Global Insight Perspective | |
Significance | According to recorded tapes broadcast on television this weekend, a prominent member of the ruling APRA and the head of state controlled Petroperú agency are implicated in a kickback schemes aimed at steering contracts to Discover Petroleum, a small Norwegian oil firm. |
Implications | Discover Petroleum was granted four concessions last month; these contracts were suspended yesterday as the government launches an investigation into the affairs, which triggered the resignation of both Energy Minister Juan Valdivia and the head of the country's oil company Perúpetro César Gutiérrez. |
Outlook | The government will be under pressure to mount a thorough investigation in order to reassure investors that the problem is a few individuals rather than a corrupt institution, and that the allegations concerning Discover Petroleum were an isolated case. |
Energy Corruption
Recorded conversations of kickbacks between a high-profile member of the ruling American Popular Revolutionary Alliance (APRA), Rómulo León, and one of the directors of Perúpetro (the state oil licensing agency) Alberto Quimper have unleashed a fresh corruption scandal in Peru, prompting the resignations of top oil executives. Both Quimper and León are heard discussing payments to be received from Norwegian oil firm Discover Petroleum for steering business in its favour. The company was awarded four blocks last month, to be operated in tandem with Petroperú, the state-owned company. The tapes were reportedly sent to television programme Cuarto Poder by former interior minister Fernando Rospigliosi and aired on Sunday (6 October), thereby breaking the scandal to the public. Both men mention the future receipt of "5,000" and discuss requesting an additional fee if the operation is successful ranging from "100,000" to "200,000"—the currency is never mentioned but it is assumed that the transactions are in U.S. dollars. The talks also implicate Discover Petroleum executive Fortunato Canaán and Ernesto Arias Schreiber, the firm's legal representative.
Government's Swift Reactions
The airing of the tapes and their contents led quickly to the stepping-down of Energy Minister Juan Valdivia and the head of Petroperú César Gutiérrez. Their resignations were accepted by President Alan García yesterday. Both have claimed their innocence in the unravelling scandal, but the extent of the affair has left little room for manoeuvre. Their swift exit is seen not only as an essential step to allow the investigation to take place, but also as a government's show of commitment to accountability and transparency. As for Quimper, his dismissal was rapidly announced, while authorities proceeded with the suspension of Discover Petroleum's four contracts until the investigation is completed. The judicial authorities have also ordered his arrest, along with León—who was expelled from the APRA yesterday, according to EFE news agency. The managing director of the company Jostein Kjerstad denied that his firm was involved in any kickback activities. The executive is apparently mentioned in the Quimper-Canaán-León tapes. Valdivia's possible knowledge of the affair is also hinted at, though he has denied any wrongdoing. In any case he is not, at present, directly implicated. President García reiterated his trust in his transparent handling of the ministry yesterday.
Outlook and Implications
The corruption allegations are the most serious to hit the industry since President García took office in July 2006, and are particularly grave precisely because they focus on Perúpetro. Problems with corruption are not new at the state oil company Petroperú, which lost two of its directors to separate scandals as recently as 2003. In contrast Perúpetro's reputation for integrity has been one of its strengths, with the perception of the agency as solid and reliable reinforcing the message it gives to foreign investors that Peru's legal framework is more stable than that of many other countries in the region. Legal stability and the introduction of more flexible contract terms have in turn been two of the main reasons for a recent investment boom in the hydrocarbons sector. Investment in Peru’s upstream sector last year alone totalled US$960 million, and further new investment is likely if Peru—as expected—equals or exceeds the number of new contracts signed in 2007 (24) in 2008. However, the continued expansion of the sector and entry of new players could be put at risk if senior figures at the agency responsible for awarding contracts are found to be corrupt. The latest scandal also raises questions about the award of other contracts via direct negotiation, although there are unlikely to be any concerns over the 17 contracts awarded last month in an international licensing round.
The government's swift reaction to the whole affair is positive per se and sends a strong anti-corruption message, which was echoed by Cabinet Chief Jorge del Castillo himself. President García may be keen to rapidly contain any negative impact on his administration, already reeling from low approval ratings. Nonetheless, this does not disguise the fact that some implicated individuals are close to the president and key elements of the APRA. The scandal is the second major one to hit his government. In 2007, the then-interior minister had to resign over irregularities in state procurement practices. The Health Ministry also came under scrutiny that year. The opposition has already delivered its first attacks, pointing out that the widespread corruption was also highly problematic during García's 1985–1990 government.