US utility Sempra has pulled out of advanced negotiations to take over construction and operation of a natural gas pipeline in southern Peru.
"Negotiations have terminated without an agreement. Despite significant efforts, the Peruvian government expressed its inability to provide necessary assurances that the concession would not be cancelled due to alleged legal violations by the seller or its affiliates," Sempra said late yesterday.
Sempra announced its withdrawal just hours after Peru´s energy minister Gonzalo Tamayo announced Chinese state-owned CNPC´s confirmation of 3.9 trillion ft3 of gas and condensate reserves on block 58, one of the upstream areas that would supply the future pipeline.
Sempra had been in talks for months with Brazilian contractor Odebrecht to acquire the largest share in the construction of the 1,134km (680mi) southern gas pipeline, which would complement an existing line running from other gas fields in the southern jungle to the coast. Sempra said its participation would have required approximately $6.5bn.
Sempra would have taken 50pc in the project, while a partner, Argentina's Techint, would have received 5pc. The remaining shares would have stayed with Odebrecht's original partners, Spain's Enagas (25pc) and Peruvian builder Grana y Montero (20pc).
The negotiations hit a snag when Peru's government refused to modify an anti-corruption clause in the contract. Sempra had required this as a condition to avoid future problems if Odebrecht was found to have been involved in corrupt practices to acquire the $7.3bn 30-year contract for the pipeline, which it was awarded under the previous Peruvian government in June 2014.
Odebrecht is one of the companies at the center of huge corruption investigation in Brazil. Its effort to sell the Peruvian pipeline stake is tied to a major restructuring aimed at tackling ongoing fallout from the corruption case.
Economy and finance minister Alfredo Thorne told reporters on 20 November that if the Sempra-Odebrecht deal fell apart, the pipeline contract could return to the Peruvian state and a new international tender could be held. He said that process could come as early as January.
Energy minister Gonzalo Tamayo had said that a new contract would give the state the opportunity to address contract deficiencies, including a failure to include auxiliary pipelines to major cities along the route and what the government considers an unacceptably high 20pc surcharge on consumer electricity bills to pay for the project.
The new pipeline is designed to transport gas from blocks in the southern jungle. The Peruvian government has committed 1 trillion ft3 from Camisea's block 88 for the project, while China's CNPC would provide gas from block 58. Spain's Repsol could also add feedstock from block 57, where it has confirmed 1.9 trillion ft3 in reserves.
An existing Camisea gas pipeline leads to an LNG plant and gas processing and distribution facilities on the coast.
The new pipeline would provide gas to an "energy complex" where two thermal generating plants have recently been completed and where the Peruvian government would like to attract investment for petrochemical production. Peruvian authorities have also floated the idea of building a new liquefaction plant or adding a second train to Peru LNG.
It is not clear whether Sempra's withdrawal from the pipeline project would affect other projects it is weighing in Peru. The utility has indicated it is looking at investing nearly $1bn in power generation, including a thermal generating plant near Lima and a hydroelectric plant in Cusco, in the southern highlands. It already operates one hydroelectric plant, the 100MW Santa Teresa plant, in Cusco.
Sempra is the primary shareholder in Luz del Sur, Peru's largest electricity distribution company, which services Lima and neighboring Ica state.
