL-00 DODE-00 DOEE-00 WHA-00 SRPP-00 DS-00 EAP-00 E-00 FAAE-00 VC-00 TEDE-·00 INR-00 L-00 VCE-00 AC-01 EPAU-00 ACE-00 TEST-oo· OES-00 SS0-00 ss-oo EPAE-00 ECA-00 DSCC-00 PRM-00 DRL-01 NFAT-00 002W ------------------7AE768 241408Z 38 0 241234Z JUN 03 FM AMEMBASSY LIMA TO SECSTATE WASHDC IMMEDIATE 1684 DEPT OF TREASURY WASHDC IMMEDIATE ' 8' ISJ ffE 8 ff f FULL NSC WASHDC IMMEDIATE INFO AMEMBASSY BOGOTA § AMEMBASSY BRASILIA AMEMBASSY CARACAS AMEMBASSY LA PAZ AMEMBASSY QUITO UNCLAS SECTION 01 OF 03 LIMA 003142 DEPARTMENT FORE WHA EBA SWAYNE OES A STURNER TREASURY FORK KOZLOFF OASIA INL - A JONES E O 12958 N A TAGS ENRG SENV EPET ECON EFIN PREL PGOV PE SUBJECT CAMISEA PROJECT 1 - -sml SUMMARY THE CONSORTIA BUILDING PERU'S CAMISEA GAS PROJECT HAVE COMPLETED 65 PERCENT OF THE PROJECT GOP SUPPORT FOR PROJECT COMPLETION ON TIME IS VERY STRONG IADB AND EX-IM FUNDING IS IMPORTANT BUT NOT CRITICAL TO THE COMPLETION OF THE PROJECT THE GOP WILL BE RELUCTANT TO SIGNIFICANTLY DELAY THE PROJECT FOR FURTHER ENV RONMENTAL STUDIES OR TO MOVE PARACAS ACILITIES BECAUSE OF THE HIGH COSTS UNITED STATES DEPARTMENT OF STATE REVIEW AUTHORI'l 'Y NORMAN M BOUTON DATE CASE ID 27 JAN 2004 20030 2345 BS BS BS TED STATES DEPARTMENT OF STATE UNCL UTHORITY APPEALS REVIEW PANEifag» APPE AL ACTION ADDITIONAL INFORMATION RELEASED REASON $ BS DATE CASE ID 05 JAN 200 200302345 UNCLASSIFIED n a · Page 2 BS -----_ ___J ND SUMMARY CONTEXT AND IMPACT OF CAMISEA FOR PERU 2 SBU THE CAMISEA NATURAL GAS PROJECT IS BY FAR THE LARGEST PROJECT THE TOLEDO ADMINISTRATION WILL COMPLETE DURING ITS TENURE AND HAS MAJOR ECONOMIC IMPLICATIONS FOR PERU THE PROJECT WILL ADD ONE PERCENT - NEARLY $1 BILLION TO PERU 1 S GDP ANNUALLY FOR 30 YEARS AND ACCOUNT FOR $1 6-2 6 BILLION IN FOREIGN DIRECT INVESTMENT IT IS PROJECTED TO CUT PERU'S HYDROCARBON TRADE DEFICIT BY 40 PERCENT RESULTING IN ENERGY SUBSTITUTION SAVINGS OF $1 9 BILLION ANNUALLY PROJECT CONSTRUCTION HAS PRODUCED 8000 JOBS WITH ADDITIONAL THOUSANDS TO BE PRODUCED DIRECTLY OR INDIRECTLY AFTER THE PROJECT BEGINS OPERATIONS 3 · SB'tft GOP REVENUES FROM CAMISEA ARE PROJECTED TO BE $31 MILLION IN THE FIRST YEAR OF OPERATION AFTER THE PROJECT IS COMPLETED AROUND AUGUST 2004 RISING TO $155 MILLION ANNUALLY BY 2010 THESE REVENUES OF WHICH 50 PERCENT WILL STAY WITH THE CENTRAL GOVERNMENT WILL POTENTIALLY PROVIDE RESOURCES FOR NUMEROUS ENVIRONMENTAL OFFSETS AND OTHER PROJECTS AND IMPROVED PARACAS RESERVE MANAGEMENT MONITORING AND CLEANUP AND CAN HELP FUND NEEDED GOP SOCIAL INVESTMENT IN AREAS SUCH AS HEALTH EDUCATION AND HOUSING REVENUES IN A PROPOSED PROJECT SOCIAL FUND COULD ALSO GO TO PROTECT D IMPROVE MONITORING HEALTH ETC OF ISOLATED INDIGENOUS GROUPS IN CAMISEA GAS FIELD AREA 4 U THE PROJECT WILL BRING NATURAL GAS TO LIMA EVENTUALLY ALLOWING REPLACEMENT OF HIGH-POLLUTING INDUSTRIES AND DIESEL TRANSPORT BY GAS-POWERED PLANTS AND VEHICLES THIS WILL POTENTIALLY HAVE DIRECT POSITIVE HEALTH IMPACTS ON LIMA'S EIGHT MILLION RESIDENTS IMPACT OF PROJECT FoR·u s 5 1SSH THE U S IS EXPECTED TO BE THE LARGEST CUSTOMER FOR LIQUEFIED NATURAL GAS LNG EXPORTED FROM CAMISEA BEGINNING IN A FEW YEARS THIS WILL PROVIDE A KEY SOURCE OF NEW CLEAN ENERGY FOR THE U S IN KEEPING WITH PRESIDENT BUSH'S ENERGY DIVERSIFICATION POLICY THIS IS VITAL GIVEN GROWING SHORTAGES AND RISING PRICES FOR NATUR U GAS IN THE U S LIKELY TO BE A LONG-TERM DYNAMIC CAMISEA GAS SUPPLIES CAN POTENTIALLY REDUCE AIR POLLUTION IN WESTERN U S CITIES FINALLY U S COMPANY HUNT OIL IS CURRENTLY THE LARGEST n a tmCLASSIFIED Pag» - UNCLASSIFIED n a Page 3 SHAREHOLDER WITH A 36 PERCENT STAKE IN THE CONSORTIUM OWNING THE UPSTREAM PORTION OF THE CAMISEA PROJECT BS THE PARACAS SITE WAS '-c H o 's E N -A ' D 'M I T T E n- -L Y --- T H R o u G H -- A --- F L' A w E n -- p 'R O C ES s AFTER A PLUSPETROL ENGINEERING STUDY-OF SEVERAL ALTERNATIVES PARACAS WAS THE MOST PROTECTED FROM TSUNAMIS GEOLOGICALLY STABLE AND HAD THE BEST PHYSICAL PROFILE FOR LOADING FACILITIES THE HUNT LNG SITE NEAR LIMA APPEARS TO HAVE BEEN CONSIDERED LESS ATTRACTIVE IN TERMS OF GEOGRAPHY AND SAFETY AND WOULD HAVE REQUIRED PLUSPETROL TO INVEST MORE RESOURCES AND TIME 8 · SBU ALSO WHILE PLUSPETROL HAD A POOR PREVIOUS ENVIRONMENTAL RECORD THE COMPANY'S MEASURES TO PROTECT PARACAS BAY HAVE IMPROVED DRAMATICALLY IN RECENT MONTHS · INRENA AND THE MINISTRY OF ENERGY AND MINES WILL LIKELY APPROVE PLUSPETROL'S MARINE EIA AND PROPOSED MEASURES IT IS HIGHLY POSSIBLE THAT WITH OFFSET FUNDING TO CLEANUP SHUT DOWN OR MOVE FISHMEAL PLANTS IMPROVED MONITORING OF THE BAY AND STRENGTHENED GOP MANAGEMENT OF PARACAS RESERVE BIODIVERSITY PROTECTION IN THE BAY WILL IMPROVE IF MOVING COASTAL FACILITIES REMAINS A CONDITION FOR IADB FUNDING THE GOP AND SPONSORS MAY LIKELY DECLINE IFI FUNDING RATHER THAN DO THIS BECAUSE OF THE EXPENSE AND DELAYS INVOLVED 9 SBU ON SUSPENSION OF BLOCK 88 ACTIVITIES BS PLUSPETROL HALTED ACTIVITIES IN THE DIRECT CONSTRUCTION AREA WHILE ANTHROPOLOGISTS CONTRACTEll BY THE GOP AND GOP-LINKED INDIGENOUS ADVOCACY GROUP CONAPA CONDUCTED A QUICK STUDY THE ANTHROPOLOGISTS WILL COMPLETE THE ENTIRE ETHNIC MAPPING STUDY FOR BLOCK 88 BY AUGUST BEFORE THE CONSORTIUM EXTENDS CONSTRUCTION BEYOND ITS CURRENT SMALL AREA AROUND THE 2ND WELL SITE SAN MARTIN III THESE ANTHROPOLOGISTS APPEAR QUALIFIED AND CREDIBLE TO PERFORM AN APPROPRIATE _ DETAILED ETHNIC MAPPING STUDY n a UNCLASSIFIED _ · -- ·· Pag» UNCLASSIFIED Page 4 n a 9 CBU ON WAIVING AUGUST 2004 PROJECT DEADLINES THIS WILL LIKELY BE_COME MOOT SINCE ALL CONSTRUCTION WILL LIKELY BE DONE BEFORE THEN EVEN IF NEW SAFEGUARDS ARE BUILT INTO THE PROJECT PLUSPETROL FACES FINANCIAL DIFFICULTIES AND MAY HAVE TO SELL MORE OF ITS REMAINING 26 PERCENT SHARE IN THE UPSTREAM CONSORTIUM TO COMPLETE CONSTRUCTION NOTE PLUSPETROL RECENTLY SOLD 10 PERCENT OF ITS ORIGINAL 36 PERCENT SHARE TO ALGERIAN COMPANY SONATRACH THE FINANCIAL SITUATION OF DOWNSTREAM CONSORTIUM TGP IS UNCLEAR THE GOP IS POLITICALLY COMMITTED TO COMPLETING THE PROJECT BY THE DEADLINE BUT LESS CONCERNED ABOUT THE FINAL PROJECT SHAREHOLDER STRUCTURE THE GOP WOULD MOST LIKELY NOT NOT AGREE TO WAIVE DEADLINES FOR MORE THAN A FEW MONTHS IF AT ALL ENVIRONMENTAL IMPACT ASSESSMENT ISSUES 10 ts-B'tI7- NUMEROUS QUESTIONS HAVE BEEN RAISED ABOUT THE ENVIRONMENTAL IMPACT ASSESSMENT EI PROCESS FOR THE COASTAL FACILITIES THE PROCESS BY WHICH A SEPARATE EIA FOR THE FRACTIONATION PLANT WAS PREPARED AND APPROVED BEFORE A THOROUGH EAI WAS COMPLETED FOR THE MARINE PORTION OF THE PROJECT UNDERSEA PIPELINE AND MARINE LOADING TERMINAL WAS PROBLEMATIC AND CONTRARY TO STANDARD PROCEDURE FOR PROJECTS OF THIS TYPE NUMEROUS NGO'S HERE HAVE PROTESTED THIS DIVISION OF EIAS AND ONE GROUP CLAIMS THIS VIOLATES PERUVIAN LAW 11 SB9 ON THE MARINE EIA PLUSPETROL PREP ED AN INITIAL DRAF-T IN 2001-02 AND THE COMPANY RELEASED THE EIA PUBLICLY IN MID-2002 AFTER EXTENSIVE PUBLIC COMMENT VIA TOWN MEETINGS WORKSHOPS ETC PLUSPETROL RELEASED A REVISED VERSION IN NOVEMBER 2002 GOP ENVIRONMENT AGENCY INRENA PRESENTED 65 OBSERVATIONS REQUESTS FOR CLARIFICATION OR MORE INFORMATION AND OR OBJECTIONS IN FEBRUARY 2003 THE OFFICE OF ENVIRONMENTAL AFFAIRS IN THE MINISTRY OF ENERGY AND MINES PRESENTED AN ADDITIONAL 67 OBSERVATIONS PLUSPETROL- THEN RESPONDED TO THESE OBSERVATIONS NONE OF THE GOP OBSERVATIONS OR PLUSPETROL RESPONSES HAVE BEEN MADE PUBLIC THE GOP HAS RECENTLY STATED THAT PLUSPETROL HAS RESPONDED INRENA WAS SATISFACTORILY TO ALL BUT THREE OBSERVATIONS SUPPOSED TO ISSUE A FINAL OPINION ON THE EIA BY JUNE 1 BUT THIS HAS NOT YET OCCURRED- POLITICAL DYNAMICS AFFECTING PROJECT LIMA 00003142 003 OF 003 AT n a UNCLASSIFIED • 1 • Pag» • Pag 5 UNCLASSIFIED n a POLITICAL CAPITAL IN HAVING THE PROJECT COMPLETED ON TIME PRESIDENT TOLEDO IS COUNTING ON SUCCESSFUL COMPLETION OF THE PROJECT ON TIME TO BOOST HIS PUBLIC SUPPORT SHOW HE CAN FULFILL PROMISES AND ADD REVENUES TO TIGHT GOP COFFERS WHILE A SHORT DELAY IN COMPLETION MIGHT BE ACCEPTABLE IT IS LIKELY THAT DELAYS OF SIX MONTHS OR MORE WOULD BE REJECTED BY THE GOP THE GOP MAY THEREFORE REJECT DELAYS TO ALLOW COMPLETION OF AN EXTENSIVE INDEPENDENT EIA AND WOULD ALMOST CERTAINLY REJECT MOVING THE COASTAL FACILITIES SINCE THIS WOULD PROBABLY INVOLVE A DELAY OF OVER ONE YEAR 13 sftt Jt IF IADB EX-IM FUNDING CONSIDERATION IS DELAYED BY SEVERAL MONTHS OR MORE IT IS LIKELY THAT PROJECT SPONSORS WILL SEEK ALTERNATIVE FINANCING TO COMPLETE THE PROJECT IT IS UNCLEAR HOW QUICKLY ADDITIONAL PRIVATE FINANCING CAN BE SECURED HOWEVER COMMENT AND NEXT STEPS BS BS L£YrELu ---------------------------' NNNN n a UNCLASSIFIED · Pag