Texas Firms Line Up U.S. Aid in Peru
Gas Project's Damage to Rain Forest Assailed
By James V. Grimaldi
Washington Post Staff Writer
Wednesday, November 20, 2002; Page A01
Two Texas energy companies, both closely tied to the Bush White
House, are lining up administration support for nearly $900 million in
public financing for a Peruvian natural gas project that will cut
through one of the world's most pristine tropical rain forests. A top
priority of Peruvian officials, who view it as key to energy
independence, the Camisea project has encountered fierce opposition.
Worldwide environmental groups and some members of Congress argue
that the massive extraction and pipeline project will destroy the rain
forest and the lifestyle of its indigenous people.
backers' quest for financial support from U.S. development banks will
test the political pull of the Texas companies, Hunt Oil Co. and
Halliburton Co., which have longstanding ties to the Bush-Cheney
administration and the Republican Party. Next month, Hunt Vice
President Steve Suellentrop is set to accompany Commerce Secretary
Donald L. Evans on a trade mission to Peru, where President Bush
traveled in March to promote Andean trade.
led by Dallas-based Hunt, Argentina's Pluspetrol and Peru's Tecgas,
began work earlier this year on the $1.6 billion project in the
southeastern part of Peru's Amazon basin. Hunt brought in
Halliburton's Kellogg Brown & Root unit to engineer a proposed next
phase, a $1 billion plant from which Hunt hopes to export liquid
natural gas to the United States by 2006.
The controversy surrounding
the project highlights the conflict between Bush's energy policy,
which advocates mining fossil fuels globally, and U.S. environmental
safeguards, which detractors say the administration plays down.
Government spokesmen say that no decisions have been made on public
financing and that a careful review is underway.
regulations, projects receiving backing from the Export-Import Bank of
the United States and the Inter-American Development Bank must pass
rigorous reviews to ensure that they will not threaten rare natural
habitats. But officials reviewing the Camisea loan applications, who
asked not to be identified, say the project is proceeding despite
warnings that it may run afoul of international environmental
Independent reviews commissioned by project developers have
also noted numerous problems, including fuel spills, unauthorized
pipeline route diversions, and destructive erosion and landslides.
This month, Peru's energy ministry fined the pipeline consortium $1
million for clearing too much land, including parts of a protected
nature preserve, and building unauthorized access roads. The companies
Concerns about the project have recently generated
interest on Capitol Hill. Staffers for Sens. Patrick J. Leahy (D-Vt.),
James M. Jeffords (I- Vt.) and Dianne Feinstein (D-Calif.) have met
with representatives of an array of concerned environmental groups,
from the measured World Wildlife Fund to the activist Friends of the
"Even a carefully designed and well-managed project -- which
this, so far, is not -- will cause permanent harm," said Leahy, the
lead Democrat on the committee that gives U.S. funds to the Inter-
American Development Bank and the Export-Import Bank. "If it goes
ahead, far more needs to be done to mitigate the damage." Hunt and
Halliburton declined to comment. A White House spokeswoman said the
decision is up to the two agencies reviewing the loan applications.
The Export-Import Bank, a federal agency, and the Inter-American
Development Bank, a public lender run by the United States and other
countries, are considering as much as $500 million in financing.
Development banks in Europe and South America stand ready to
contribute about $370 million. Spokesmen at Ex-Im Bank and at the
Treasury Department said no final decisions have been made.
"Environmental concerns in all projects funded by the multilateral
institutions are important, and we take them seriously," said Treasury
spokesman Tony Fratto.
The project envisions 21 wells from four drilling platforms over two fields,
heliports, worker camps, sludge pits, and water and waste disposal
A gas-and-liquid separation plant is being built amid the forest. Two
pipelines, 700 and 335 miles long, will cross the Andes before forking
toward Lima and the Paracas National Reserve, Peru's only marine sanctuary.
Ultimately, the sponsors hope to provide natural gas to the West Coast of
the United States through a terminal in Baja California, Mexico,
potentially feeding the lucrative California market. Its backers intend
the project to be one of South America's biggest natural gas export
ventures, rivaling a similar gas export effort in Bolivia.
The resources of the
Lower Urubamba River region, from its famed mahogany trees to
exotic plants used in pesticides, have long attracted outsiders. In
the late 1800s, rubber barons raided the area and enslaved its tribal
people. Yet Camisea today remains as it was then -- mostly
inaccessible, except by river.
In the 1980s, Royal Dutch Shell
prospected for oil in a 5-million-acre area of Peru's Ucayali Basin,
slicing through the rain forest to conduct seismic tests. Poachers
invaded, illegally harvesting trees and importing influenza, whooping
cough and other maladies that killed four out of every 10 people in
some indigenous tribes. Shell geologists found no oil but discovered a
"world class" natural gas field with potential reserves of 13 trillion
cubic feet of gas and 600 million barrels of condensate, a fossil fuel
that includes propane, butane and heavier hydrocarbons used in
Peru's government opposed Shell's plan to remove the gas.
Shell made a new effort in the 1990s, and tribal people objected,
aided by environmental groups such as the tiny California-based Amazon
Watch and the larger OxFam International. Shell tried to placate the
opposition, paying $1 million for the region's first biodiversity
review, conducted by the Smithsonian Institution's Monitoring and
Assessment of Biodiversity Program.
Scientists noted the jungle's
"nearly pristine condition" and its wealth of unique, "unidentified
species." The scientists persuaded Shell not to build roads into the
region and to adopt strict policies against contact with indigenous
people. But, in 1998, antitrust disputes with the government forced
Shell to pull out of the project. Indigenous leaders were elated.
Today, they feel differently. "If we'd only known," said Lelis Rivera,
director of the Center for Development of Amazon Indigenous Peoples,
or CEDIA, "we would, one thousand times over, have preferred Shell."
In 2000, Peru awarded the Camisea extraction concession to a
consortium led by Hunt and Pluspetrol, and separately awarded the
pipeline contract to another consortium including Hunt, Pluspetrol and
five other companies.
The consortia pledged to adopt Shell's social
and environmental programs. President Alejandro Toledo, during a
recent U.S. trip, called the gas project "vital" to the financial
rehabilitation of Peru, which has more than $30 billion in foreign
debt. Officials say it will cut energy costs, replace dirtier fuels,
provide jobs and boost tax revenue. But the government set a 2004
deadline for project completion, and the companies say time pressures
have caused them to cut corners.
"We have challenges, big challenges
-- environmental, social, also timing challenges," said Alejandro
Segret, chief executive of Transportadora de Gas del Peru (TGP), the
pipeline consortium. TGP hired Knight Piesold, a consulting firm, to
monitor environmental compliance. The firm's oversight reports
criticized the consortium for failing to control erosion and for
violating a 50-foot width limit on the pipeline route.
last month said they had hired 600 workers to control erosion that is
leading to landslides. But the consulting firm's latest report says
problems continue; Knight Piesold is now calling for construction to
stop until erosion problems are fixed. Erosion has also affected the
indigenous people, a report said. The pipeline right-of-way slices by
the hamlet of Shimaa, home to 600 people. There, erosion has muddied
streams used by inhabitants for drinking and washing, said Rivera, the
director of CEDIA. Schoolchildren must trudge through the
right-of-way, which turns into a mud pit when it rains.
students blockaded a construction road to protest the lack of clean
drinking water. Supplies were delivered but remain inconsistent,
Rivera said. Some environmental groups have called for an immediate
construction halt. The World Wildlife Fund, which ranks Camisea on its
list of 200 places deserving conservation, contends that "the starting
point of forest destruction" will be the cleared pipeline paths that
will bring "increased deforestation and habitat loss, hunting for
bushmeat and trade and contamination of headwaters."
environmental coalition, including Friends of the Earth and Amazon
Watch, commissioned an independent analysis, which found that the
project would have "irreversible impacts on the biodiversity of this
area and on the indigenous groups." Last month, during a meeting at
the Inter-American Development Bank, conservation groups aired a list
of complaints: workers intruding on isolated tribes; pipeline route
changes without notice or review; erosion muddying rivers; declining
fish and game populations; and at least seven worker deaths.
Environmentalists have also cited the drowning of a 7-year-old
Machiguenga girl who was swept up in the wake of two speeding
Pluspetrol supply boats on the Urubamba River near Kirigueti. "The
project is past the point where it could ever have been brought into
compliance with internationally accepted environmental and
indigenous-peoples standards, including many of the IDB's own minimum
standards," the groups said in a joint statement.
Development Bank's environmental project reviewer, Robert Montgomery,
played down the consortia's mistakes at the meeting. "I don't believe
we can necessarily penalize people in perpetuity," Montgomery said.
"If they have had past bad actions and they are willing to improve, we
have to take that into consideration. We still are working on the
assumption of making this project environmentally and financially
viable." Decisions at the IDB eventually go to a 14-member board that
represents 46 member countries.
The United States and Peru will play
pivotal roles in this particular vote. Representatives of the
government of Peru and the companies involved in the project have met
several times with U.S. officials. U.S government staffers involved in
the reviews said that they have been made aware of the
administration's keen interest in the project, but added that they do
not know to what extent such interest is related to the political
clout of Hunt or Halliburton.
Jon Sohn, international analyst for
Friends of the Earth, said the connections are obvious to project
opponents. "Hunt and Halliburton were involved in their campaign
fundraising, in their transition policies and in Vice President
Cheney's secret energy plan." Last month, Hunt Oil's chief executive,
Ray L. Hunt, toured Camisea with Toledo, said Carlos Garaycochea,
Peru's vice minister of energy.
The U.S. representative to the
Inter-American Development Bank is Bush appointee Jose Forquet, a
Treasury official. Forquet mobilized Hispanic support for Bush's 2000
campaign and was a Bush "Pioneer," an elite donor who raised at least
$100,000. Forquet declined to comment. Separately, at the
Export-Import Bank, where officials are considering a $200 million
project loan, a spokesman declined to answer specific questions.
Philip Merrill, Bush's nominee to run the bank, is another major
Republican donor who is also a friend of Cheney and his wife, Lynne.
Until 2000, Cheney was Halliburton's chief executive. Ray Hunt was
appointed to Halliburton's board with Cheney's backing and still
serves today. Hunt is also a longtime friend of and contributor to
George W. Bush, who named him to the Foreign Intelligence Advisory
Board. Hunt raised money for Bush's father in 1992 and was tapped by
the younger Bush in 2000 to chair the Republican National Committee's
Victory Fund, to which he and his wife gave $20,000.
The Hunts have
donated at least another $460,000 to Republican state campaigns, and
their company, its employees and the spouses of employees have given
more than $1 million to GOP causes since 1995, according to the Center
for Responsive Politics. Hunter Hunt, vice president of Hunt Oil and
Ray Hunt's son, was Bush's "primary Policy Advisor responsible for
energy issues," according to Hunt Oil's Web site. Staff researcher
Alice Crites contributed to this report.