Bottom Line: Peru is taking tough action against oil and gas companies over poor environmental practices following an oil spill earlier this month, halting operations and imposing fines. There’s more of this to come as the government investigates other violations.
Analysis: Last week, the government of Peru declared a 90-day environmental emergency in the Pastaza Amazon region after an oil spill from drilling operations managed by Pluspetrol. Operations will be halted for three months at Pluspetrol’s site on the Rio Pastaza, near the border with Ecuador, and some 900km north of Lima. Peru’s Environmental Evaluation and Prosecution Agency (OEFA) has also imposed a fine of $11.2 million on the company and is pushing for immediate clean-up efforts. OEFA is preparing to conduct further investigations in the north of the country, in the Alto Maranon, Tigre and Corrientes rivers beginning on 15 April. If soil and water tests show high levels of contamination, companies working there will also face operational delays and stiff fines.
The initial tests that led to Pluspetrol’s halt in operations were carried out by a parliamentary-appointed commission after 4 indigenous groups from the region sent delegations to the legislature to complain about the extreme level of contamination. International NGOs like Source International and WWF had also picked up on this to raise the pressure.
At the same time, oil companies are calling for reforms to reverse declining crude output and help render the country a net exporter. To this end, 16 oil companies have joined forces to create the Peruvian Hydrocarbons Society to lobby for reforms. The group says regulations are stifling investment.
Recommendation: This appears to be a new trend. Addressing extreme damage in cases like the Rio Pastaza helps the government gain some credibility on issues of environment and protection of indigenous communities, two areas where Humala has faced a lot of criticism. We expect more of this as the government attempts to appease indigenous communities. The new oil industry association with its combined power will seek to pressure this new environmental trend in the opposite direction.