Peru: Political violence and operational disruption

Date first published: 14/3/2019

Key sectors: mining; hydrocarbon; commercial; cargo transport

Key risks: disruptive strikes; business interruption; civil unrest

Peru is a consolidated example of the pervasive effects brought about by the links between political violence and operational disruption. The mining and hydrocarbon sectors continue to demonstrate that one can cause the other, and vice versa. President Martin Vizcarra, as well as his predecessor, has vowed to improve the balance between addressing local demands leading to disruptive unrest and the need to re-launch investment in both sectors and reassure investors. Recent developments suggest that such efforts should be heightened over the coming months given the potential for long-standing controversy over certain projects and infrastructure assets to reignite.

On the oil and gas front, on 1 March state-owned oil company Petroperu announced the resumption of operations at its Northern Peruvian Pipeline (ONP) in the northern Loreto region. Operations restarted following the repair of a three-month old rupture which Petroperu blamed on locally-fuelled, targeted unrest. Animosity against the ONP stems from recurrent oil spills often blamed on deficient infrastructure, among other socio-economic grievances. Recurrent and persistent oil spills have affected the Mayuriaga indigenous community, with more than 100 oil spills reported in the past five years. Most of them appear not to be related to targeted sabotage against the aging infrastructure, but to operational deficiencies which still need to be addressed.

The ONP’s latest stoppage affected Canada’s Frontera Energy oil production at Block 192, Peru’s second-largest. Although on 8 March the company stated that it was in the process of restarting operations at the block, reports from February indicated that Frontera was re-assessing its intention to bid for a new contract after the current one expires in 2019. Losses as of mid-February amounted to around US$10m since the end-November 2018 rupture. Petroperu managed to repair the pipeline following an agreement between the government and the Mayuriaga community, which blocked access to the infrastructure for three months demanding further basic public services. The potential for such dynamics to be repeated over the coming year – particularly if Frontera Energy leaves Block 192 due to lack of investment and recurrent blockades stoking force majeure and production halts across the ONP, is high.

Road blockades affecting normal transport operations at China’s MMG Las Bambas copper mine and the potential for further controversy over Southern Copper’s Tia Maria copper project could also escalate. Las Bambas, Peru’s largest copper mine, has been exposed to recurrent and often deadly unrest, with the government always ready to deploy additional troops and declare states of emergency to contain disruption. Despite such efforts, as recently as 11 March MMG stated that production at the facility could fall “in the near term” as blockades staged since 4 February by the local Fuerabamba community continued to affect copper concentrate transport to Matarani port, leading to shipment delays. MMG’s statement could be seen as a covert request for government support to end the protest. Such unrest has been recurrent, and a definitive solution to avoid further relapses is yet to be found.

Southern Copper’s US$1.4bln Tia Maria copper project could receive its construction license before its environmental permit expires in August. The statement was made on 1 March by the Energy and Mines Minister. Other ministry officials had already stated that the long-delayed and highly-controversial construction could begin in 2019. Violent unrest derailed the project in 2011 and 2015. There is no guarantee 2019 will be different.