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R 212253Z MAY 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8681
INFO RUEHBO/AMEMBASSY BOGOTA 5736
RUEHQT/AMEMBASSY QUITO 1906
RUEHLP/AMEMBASSY LA PAZ MAY SANTIAGO 1881
RUEHBR/AMEMBASSY BRASILIA 7864
RUEHBU/AMEMBASSY BUENOS AIRES 3379
RUEHCV/AMEMBASSY CARACAS 1161
RUEHME/AMEMBASSY MEXICO 3654
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS LIMA 000906 
 
SENSITIVE 
SIPDIS 
 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
TREASURY FOR MMALLOY AND MEWENS 
INTERIOR FOR USGS/RESTON DMENZIE AND AGURMENDI 
ENERGY FOR GWARD, SBROWNE AND RDAVIS 
ENERGY INFORMATION ADMINISTRATION FOR CHARLES ESSER 
BRASILIA FOR HUB ABRAGHETTA 
 
E.O. 12958: N/A 
TAGS: ENRG ECON SENV EINV ETRD PE
 
SUBJECT: PERU ENERGY BRIEFS - MAY 2008 
 
SENSITIVE BUT UNCLASSIFIED, HANDLE ACCORDINGLY 
 
SUMMARY 
------- 
¶1. (U)  This is an update on the following energy sector news from 
Peru: 
-- New Environment Minister sets conditions for sustainable biofuels 
development; 
-- Brazil and Peru sign 10 agreements on margins of EU-LAC Summit, 
including biofuels; 
-- Brazilian firms to build $2 billion hydroelectric plant in Peru 
to export power to Brazil; 
-- State-owned Brazilian and Peruvian companies explore 
petrochemical project; 
-- Another U.S. company submits proposal to build a natural gas 
pipeline to southern Peru; and, 
-- GOP ends subsidies to 95- and 97-octane gasolines. 
End Summary. 
 
SUSTAINABLE BIOFUELS ONLY 
------------------------- 
¶2. (U) The head of Peru's newly created Ministry of the Environment, 
Minister Antonio Brack, wasted no time after being sworn in on May 
16 in beginning to set guidelines for the future work of his agency. 
 To prevent biofuels production from creating a food production and 
price crisis, Brack set three conditions for their development: 
-- trees can not be felled in primary forests to make room for 
biofuel crops; 
-- no biofuel crops can be grown on lands currently producing food 
crops, and, 
-- biofuel crops cannot be watered by flooding -- as is usual in 
Peru's coastal and highland farmlands -- and must instead use 
efficient irrigation techniques (drip, pressure, etc.). 
 
BRAZIL AND PERU AGREEMENTS 
-------------------------- 
¶3. (U Presidents Garcia and "Lula" da Silva (Brazil) signed ten 
cooperation agreements after the Peru-hosted European Union - Latin 
American and Caribbean summit ended on May 17.  One of these, the 
Energy Integration Agreement, provides for the development of 
hydroelectric projects in Peru for the export of power to Brazil. 
The other complementary agreements include one to promote 
alternative biofuels crops and one on the sustainable management of 
Amazon forests. 
 
BRAZILIAN FIRMS PLAN A $2 BILLON HYDROELECTRIC PLANT 
--------------------------------------------- ------- 
¶4. (U)  Brazilian firms Furnas Centrais Eletricas and Construtora 
OAS Ltd. have filed an application with Peru's Energy and Mines 
Ministry (MEM) for a temporary concession to build a $2 billon 
hydroelectric plant at Inambari, in the Madre de Dios department 
bordering with Brazil.  The companies plan to carry out a 
feasibility study so as to eventually obtain a definitive 
concession.  Brazil's Mines and Energy minister Edson Lobao said the 
plant's capacity would be 3,400 megawatts/hour.  Construction of the 
plant would begin in 2009, and operations would start up in 2012, 
with all of the power produced bound for export to Brazil. 
 
BRAZIL-PERU PETROCHEMICAL PROJECT 
--------------------------------- 
¶5. (U)  Presidents Garcia and Lula also witnessed the signing of a 
Memorandum of Understanding between Petroperu (Peru's state-owned 
petroleum company) and the Brazilian companies Petrobras and 
Braskem, whereby the companies will evaluate the economic and 
technical feasibility to implement in Peru an integrated 
petrochemical project to produce ethylene and polyethylene. 
 
¶6. (SBU)  Project sponsors hope the gas will come from the Camisea 
 
 
project, but this is far from certain.  It is unclear what the 
contribution of Petroperu will be as the company is relatively small 
and lacks in-house technical manpower and the financial capability 
required to undertake major projects.  Petroperu already has 
agreements with Petrobras for the development of a fertilizer 
petrochemical plant (2007) and for the "technical evaluation" of six 
blocks in the Maranon basin (2006).  (Note: Technical evaluation 
agreements often lead to entering into regular exploration and 
production contracts with the licensing agency Perupetro.  End 
note.) 
 
THREE COMPANIES VIE FOR SOUTHERN GAS PIPELINE 
--------------------------------------------- 
¶7. (U)  A third company, Texas-based Energy Transfer Inc., has 
joined two other companies that want to build a natural gas pipeline 
linking Camisea with the southern port of Ilo, close to the Chilean 
border.  Associated with Panda Energy (U.S.), Energy Transfer is 
proposing to build the pipeline along the same route earlier 
proposed by Conduit Capital Partners' Kuntur Transportadora de Gas, 
i.e. through the highlands passing through Cuzco, Puno and Arequipa 
to end at the port of Ilo.  This route is strongly supported by the 
presidents of the local regions the pipeline would cross and serve. 
France's Suez Energie filed an application with the Ministry of 
Energy and Mines for a temporary concession (while it conducts a 
feasibility study) for a $800 million pipeline from Humay (Ica, 
close to Pisco) along the coast to Ilo, but the company has recently 
also offered to build the pipeline along a route that passes through 
the highlands. 
 
SUBSIDIES TO HIGH-OCTANE GASOLINE TO END 
---------------------------------------- 
¶8. (U)  The MEM published a resolution May 20 ending the subsidies 
to 95- and 97-octane motor gasolines.  The GOP will maintain the 
subsidies to all other fuels.  Subsidies were given through the 
"Price Stabilization Fund for Petroleum Products Fuels."  The GOP 
established the fund in 2004 to prevent the full effect of world 
crude oil prices being passed on to consumers when prices increased, 
with GOP funds to be recovered when prices decreased. The 95- and 
97-octane gasolines are used by a small number of quality 
automobiles, such as luxury sedans and recent SUV and minivan 
models, mostly located in Lima. 
MCKINLEY