Petroperú: Congress promotes law so that private oil companies pay less royalties

Petroperú expressed its disagreement with the PL No. 804/2021-CRpromoted by Congressman Carlos Alva of Popular Action, which seeks to modify articles of the Organic Hydrocarbons Law and extend, “against the interests of the population”, contractual ties without prior competition.

Through a document, Petroperú clarified its corporate position regarding the retroactive bill and described an attempt to give it another decade of contract and extend hydrocarbon exploitation agreements in the country from 30 to 40 years. It is worth specifying that, from October 2023 to May 2028, there are six lot contracts to expire located in Talara.

“When the opinion adds that the exploitation phase may be extended for successive periods of 20 years each time, up to the economic limit of the Contract Area, what it is saying is that private exploitation contracts may last until the resource extracted from the ground run out,” he sent.

In other words, the agreements have a duration as long as that of the concessions, “with the difference that the concessions are reviewable by the State according to performance,” explained Petroperú. On the other hand, these private (license) contracts are intangible under the current Constitution and cannot be reviewed by the State, except when they end.

“Actually, what you are proposing is to grant a regime of almost perpetuity to private contractors on hydrocarbons for the duration of the resource, which has no precedent in Peru or in any foreign democratic legislation”, refuted the oil company.

“It becomes a kind of expropriation in reverse in favor of the private sector, which could remain in control of the resource indefinitely,” he added.

For this reason, Petroperú questioned that, if Congress seeks to “homologate” the contracts, an inverse mechanism could be considered under the criterion of the most favorable condition for the nation: homologate, for example, in 30 years or seek an intermediate point to all hydrocarbons that could be 35 years, as it was before.

Congress coerces with lobbies

At the international level, the trend is for contractors “to require more exploitation terms to be able to recover the risk investments” made during the exploration phase “is of a lobbyist hue,” Petroperú assured.

“It is known that at an international level, large contractors press to create the feeling that the ‘trend’ is to give greater privileges to contractors. The governments that fall into the game lose”, the document underlined.

On the other hand, Petroperú maintained that those governments that enforce the sovereignty of the State “improve income for their countries”, as well as the population’s access to “resources at affordable prices”. In this sense, he added, the argument that, if they are not given renewal guarantees, the contractors have no incentives to invest and oil production will decline “has private duress features”.

“If the contractors want their contracts to be renewed, they should strive to show investment results and benefits for the country, and not wait for the laws to continue giving them special privileges,” he specified.

Less royalties for exploiting oil

The second final complementary provision of the PL No. 804/2021-CR deals with Petroperú’s participation in the renegotiated contracts. In the original bill, there was talk of 25% participation of the state company in the shareholding.

However, the opinion now proposes that, within “five business days following the date of signing the new contract”, the contractor must propose to the Petroperú company its incorporation into the contract as a participating partner, according to the percentages of participation that remember”.

The state oil company believed that its participation would be left to negotiation with the companies, and it would also be as a “participant partner”, not as a majority shareholder. In other words, while the initiative reassures private contractors, their participation “remains uncertain and in a subordinate condition.”

“It will be convenient for private contractors to have Petroperú as a minority partner because With this, the payment of royalties that they make, which is currently 25% on average, would drop to 5%, in accordance with Supreme Decree No. 017-2003-EM. In this extreme, the opinion is equally harmful to the interests of the country”, he denounced.