Economy & Business - September 2003
PERU: Congress gives government blank cheque
Congress voted to delegate to the government powers to make tax reforms. This means that President Alejandro Toledo's administration has 90 days in which to pass the new tax laws. Congress voted by 69 in favour to 26 against, with 13 abstentions.
The vote was a major victory for the beleaguered administration and Beatriz Merino, the technocrat prime minister. The scale of the victory was much greater than even the government had dared to hope. Although the opposition Partido Aprista Peruano (PAP) voted almost as a bloc against granting the powers requested by Toledo, and there were a number of abstentions from Unidad Nacional (UN) legislators, almost everyone else rallied behind Toledo.
To be fair, the proposal was not quite the carte blanche for which Toledo originally asked congress. Earlier in September, congress's economic committee voted against granting him powers to pass tax laws at his own discretion. Now, his government will be confined to 26 individual tax reform proposals. What the deal does represent is a triumph for Merino. She appealed to businessmen and individual members of congress to rally around the proposal. Merino told congress that the government's aim was to broaden the tax base and stamp out tax evasion to raise the tax take from its current level of 12% of GDP to 14% in 2004 and 16% by 2006.
The economy minister, Jaime Quijandría, said that increasing the tax take was crucial. Peru's debt is equivalent to 46% of GDP. He said that the powers would enable government to implement its promise to raise teachers' salaries (as agreed in June after a lengthy strike) and to avoid cutting the health, defence and transport budgets. The budget for the education sector needs to increase by up to 40%, he added. The planned tax changes include a new tax on bank business (possibly as high as 0.3% per transaction). Quijandría claims that this tax should raise NS2.2bn (US$632m) annually.
The opposition frets that the government will waste the new revenues it will generate. Hildebrando Tapia from the opposition UN said that the tax reform would only work if it were accompanied by true fiscal austerity. He claimed that the Toledo government's record so far was not encouraging on this front. He asserted that the government's running costs were up by 19% under Toledo, and bureaucracy was up by 28%.
Camisea: approval from the IDB and deal with Mexico
The Inter-American Development Bank (IDB) has approved a US$135m loan for the controversial gas field and pipeline project Camisea. The importance of the IDB's support for what Toledo describes as the bedrock of Peru's energy programme, cannot be overstated. Aside from the money, the IDB decision provides the seal of approval for the project that Toledo has desperately sought, particularly after the US Export-Import Bank decided not to approve a US$214m loan for Camisea last week on environmental grounds. It should also pave the way for loans from commercial banks.
The Camisea consortium will also seek to raise another US$225m from selling debt in Peru. Banco de Crédito del Peru, the largest bank in Peru, is managing the bond sale.
The project received a further boost when Mexico agreed to buy 2.5mt a year of liquefied natural gas. The buyer, who will market the gas to power stations in Mexico, is a Belgian energy company, Tractebel. It signed the letter of understanding with the main Camisea backers, Hunt Oil and SK Corporation from Korea, on 29 September.
Camisea should be up and running by the middle of next year. Pacific LNG, which is the Hunt Oil and SK Corporation end of the project, is building a liquefaction plant at Playa Melchorita, 140km south of Lima. Here the gas will be liquefied, after being pumped from Camisea, which is in the department of Cuzco, in the southeast of the country. Tractebel expects to ship the gas to the Mexican port of Lázaro Cárdenas from 2007.
The government claims that the project will turn Peru from being a net importer of energy to being a net exporter. The project will also add 1.3% to the country's growth rate for the next 20 years and confer US$1.2bn in annual revenues (through duties and royalties) on the government. The project still requires US$3bn in new investment.
At its peak, the project will create 40,000 jobs. The IDB estimates that Peru will save US$4.1bn in energy costs between 2004 and 2033 as a result of the use of gas-fired generated electricity. The gas pipelines from Camisea will have an initial capacity of 285m cubic feet a day, an amount that could be expanded to 450m cubic feet a day by 2015.
Environmental NGOs are opposed to the project. The NGOs claim that Camisea will encroach on the Nahua Kugapakori State Reserve, the home of previously uncontacted indigenous peoples, and threaten Peru's only marine reserve at Paracas Bay, which environmental organisations mention in the same breath as the Galapagos Islands for sheer diversity of species and habitat. The Paracas Bay reserve stretches over 35,000 hectares of land and sea.
Besides Hunt and SK Corporation, some heavy US hitters are involved in the project. A well-connected oil services company, Halliburton, is in line to build the liquefaction plant, which could cost US$2bn. The pipelines to bring the gas from Camisea to the coast and on to Lima are being built by Pluspetrol from Argentina.
The vote was a major victory for the beleaguered administration and Beatriz Merino, the technocrat prime minister. The scale of the victory was much greater than even the government had dared to hope. Although the opposition Partido Aprista Peruano (PAP) voted almost as a bloc against granting the powers requested by Toledo, and there were a number of abstentions from Unidad Nacional (UN) legislators, almost everyone else rallied behind Toledo.
To be fair, the proposal was not quite the carte blanche for which Toledo originally asked congress. Earlier in September, congress's economic committee voted against granting him powers to pass tax laws at his own discretion. Now, his government will be confined to 26 individual tax reform proposals. What the deal does represent is a triumph for Merino. She appealed to businessmen and individual members of congress to rally around the proposal. Merino told congress that the government's aim was to broaden the tax base and stamp out tax evasion to raise the tax take from its current level of 12% of GDP to 14% in 2004 and 16% by 2006.
The economy minister, Jaime Quijandría, said that increasing the tax take was crucial. Peru's debt is equivalent to 46% of GDP. He said that the powers would enable government to implement its promise to raise teachers' salaries (as agreed in June after a lengthy strike) and to avoid cutting the health, defence and transport budgets. The budget for the education sector needs to increase by up to 40%, he added. The planned tax changes include a new tax on bank business (possibly as high as 0.3% per transaction). Quijandría claims that this tax should raise NS2.2bn (US$632m) annually.
The opposition frets that the government will waste the new revenues it will generate. Hildebrando Tapia from the opposition UN said that the tax reform would only work if it were accompanied by true fiscal austerity. He claimed that the Toledo government's record so far was not encouraging on this front. He asserted that the government's running costs were up by 19% under Toledo, and bureaucracy was up by 28%.
Camisea: approval from the IDB and deal with Mexico
The Inter-American Development Bank (IDB) has approved a US$135m loan for the controversial gas field and pipeline project Camisea. The importance of the IDB's support for what Toledo describes as the bedrock of Peru's energy programme, cannot be overstated. Aside from the money, the IDB decision provides the seal of approval for the project that Toledo has desperately sought, particularly after the US Export-Import Bank decided not to approve a US$214m loan for Camisea last week on environmental grounds. It should also pave the way for loans from commercial banks.
The Camisea consortium will also seek to raise another US$225m from selling debt in Peru. Banco de Crédito del Peru, the largest bank in Peru, is managing the bond sale.
The project received a further boost when Mexico agreed to buy 2.5mt a year of liquefied natural gas. The buyer, who will market the gas to power stations in Mexico, is a Belgian energy company, Tractebel. It signed the letter of understanding with the main Camisea backers, Hunt Oil and SK Corporation from Korea, on 29 September.
Camisea should be up and running by the middle of next year. Pacific LNG, which is the Hunt Oil and SK Corporation end of the project, is building a liquefaction plant at Playa Melchorita, 140km south of Lima. Here the gas will be liquefied, after being pumped from Camisea, which is in the department of Cuzco, in the southeast of the country. Tractebel expects to ship the gas to the Mexican port of Lázaro Cárdenas from 2007.
The government claims that the project will turn Peru from being a net importer of energy to being a net exporter. The project will also add 1.3% to the country's growth rate for the next 20 years and confer US$1.2bn in annual revenues (through duties and royalties) on the government. The project still requires US$3bn in new investment.
At its peak, the project will create 40,000 jobs. The IDB estimates that Peru will save US$4.1bn in energy costs between 2004 and 2033 as a result of the use of gas-fired generated electricity. The gas pipelines from Camisea will have an initial capacity of 285m cubic feet a day, an amount that could be expanded to 450m cubic feet a day by 2015.
Environmental NGOs are opposed to the project. The NGOs claim that Camisea will encroach on the Nahua Kugapakori State Reserve, the home of previously uncontacted indigenous peoples, and threaten Peru's only marine reserve at Paracas Bay, which environmental organisations mention in the same breath as the Galapagos Islands for sheer diversity of species and habitat. The Paracas Bay reserve stretches over 35,000 hectares of land and sea.
Besides Hunt and SK Corporation, some heavy US hitters are involved in the project. A well-connected oil services company, Halliburton, is in line to build the liquefaction plant, which could cost US$2bn. The pipelines to bring the gas from Camisea to the coast and on to Lima are being built by Pluspetrol from Argentina.
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