This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 LIMA 004539 
 
SIPDIS 
 
DEPT FOR EAP/CM, WHA/AND, WHA/EPSC 
DEPT PLS PASS TO NSC 
 
E.O. 12958: DECL: 10/20/2015 
TAGS: EINV ENRG ECON ETRD PREL EFIN PE
SUBJECT: CHINESE INVEST IN PERU,S ENERGY SECTOR 
 
REF: A. A) LIMA 3743 
     ¶B. B) LIMA 436 
 
Classified By: Economic Officer Samantha Carl-Yoder for Reasons 1.4 (b) 
 and (d) 
 
¶1.  (C) Summary.  Chinese investment in Peru in 2004 totaled 
$122 million and several Chinese companies have recently 
expressed their interest in increasing investment in Peru in 
the next year.  Sapet Development Peru, a subsidiary of China 
National Petroleum Corporation (CNPC), recently inked a 
hydrocarbons contract with the GOP to invest $70 million over 
five years to explore Block 111 in Peru's jungle area.  Sapet 
is currently negotiating an additional contract for Block 
113, worth an estimated $80 million.  In addition to 
hydrocarbons, several Chinese firms are examining 
possibilities of investing in the Peruvian transport sectors. 
 End Summary. 
 
Previous Investment Centered on Mining Sector 
--------------------------------------------- 
 
¶2. (U) Up until several months ago, Chinese investment in 
Peru, totaling $122.16 million, had remained the same since 
¶1999.  The majority of this investment was centered in the 
mining sector, particularly the iron ore mine Hierro Peru, 
which is 98.5 percent owned by Shougang Corp.  Hierro Peru, 
located in Marcona, Ica Department (approximately 500 
kilometers south of Lima), is Peru's sole iron ore mine and 
is an open pit operation.  Shougang Hierro Peru (SHP) sold 
6,315,458 dry long tons (dlt) of iron ore and iron ore 
pellets in 2004, a 17.5 percent increase from the 5,373,951 
dlt sold in 2003.  95 percent of iron ore from SHP is sold to 
China, with minor quantities sold to local consumers (Ref A). 
 
 
Chinese Now Interested in Energy Sector 
--------------------------------------- 
 
¶3.  (SBU) On October 12, the GOP announced, in Supreme Decree 
040-2005-EM, that the Ministry of Energy and Mines (MEM) 
approved Sapet Development Peru's hydrocarbons contract for 
the exploration and exploitation of Lot 111 in Madre de Dios 
Department (Peru's southeast jungle area).  A subsidiary of 
China National Petroleum Corporation (CNPC), Sapet 
Development Peru will coordinate its efforts with the GOP's 
oil and gas agency PetroPeru to tap into Peru's natural gas 
and oil reserves.  According to Antonio Cueto, chairman of 
PetroPeru, Sapet Development Peru will invest approximately 
$70 million during the five-year exploration phase. 
 
¶4.  (C)  Sapet Development Peru continues to negotiate a 
hydrocarbons contract for Block 113, also in Madre de Dios. 
PetroPeru officials believe that Chinese investment could 
total as much as $80 million during the exploration period. 
Sapet Development officials predict that negotiations should 
conclude in the next few weeks, with the GOP issuing a 
Supreme Decree by the end of October.  MEM officials informed 
us that once the Supreme Decree is published, the Chinese 
would send a delegation to sign both contracts, perhaps in 
early November. 
 
¶5.  (SBU) The Chinese are also working on a deal with 
Peruvian sugarcane farmers to export sugar to China. 
Corporacion Miraflores, an organization of sugarcane farmers 
in Piura, met with officials from the China National 
Machinery and Equipment Import Export Group (CMEC) in early 
August to discuss the possibility of CMEC investing in 5,500 
hectares of sugarcane.  According to Luis Ortis, Deputy Mayor 
of Piura, the CMEC is interested in importing sugar to make 
ethanol for energy purposes. 
 
Rumors of Involvement in Transportation Sector 
--------------------------------------------- - 
 
¶6.  (SBU) The Chinese have a history of involvement in Peru's 
transportation sector.  In 2003, Chinese firms contracted 
engineering projects and labor services in Peru totaling more 
than $202 million.  Most of these projects focused on the 
transportation sector.  The GOP, which is working on several 
large infrastructure projects including the construction of 
the Inter-Oceanic Highway to connect Brazil and Peru, as well 
as the concession of Peru's largest Port in Callao, continues 
to tout such programs as golden opportunities for Chinese 
investment. 
 
¶7.  (SBU)  Abraham Barreda, representative of Chinese-owned 
Poly Technologies, noted to the press in August that the 
company is interested in investing in the Lima/Callao public 
transportation bid for new natural gas-powered buses. 
Barreda stated that Poly Technologies could provide up to 
5,000 buses at a cost of $832 million for the city of Lima. 
(Note:  The Lima government inked a deal with MarkHeavy, a 
U.S. company, for 3,600 natural gas buses over six years in 
February 2005.  Although Lima needs additional buses, the 
municipal government has not yet opened another tender (Ref 
B).  End Note.) 
 
Comment 
------- 
 
¶8.  (C) The Peruvian Government in the past 10 months has 
actively pursued improved political and economic ties with 
China, with high level visits in January and June.  Only 
recently, however, has China realized the economic potential 
of Peru, at least in the mining and energy sectors.  The 
signing of two hydrocarbons contracts will be the first of 
many in the next few years, particularly as the MEM opens new 
opportunities for exploration.  We believe, however, that the 
Chinese will not invest in Peru's infrastructure projects 
unless there is a clear economic benefit to China.  The GOP 
expects to open the last two concessions for the 
Inter-Oceanic Highway by the end of the year; perhaps if both 
the Peruvian and Brazilian governments tout how China's 
access to Brazilian natural resources will improve due to the 
highway, one or two Chinese companies may consider investing. 
 
 
STRUBLE