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PERU: Built to Spill

by Chip MitchellThe Texas Observer
May 19th, 2006

If Hunt Oil Co. has proven anything in Peru, it’s that the morality of trying to pump 8 trillion cubic feet of natural gas through pristine rain forests is entirely a matter of perspective.

The Dallas-based company is a leading investor in the two consortia behind Camisea, a $1.6 billion project named after a southern Peruvian river near some of the hemisphere’s largest natural-gas deposits. One consortium handles upstream operations: drilling pads, feeder pipes, and a plant that separates the gas from other liquids. The other runs two parallel pipelines that wind 430 miles through Amazonian jungles and Andean mountain ranges to the Pacific coast. The system looks fabulous from Fountain Place, the bullet-shaped Dallas skyscraper that serves as Hunt’s worldwide headquarters. Since operations began in 2004, Camisea has produced fuels worth around $900 million, according to Peru’s Energy and Mining Ministry.

Camisea also looks super from the vantage point of Peru’s lame-duck president, Alejandro Toledo, one of President Bush’s few remaining South American allies. The project, Toledo notes, has generated jobs and government revenue while reducing Peru’s dependence on foreign hydrocarbons. The Peruvian leader owes thanks to U.S. taxpayers, who help underwrite loans of the Inter-American Development Bank’Camisea’s leading public investor. Toledo’s current cabinet chief, a chameleon named Pedro Pablo Kuczynski, brokered a $75 million IDB loan for the project in 2003. At the time, Kuczynski chaired a commission of the bank, worked as a consultant for Hunt, and served as a board member of Tenaris SA (a subsidiary of an Argentine investor in Camisea).
Hunt Co. Headquarters by Steve Satterwhite

Close up, Camisea doesn’t look so dazzling. About 10,000 indigenous people live near the gas fields or along the pipeline route. Some of them are trying to remain isolated to preserve their cultures and livelihoods. But Camisea has brought river and air traffic and, as a result, noise and pollution that scares away the game they hunt. And the project has denuded swaths of forest. The resulting landslides and erosion have filled rivers with mud and vegetation, decimating indigenous supplies of fish and drinking water. The communities are also suffering an increase in infectious diseases, from respiratory illnesses to syphilis. A March report from the government’s human-rights ombudswoman blamed the arrival of Camisea workers for influenza that has killed at least 17 villagers.

The problems don’t end there. During its first 20 months of operation, Camisea’s main pipeline has ruptured at least five times, spewing natural gas liquids into the jungle. The most recent incident, a March 4 spill of more than 26,000 cubic feet of fuel, triggered a fire that injured two indigenous villagers and burned dozens of acres of jungle and cropland. In a February report, the San Diego-based engineering consultancy E-Tech International Inc. said the spills stemmed from shoddy pipeline construction. The downstream consortium, according to E-Tech, relied on unqualified welders and corroded piping.

The consortium, Transportadora de Gas del Peru SA, denied E-Tech’s findings in a 180-page rebuttal. Hunt, which owns 22 percent of the consortium, plays down the ruptures. ‘A project of this size can expect to have some challenges,’ says Jeanne Phillips, the company’s senior vice president of corporate affairs and international relations, who chaired President Bush’s 2005 inaugural committee. Camisea operates ‘in an effective and responsible manner.’

Peru has fined the Camisea consortia millions of dollars for the spills and other environmental violations, but has yet to collect most of the money. ‘Government regulation is weak here,’ says Carlos Alza, Peru’s assistant human-rights ombudsman for the environment. ‘The companies can just say they’re not responsible.’

Fed up, indigenous groups are threatening to sue the Peruvian government in the Inter-American Court of Human Rights for failing to protect them. ‘These big companies are damaging our habitat and exterminating our people,’ says Robert Guimaraes, vice president of the Lima-based Interethnic Association of Peruvian Jungle Development.
Camisea has disrupted life for 10,000 people photo by Antoine Bonsorte, Amazon Watch

Beyond immediate harm, rain forest energy projects open corridors for road-building, illegal logging, and poaching, as well as new settlements. And Camisea is but one of many new gas and oil projects in the country. ‘Peru has gone from 30 hydrocarbon concessions to 46 over the last year,’ says Aaron Goldzimer, a social scientist at New York-based Environmental Defense. ‘This fire sale, combined with planned highways and other infrastructure projects, is the biggest threat to the Amazon.’

Seizing on the bonanza is Hunt, one of the world’s largest privately held companies. Chief Executive Ray L. Hunt, the youngest son of a legendary Texas oil tycoon, chairs the Federal Reserve Bank of Dallas and serves on the board of Halliburton Co., the Houston-based defense contractor once headed by Vice President Dick Cheney. The Washington Post reported last month that Hunt, his wife, and his companies together have contributed about $1 million to campaign committees of President Bush and other Republicans since 1998. Forbes magazine estimates Hunt’s net worth at $2.5 billion.

From Peru, Hunt is counting on more. This month the government licensed his company to explore for oil and natural gas under 3.5 million acres near the Camisea fields. Hunt has also enlisted South Korea’s SK Corp. and Spain’s Repsol YPF as investors in Peru LNG, a new consortium that’s opening gas fields, expanding Camisea’s pipeline capacity, and building a gas liquefaction plant and marine terminal. For the plant’s design, Hunt hired Halliburton subsidiary KBR. The $2.7 billion project, run by Hunt, will ship more than 4 million tons of liquid natural gas annually to Mexico and the United States.

For public financing, Hunt is turning again to the IDB, this time requesting $400 million. The bank’s new president, Luis Alberto Moreno, announced last month that the funding depends on environmental and technical audits. ‘We are not even close to approving the loan,’ he told the Financial Times.

But Moreno isn’t any more likely than his predecessors to protect Peru’s Amazon. He won his IDB post last year with Bush administration backing. During the previous seven years, he served as Colombia’s ambassador to the United States, a perch from which he promoted U.S.-sponsored aerial spraying of coca-killing chemicals across the Colombian countryside. That program has cost U.S. taxpayers billions of dollars but has failed to reduce Andean cocaine production. The spraying has also drawn bitter criticism from indigenous groups and environmentalists.

‘We’re not worried,’ says Phillips, the Hunt vice president. ‘We’re working with the IDB and many nongovernmental organizations to ensure that the Peru LNG project is very aggressive and progressive on the environmental front as well as the social-responsibility front.’

That line is wearing thin in Peru. Both candidates in the country’s June 4 presidential runoff’Ollanta Humala and Alan Garc’a’are vowing to revise Peru’s oil and gas contracts with foreign investors. They’re promising higher royalties, greater government stakes, and tougher regulation. They may feel emboldened by this month’s nationalization of natural gas operations in neighboring Bolivia. Humala, who has lived in France, likens Camisea’s pipeline system to a block of Gruy’re cheese: ‘It has holes all over.’




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