Though Peru’s energy investment opportunities are most commonly linked to the country’s mining industry – Peru is one of the world’s largest producers of copper, gold and silver – new opportunities for investment, involving resources such as natural gas and hydroelectric power, are becoming increasingly important in the country’s economic landscape.

“The investment climate in Peru is very positive,” says Javier García Burgos Benfield, the general manager of Kallpa Generación, a branch of Israel’s IC Power. “The openness to foreign investment in Peru is much higher than in some other countries we operate in. After some terrible years in the late 1980s, [Peru’s politicians] – regardless of what they say in their campaign – realised that there is only one way [to facilitate investment], and fortunately they’ve been intelligent enough to maintain that.”


Big hitters

IC Power started its activities in Peru in 2007 with its first natural gas turbine and, since 2009, has invested about $2bn, including almost $1bn in a hydro project in central Peru. Last year it made an investment in Nodo Energético del Sur del Perú, a $400m project to construct and operate an electric generation hub in the south of the country. As part of the project, IC Power is constructing a plant in the town of Mollendo while local generator company EnerSur will construct a plant in the city of Moquegua.

An even larger project, Gasoducto Sur Peruano, is under way to construct a giant gas pipeline, starting in the Amazon jungle, spanning the Andes and ending at Peru's southern coast. The project is scheduled to be completed at a cost of $4bn.

“Peru has a very stable legal regulatory framework, it's a growing economy and demand for electricity has been growing every year for the past 20 years,” says the country's minister of energy and mines, Eleodoro Mayorga. “This is a country that has abundant gas, abundant hydro [power], and therefore there is opportunity.”

Mr Mayorga’s words appear to be borne out by the plans for the Amazon’s Camisea gas fields, which were first discovered in 1986, and where production is slated to be expanded in the coming years. Such expansion comes at the same time as environmental regulations are likely to be scaled back in a bid to stimulate Peru's economy, which, after years of continuous growth, has slowed in the past year.

Rising tensions

These advances do not come without risks. The development of Peru’s natural resources has, at times, been met with protests from local communities who remain unconvinced of the long-term value of such projects. Protests have, on occasion, turned violent and the country's security services have responded in an equally heavy-handed manner. 

Early on in the term of Peru’s current president, Ollanta Humala, cabinet chief Salomón Lerner resigned, citing failings to ease tensions between protesters and police in Peru’s northern Cajamarca region as one of the reasons for his decision.

Police and protestors clashed in Cajamarca over proposals by US-based Newmont Mining Corporation and local firm Buenaventura to exploit local gold reserves. The dispute eventually lead to the suspension of the project, and the arrest of the most vocal leader of the protests, Gregorio Santos.

“There are challenges on the physical side that can be solved through engineering, so there's always a solution, it's just a question of price,” says Mr Benfield. “Then there are the other type of problems, especially the social problem, which are more unpredictable and [can have] more volatile consequences.”

Stepping up its game

A global drop in prices has hit Peru's mining exports recently, but the sector is still seeing significant activity and investor interest. China, in particular, has been an extraordinarily active investor in Peru, with the MMG subsidiary of China Minmetals purchasing copper mine development project Las Bambas from Anglo–Swiss multinational Glencore for $7bn in July 2014. With projects in the country approaching an aggregate $20bn, China looks set to help Peru regain its status as the world’s second largest copper exporter

One of Peru’s chief competitors for energy investment comes from Mexico, where the government of president Enrique Pena Nieto recently passed a bill that will allow foreign investment in the country's oil and natural gas industry for the first time in 75 years.

Some in Peru appear to understand the need for the country to up its game in this new atmosphere of competition and make investments not only financially attractive but also easier to access, a double asset in a country where many regions still remain relatively remote.

“In the coming years, we are looking at the possibility of further developing petrochemicals and natural gas… But we are also working to improve the infrastructure of the country,” says Carlos Herrera, the executive direct of Peru’s Private Investment Promotion Agency.

Whether or not Mr Humala, who has two years left of his current presidential term, is able to transform Peru’s energy sector beyond mining, thus diversifying the country’s economy and making it less susceptible to the vagaries of the mining market, is one of the most important questions Peru must answer in the coming years.