April 22, 2006 [LINK]

Camisea pipeline

Friday's Washington Post had a background piece on the request by the Hunt Oil Co. to further develop the Camisea natural gas pipeline in Peru. It extends 340 from the Amazon rain forest to the coastal town of Pisco, famous for the drink "Pisco sour." The planned liquefied natural gas export terminal there might pose a major risk to the nearby Paracas wildlife preserve, where millions of shorebirds, flamingos, and even penguins congregate. Hunt seeks $400 million in direct loans and $400 million in subsidized credit from the Inter-American Development Bank. Like the Alaska oil pipeline, one of the issues is how to balance environmental protection against economic necessity. The existing pipeline has leaked several times since the project got underway in 2003. One of the reasons to be wary of the project is that it crosses the department (province) of Ayacucho, the heartland of the Shining Path terrorist movement. For over a decade they specialized in blowing up electrical transmission towers, and if their remnants can get organized, there is no reason to think they would hesitate to make a loud statement by destroying the pipeline.

The second main reason to hesitate is the current political climate in Peru, which is virulently anti-trade. The issue of natural gas exports may not seem very important to us, but it was the main rallying cry of the protesters who overthrew the government of Bolivia almost one year ago. Not surprisingly, radical populist presidential candidate Ollanta Humala has criticized the project. His opinion doesn't count for much with me, but I am very skeptical about development projects in the Third World that require public sector financial subsidies. For many years, the World Bank has made loans for mega-projects that did great ecological damage, such as the big dam on the São Francisco River in northeastern Brazil. In my mind, the involvement of multilateral lending institutions for this sort of controversial project should be limited to mitigating the financial risk, through some sort of a limited loan guarantee mechanism. If a stronger consensus in favor of the project emerges in Peru over the next few years, that would be a reason for the IADB to take a more active role in it.