ANTHONY LAUB: Technical issues with political-economic vision

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  INTERVIEW TO THE PARTNER OF LAUB & QUIJANDRÍA CONSULTANTS AND LAWYERSIt seems that technicians no longer want automatic control. The former long-term is over and they want the next government to implement sectoral policies agreed to stop seeing only the short term and paradoxically only large numbers.

  The Energy Day promises to have an agenda of technical proposals without ambiguity to put aside partisan political backdrop. ProActivo talked to Anthony Laub and Carlos Gomero about it.

  What would be Laub&Quijandría’s proposal for the Energy Day in a pre-electoral context?

  Since the energy issue is driven by the lack of a clear and little foresight energy policy, the Energy Day seeks to become a space for open dialogue where there isn’t that barrier between public and private, and from that, start addressing and understanding issues in common, raised democratically and consensually so they become in the future energy policy issues.
  We could not be in each juncture, responding according to certain issues that are reactive.
  The Case of Lot 192 is a clear evidence that politics overcomes the reason. Therefore, we have to build a mining and energy long-reaching policy and have absolutely clear and focused objectives.
  First, define if we want mining or not. Second, define who should execute mining or energy projects, if the one who has the technical and economic capacity to do it or the one who has constantly failed, which is the State. Third, how will we do it? Once answered these questions, the rest is just natural execution of what has to happen.

  What are the proposals?

  In previous editions of the Energy Day, we anticipate certain issues that, for better or for worse, have been happing. For example, we announce the possibility that we could have an oversupply of power generation that would set prices low. However, we didn’t expect them to be so low and that this would complicate the execution of new investments in generation.
  The oil price is cyclical, it may rise and fall, but we didn’t know at what levels, and it (the sharp drop) happened without being prepared for that.
  In an event, we indicated the importance of having long-reaching energy projects and contracts that will allow improvement. The socio-environmental issue was always mentioned as a problem in the execution of projects; today it is the key element to see which projects of this size are paralyzed.
  We see the macro issue and we don’t focus on specific issues. We want to propose a long-term work agenda. As Camisea was carried during five different governments and all of them went behind the gas pipeline mentioned, we think that we have to start supporting big issues that should come out naturally.

   

  What are the specific proposals?

  Carlos Gomero (Partner of Laub & Quiandría Firm)

  In electricity, a proposal is related to how the growth of next years will be oriented in respect to the three areas of electricity: generation, transmission and distribution.

  Distribution is the most neglected sector from the regulatory viewpoint because the Government, somehow, has turned its back. Therefore, more effective regulatory reforms are required in terms of rates to refloat it.
  With regards to transmission, the State model has worked, because the long-term transmission planning between the Ministry of Energy and Mines and Osinergmin, resulting in long-term tenders, seems to be the way.
  At this moment, the State may promote the electricity demand by two means: enable incentives for internal demand growth – which depends on large mining projects – and think about exporting, in order to cover this oversupply and maybe we would become the energy hub in South America.

  Long-term proposals are structured around these issues which should not depend on a government or a minister, but on the political alliances of the State, so as not to re-discuss decisions at every moment.

  Lot 192 proves that we do not have a clear horizon and, as State, we should define it: What are we going to strengthen? Proposals are focused on Electricity in the long term.

  With regards to the exportation, Chile has an urgent need for energy, should it be considered as a short-term negotiation?

  1. Laub Negotiations with Chile must stop being taboo in Peru. In the short term, we should supply electric power to the North of Peru, since it demands 4 thousand megawatts, if we assimilate 4 thousand megawatts to the local demand, we would be facing a market of 10 megawatts, and if we were to connect with the Center and South of Chile, we would be talking about the possibility of adding 16 thousand megawatts more. Therefore, the opportunities of investment in Peru are multiplied by three and we would have the opportunity to enter more easily this market compared to products that are not electricity. We must not miss this opportunity! We must start seeing Chile as a strategic partner.

  How far could Peru negotiate and what should we propose for this type of transaction to be beneficial for both parties?

  We should try to put on the table the issues with Chile that affect us and negotiate. We can supply electric power but allowing us to get access their market.

  We need to negotiate the same conditions of equality between both parties, because sometimes we get some sort of problems to access their market and; on the contrary, Chile gets easy access to our market. In spite of it, negotiations help us and it is beneficial to see that possibility of energy integration with Chile in the short term.

  The same happens in the Brazilian market, they get easy access. As for us, it is not easy to do business in that country. But if we change our negotiation power, strengthening our energy selling ability, considering that Brazil is giant in this sector, we would have a different position.

  The second issue we should look at is Bolivia, since it has great amounts of gas reserves not taken advantage because it has already satisfied its local market and has to go out and search new markets. It would be unfortunate to take its gas through the Chilean port.

  For Peru, what would be the benefit if Bolivia’s gas pipeline goes through?

  1. Gomero. The first one is the development of infrastructure of more than one thousand kilometers that would have to go through to arrive to a port where gas could be exported and that would allow the development of markets.

  Also, the opportunity to change the Peruvian infrastructure network of natural gas into an integrated system, by interconnecting pipelines of both countries, with a much more open market.

  A.Laub.Another important issue is that if we had those extra gas reserves of Bolivia; we could think about the possibility of having a large petrochemical hub in Peru. A development of this size would represent an investment of approximately 10 to 15 billion dollars in the South of Peru, required for the development of this industry.

  We will also have the chance to become suppliers of the region, especially of Chile.

  Returning to the negotiation issue between countries.

  1. Gomero.There are two problems for a negotiation and integration scheme, one is to overcome historical quarrels and the other is the lack of vision of those taking decisions.

  Therefore, we have to project ourselves into markets as soon as possible.

  We need to take advantage of what the nature, geography, and border have given us, which is the central position in South America, allowing us to negotiate with several countries of the region. Taking advantage of the electric connection we have with Ecuador and considering that said country is connected to Colombia – we could get to Panama, Central America and even Mexico.

  On the other hand, we could get through Bolivia to Brazil, Paraguay, Uruguay and Argentina. We are located where we could literally get to all Latin America and we have a strong water, gas and geothermal potential.

  Changing the subject, will the Energy Day address public policy issues?

  1. Laub.The main issue of this fourth version of the Energy Day is precisely the energy policy. Even though it was addressed in previous versions. This time will be even more direct and determined.

  Next year, we will elect the new President of the Republic, so we will give it a more political, economic and vision approach with regard to the energy and mining industry in the following 5 or 10 years.

  For this reason, we have invited three candidates for the Presidency of the Republic. Pedro Pablo Kuczynski, who have already accepted the invitation, and we are still waiting the answers from Alan García and Keiko Fujimori.

  Looking ahead to the elections, the problem in Peru is that we see a panorama of 4 to 5 years and we do not see the long term. That’s why I say: “Politics overcomes reason,” because we have seen it with Lot 192; it is the inefficiency and opportunism at its fullest extent.

  Why do you think people are against Lot 192?

  Because we failed to explain to the people the benefit of private investment in terms of roads, hospitals and schools. Also, we fail to explain them that the State is a terrible dealer. In other words, we are unable to review the lessons that history has given us.

  Having evaluated such an important law in just two days reflects the total immaturity and irresponsibility from the Congress of the Republic.

  There is no case like this where you sign a contract with the investor with guarantees and constitutional protection which states that: “no later law can modify the contract-law”, and today a law seeks to terminate said contract.

  The message we convey to investors is that in Peru, the Congress of the Republic can change a law whenever they want. It seems that the constitutionality in Peru does not exist. There was no legislative review and analysis of the legislative situation of hydrocarbons in Peru.

  We cannot let the political situation and opportunism respond to issues that are reactive. This is in President’s hands.

  How much has the Executive worked for State policies?

  1. Laub.There is any clear energy policy from the Executive. In this government, there have been so far at least four Ministers of Energy and Mines and none of them has followed the same line. All of them have had different positions. So, if we are not clear where we are going, it is impossible for the organs in the periphery to understand in which direction they should go. If there is no leader to mark a clear guideline; this won’t work. We need to learn and replicate the success of Camisea, which has been an example of a coherent state policy.

  Would you be willing to take leadership it was shown in Camisea?

  1. Laub. No, under this situation. When Jaime Quijandría took leadership, he was accompanied by a group of people who were committed to the development of their country. Although there was a terrible persecution, Jaime never wavered, he gave his time to the sector development in the country.

  In these current conditions, I see a great political opportunism and a fierce battle for power. Technicians like me will be cannon fodder.

  Which sub-sector of energy has the largest potential for use of resources in Peru?

  1. Gomero. Electric power has the largest potential for growth. We are not an oil producing country because we do not have the geological and natural conditions to be one. But we could have other tools and systems to product more oil. There are countries with greater production having less reserves: United States, Ireland and Trinidad and Tobago are an example of this, which through decent royalties and with a stable economic and political system, they exploit oil at its fullest extent. We will not know our oil potential as long as we do not fully explore and do not give regulatory improvements.
  2. Laub.In this socio-environmental situation, ONGs have had participation, because they have made people believe that extractive companies pollute and this is a lie.

  Why do you think ONGs distort economic-environmental issues?

  1. Laub. That’s what they do for a living. Many of these institutions operating in the country against mining are financed by Canadian Miners’ Unions, Chilean and Australian companies. This happens because Peru has by far the most important mining potential in the world, as nobody wants our country to start exploring all its copper potential in the future, since we will become the world leaders in production of copper, silver and molybdenum; and we would be among the largest gold producing countries..