VZCZCXYZ0028
RR RUEHWEB

DE RUEHPE #1090/01 1771927
ZNR UUUUU ZZH
R 251927Z JUN 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8889
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
INFO RUEHBO/AMEMBASSY BOGOTA 5819
RUEHQT/AMEMBASSY QUITO 1949
RUEHLP/AMEMBASSY LA PAZ JUN SANTIAGO 1930
RUEHBR/AMEMBASSY BRASILIA 7886
RUEHBU/AMEMBASSY BUENOS AIRES 3410
RUEHCV/AMEMBASSY CARACAS 1180
RUEHME/AMEMBASSY MEXICO 3660
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS LIMA 001090 
 
SIPDIS 
 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
TREASURY FOR KKOZLOFF, MMALLOY AND MEWENS 
ENERGY FOR GWARD, SBROWNE AND RDAVIS 
ENERGY INFORMATION ADMINISTRATION FOR CHARLES ESSER 
PASS EXIM 
 
E.O. 12958: N/A 
TAGS: EAGR ENRG ECON SENV EINV ETRD EAID PE
 
SUBJECT: PERU LNG'S AGRICULTURAL CSR PROJECTS 
 
Summary 
------- 
 
¶1.  As the largest foreign investment in Peruvian history, the Peru 
LNG project has drawn significant amount of attention, particularly 
to the potential social and environmental impacts.  Peru LNG has 
begun introducing the social responsibility components of the 
project, including a small agricultural and institutional capacity 
building project in two coastal communities.  Project mechanisms and 
objectives are consistent with Government of Peru agricultural 
strategy.  End Summary. 
 
Background: the Peru LNG Project 
-------------------------------- 
 
¶2.  Final approval of financing for the Peru LNG project was 
obtained in December 2007 - January 2008.  At $3.8 billion, 
including financing costs, the project represents the largest direct 
foreign investment ever made in Peru.  The funding includes $450 
million from the U.S. Ex-Im Bank, $400 million from the IDB, and 
$300 million from the World Bank/IFC.   These are the largest 
private sector loans in IDB and World Bank history.  The project 
involves the construction and operation of a gas liquefaction plant 
and export facility (marine terminal and breakwater) on the Peruvian 
coast, 169 km south of Lima; and a 408 km pipeline that will connect 
with the existing Camisea pipeline at the Chiquintirca community in 
the Ayacucho Region of the Andes and stretch to the LNG Plant on the 
coast.  Peru LNG is majority owned and operated by Hunt Oil (USA). 
As of June 2008, the plant was about 47% complete and the pipeline 
was about 10% complete. 
 
¶3.  The Peru LNG project advances significant policy priorities for 
the USG in terms of development, investment promotion, and energy 
security.  According to the IDB, this level of investment will add 
an average of approximately 0.4% to Peru's GDP per year over the 
2006-2010 construction period, and is expected to contribute to GDP 
growth by as much as 0.5% per year during the operational life of 
the project (2011-2028).  A large share of the imports for the 
construction of the project comes from the United States.  The 
project is expected to generate roughly $1.4 billion of hard 
currency export revenues annually, increasing Peru's total exports 
by 4.2%.  The GOP will receive an estimated $200 million per year 
from taxes and incremental royalties as a result of the Peru LNG 
project, totaling about $4.0 billion over the 18-year life of the 
project.  These royalties will be distributed throughout the country 
to central, regional and local governments through the "gas canon." 
Approximately 3,000 new direct jobs and 7,000 indirect jobs will be 
generated during the construction phase. 
 
Social Responsibility 
--------------------- 
 
¶4.  The Peru LNG consortium has a community/social and environmental 
investment budget of $9.1 million, apart from the direct payments 
made to communities along the pipeline for the right of way.  For 
one of its social responsibility projects with the impacted 
communities, Peru LNG has contracted with "El Centro de 
Investigacion, Educacion y Desarrollo" (CIED) to implement a project 
in the Canete and Chincha municipal areas (near the LNG plant 
construction site).  (Note: The Canete-Chincha region was severely 
impacted by the earthquake of August 2007 and recovery has been 
slow; widespread devastation is still evident almost ten months 
after the disaster. End Note.)  CIED is a Peruvian NGO, founded in 
1973, with expertise in sustainable rural development. 
Representatives from the Embassy's Office of Agricultural Affairs 
(FAS) were invited by Peru LNG to attend the rollout of CIED's 
project in May. 
 
¶5.  The Peru LNG-funded social responsibility project, called 
AgroProgreso, is based on an analysis of the potential for 
agriculture development in the region and an identification of the 
major constraints.  The three year project will be implemented in 
the districts of San Vicente in Canete and Grocio Prado and Sunampe 
in Chincha, with 300 small farm families as direct beneficiaries. 
It is anticipated that all agricultural producers in the areas will 
be indirect beneficiaries as a result of the institutional capacity 
building efforts and infrastructure investments.  The total budget 
for the AgroProgreso project is $800,000 with $640,000 coming from 
Peru LNG and the rest from local resources (mostly payment in 
kind). 
 
¶6.  The project has both technical and political elements. The 
technical dimension is oriented to small producers with training and 
technical assistance to further develop a competitive agriculture 
with products for the local, regional, and international markets. 
The political dimension is focused on broader local economic 
development issues with capacity building for local government and 
business leaders. 
 
¶7.  The technical component will support the creation of farmers' 
associations with participants required to meet identified criteria 
including owning less than 10 hectares of land, having access to 
water and basic infrastructure, a minimum level of education and a 
commitment to working in a group.  Associations will be provided 
technical assistance in good agricultural practices; business and 
marketing skills; how to access credit; and improving the overall 
quality and quantity of products. 
 
¶8.  The political component will support the development of a 
"public-private platform" for promoting the economic development of 
the regions, including the creation of a business promotion office 
within the local government structure.  Training will be provided to 
local government and business leaders on creating incentives for 
small businesses development.  Training will also be provided on how 
to develop a strategic plan for preventing natural, economic, and 
social disasters, as well as on obtaining and managing 
reconstruction funds. 
 
Comment 
------- 
 
¶9.  The objectives of the project are not overly ambitious in terms 
of numbers or development ideas.  They rely on existing marketing 
channels and proven concepts.  The activities are consistent with 
the overall agricultural development strategy of the GOP and the 
Ministry of Agriculture, including the focus on organizing farmers 
into associations.  The AgroProgreso project has the advantage of 
guaranteed funding from Peru LNG and the pressure to be successful 
in generating benefits for the local communities. 
 
¶10.  Peru LNG has requested information from the Embassy's Office on 
Agriculture Affairs (FAS) on our support and working relations with 
the Ministry and PL 480 funded agriculture development projects, 
particularly in the Southern Highlands of Peru.  USDA and USAID have 
a long history of support and cooperation in agriculture which Peru 
LNG wishes to tap into.  We are ready to cooperate and coordinate to 
increase the chances of AgroProgreso success.