LEGAL FRAMEWORK FOR LNG ACTIVITIES IN PERU

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 19D
LEGAL FRAMEWORK FOR LNG ACTIVITIES IN PERU
Maria Julia Aybar
Peru LNG
Lima, Perú

Maria Julia Aybar is the Legal Manager of PERU LNG S.R.L., a Peruvian company that is developing the first LNG project in Peru. She studied law at the Pontificia Universidad Católica del Peru. She began her professional carrier working at Perupetro, the public company in Peru in charge of the negotiation and administration of hydrocarbons exploration and exploitation contracts. She participated in the negotiation of the first contract signed by the Peruvian Company for the development of natural gas in the Camisea field in Peru. She then continued her career in the private sector with the Muniz Law Firm, working with various hydrocarbon companies such as Occidental, El Paso Energy, Hunt Oil, Chevron, Repsol, Pluspetrol, and others in the different phases of the hydrocarbon industry. She participated in the development of Camisea, the most important hydrocarbon project in Peru, including the exploitation, transport and distribution phase of the project. She also participated in drafting the new regulations of the Peruvian Organic Hydrocarbon Law. With more than ten years of experience in the oil and gas industry, she joined PERU LNG and now oversees all the legal matters related to its projects. Her broad knowledge of upstream (negotiation of oil contracts, exploration, and production activities) and downstream activities (sale, transportation, distribution, refining, and processing of hydrocarbons) have allowed her to participate as a teacher for various courses for the public and private entities, including the Peruvian Tax Administration, OSINERGMIN (Peruvian control entity in hydrocarbon activities), Universidad Nacional Mayor de San Marcos, Universidad de Ciencias Aplicadas, among others.

GENERAL REFERENCE TO THE CAMISEA PROJECT AS BACKGROUND OF THE LNG PROJECT

In the year 2000, at the end of a bidding process, the Peruvian Government granted three phases for the development of the Camisea Project (natural gas reservoir --Block 88- located in Cuzco, Peru). Those three phases consisted on the following:

1. Exploitation of the Camisea field, for the production of natural gas together with associated liquids, process of natural gas and liquids and production of liquids related products.

2. Transportation of the natural gas and liquids from Camisea field to Lima (natural gas) and Pisco (liquids).

3. Distribution of the natural gas in Lima department for industries and local consumers.

The referred activities were granted to private investors under the legal regime established in the Law 27133. According to said legal regime the exploitation activities are regulated under a License Contract and the transportation and distribution activities under BOOT Concession Contracts.

According to the terms of the License Contract, the producer acquired the property of the hydrocarbons exploited and some guaranties and benefits granted by the Government, as well as the obligation to make some investments and to pay a royalty to the Peruvian State for the hydrocarbons exploited. Such License Contract also included some provisions regarding the possibility of developing LNG, gas to liquids or petrochemical projects.

In the case of the BOOT Transportation Concession Contracts, the concessionaire acquired the property of the transportation systems, the right to collect a regulated tariff for the transportation service and some guaranties and benefits granted by the Government, as well as the obligation to build the transportation systems with a determined capacity for transporting Natural Gas and Liquids (the capacity was designed based on a possible future local demand).

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Both Contracts (License Contract and Natural Gas BOOT Contract) were linked to the exploitation of the Block 88 Camisea reservoir. In that sense all the production obtained from the Block 88 would have to be transported by the natural gas transportation system to be built by the concessionaire and such transportation system would only be used to transport the Block 88 natural gas.

Finally in the BOOT Distribution Concession Contract, the concessionaire acquired the property of the distribution systems, the right to collect a regulated tariff for the distribution service and some guaranties and benefits granted by the Government, as well as the obligation to build a distribution system in the Lima department with a determined number of consumers connected to it.

ISSUANCE OF THE LAW 28176 (LNG PROCESSING PLANT LAW)

When the Camisea project was granted, it was expected that the producer would develop related activities as LNG projects, because as we have mentioned in clause 8.6 of the License Contract it was established the following:

" In case the Contractor¹ decides to develop especial projects related to LNG plants (LNG), Gas to liquids (GTL) or petrochemical installations, the Parties will perform its best efforts to negotiate royalty regimes for such projects"

However, in fact the possibility of developing a LNG project was not leaded by the producer of the License Contract, so its development...