Camisea and the World Bank: A lost opportunity to make things better

1 April 2008 | Guest comment

In February, the World Bank’s International Finance Corporation (IFC) approved a $300 million loan for the Camisea II liquefied natural gas (LNG) export project in Peru (see Update 58). Even though environmental, social and now economic concerns have been raised, the IFC did not hesitate to provide a loan for the consortium managing the project area known as Block 56, operated by Hunt Oil (Peru LNG).

In various communications, Peruvian NGOs have raised their concerns with the IFC. The Camisea II project is part of a larger initiative which began with Camisea I: it uses the same infrastructure (Las Malvinas processing plant in Cuzco, pipelines traversing the Peruvian Amazon, and a chemical separation plant in Paracas); will export gas from Camisea I’s gasfields; and both consortiums have at least two companies in common (US Hunt Oil and Spanish Repsol YPF). In effect the operations of Camisea II (Block 56 operated by the Hunt Oil-led consortium) will become indistinguishable from those of Camisea I (Block 88 operated by the Pluspetrol-led consortium). Camisea II will contribute to the accumulated impacts of Camisea I created by extraction, transport and distribution. Solutions should have been found to the problems of Camisea I before work began on Camisea II, given that a hurried start could exacerbate problems and prevent solutions being found.

The IFC’s due diligence was insufficient. It should have ensured that all ‘associated facilities’ of Camisea I and II met its standards even if it was not funding them directly (under Bank rules, loans are not permitted to projects whose “associated facilities” breach safeguard policies). The approval of this kind of loan could set a dangerous precedent with regards to the implementation of the IFC’s new lending performance standards. It has yet to be revealed how the IFC applied the requirement to obtain “broad community support of affected communities” both for Camisea II and its upstream gas fields.

Despite the importance that the IFC places on the role of foreign investment in Peru and its potential to improve the quality of life of our citizens, the conditions for such improvements to occur have still not been created. It is unclear whether the IFC has carried out a cost-benefit analysis, which is worrying for a project of this scale and given how essential it is for the energy security of the country. According to the Engineering College of Peru, the project will provide less economic benefit to the country than if the gas were used for domestic consumption. Instead it provides a windfall for the companies involved. The problems with Camisea II fall into three categories:

Firstly, the original aim of the Camisea gas project was to ensure long-term energy security by reducing dependency on imported petrol. However in the end the decision whether to export the gas or use it domestically was determined by corporate interests. There is no systematic national energy strategy which considers the opinion of those communities most affected by hydrocarbon development. There is the real possibility that gas exports from the Camisea project could damage the future development of Peru.

Secondly, the state lacks the capacity to ensure that revenues generated by the project create sustainable development. The failure to improve the quality of life at the local level has undermined one of the main arguments to convince the local population of the project’s merits.

Thirdly, the state lacks the capacity to adequately supervise and monitor projects of this scale. This lack of capacity is evident from the five leaks and overflows that have occurred in the first two years of the project’s operation. These were caused by bad design and implementation and were not detected by the responsible authorities.

It is not clear what benefits the IFC’s involvement will bring in terms of improvement in the quality of life for indigenous communities and those directly affected by the project. To insist on the rushed implementation of Camisea II without first improving state capacity to mitigate its impacts, safeguard the rights of indigenous peoples, and oversee responsible actors will exacerbate the problems of Camisea I.

By César Gamboa; Derecho, Ambiente y Recursos Naturales; Lima, Peru