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Leaky pipes, stingy aid slow Peru gas project

More oversight is needed for the $1.6 billion internationally financed project, say activists.

By Kelly HearnCorrespondent of The Christian Science Monitor / July 17, 2006


Across the bow of a cargo boat, Alcides Huinchompi points to loading platforms jutting from the banks of the Urumbamba River. "That is what we are fighting against," says the Machiguenga Indian activist from deep inside the Peruvian rainforest.

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The remote outpost is part of the Camisea Gas Project, a $1.6 billion project for piping Peruvian natural gas 340 miles from the jungle floor, crossing 14,000-foot Andean mountains to markets in Peru and – by 2010 – the US.

Supporters say it will be the catalyst for an unprecedented economic boom for impoverished Peru. But environmental concerns have made the flagship project a political football in Washington and Lima.

Camisea is backed by an international consortium of companies, including Texas-based Hunt Oil, and the US taxpayer-funded Inter-American Development Bank (IDB). It's slated to turn Peru into a net energy exporter and save $4.1 billion in energy costs from 2004 to 2033, according to the IDB. It will also create government royalties – one Peruvian province has already landed more than $254 million.

But critics want to know why one of the project's pipelines has ruptured five times since December 2004, impacting sensitive ecosystems and remote jungle communities. They also complain that benefits have not trickled down to poor Peruvians and that the IDB, which put in $75 million in 2003, has not fulfilled its oversight role.

"We are of the view Camisea has not been a success. It could have been better designed," US Treasury Assistant Secretary Clay Lowery told a Senate foreign relations hearing last week. The hearing focused on problems with multilateral banks funding pipelines in developing countries.

Environmentalists say Camisea's first phase must be fully investigated before the IDB supports further projects here. A $2.8 billion liquefied natural gas project is being planned to ship Camisea gas to foreign markets. Peru LNG – a consortium consisting of US-based Hunt Oil, Korea's SK Corp., Argentina's Pluspetrol, Spain's Repsol-YP, and Algeria's Sonatrach – is asking the bank for $400 million in funding for that project.

In February, a nonprofit US engineering consultancy E-Tech, that works with activist groups accused the consortium that built the faulty pipe of rushing construction and using second-hand pipes to save money. The consortium, known as TGP, has offered documents it says proves the pipes were new and has promised to spend $25 million this year to increase safety.

Meanwhile, a Peruvian Congressional investigation last month criticized consortium members and the Peruvian government for improper oversight of Camisea. Peru's Ministry of Energy is launching a technical audit of the pipe, as is the IDB. Thus far the Peruvian government has levied fines against TGP for well over a million dollars but has collected nothing.

Problems on the ground

In remote jungle communities Camisea's promises are overshadowed by its pains. Gas money has spawned development projects such as clinics and schools for remote jungle communities. But most villagers say development, when it comes, doesn't outweigh damage.