Leadership and Democracy LabWestern Social Science

The Impact of Energy Accidents on Peruvian Energy Resource Investment

Sydney Scott: Primary Article Contributor and Analyst following Peru

Bethany Hernandez Mayorga: Primary Article Contributor and Analyst following Peru

Sharvil Medhekar: Article Researcher following Peru 

Mehek Noorani: Article Researcher following Peru 

Marshall Dupuy: Article Researcher following Peru

Roann Enriquez: Article Researcher following Peru 

Alexa Bran: Article Researcher, Editor and Team Leader following Peru

Key words: energy resource, oil spill, energy accident, amazon, Peru, environment, pipeline, Petroperú, Pluspetrol,

Many regions of Peru are vulnerable to energy accidents, including oil spills and natural gas, coal, and hydropower accidents. Energy accidents can put Peru’s rich diverse ecosystem, which currently provides 20% of the world oxygen supply, in danger. Most notably, state-sponsored Petroperú has been responsible for recurring incidents involving their 40-year-old North Peruvian Pipeline. In January and February 2016, the pipeline burst and spilled 3,00 barrels of crude oil into the Peruvian Amazon. The spill created heavy water pollution in the Chiriaco and Morona rivers in Northwestern Peru, which serves as the water source for 8 indigenous communities.

Dangers associated with water pollution prompted the Ministry of Health to declare a water quality emergency in the Amazonas and Loreto regions. As a result of the oil contamination, individuals are developing stomach aches and skin rashes after coming into contact with the contaminated water source. A compound found in the river, polycyclic aromatic hydrocarbon, is classified as a human carcinogen by the U.S. Centre for Disease Control and Prevention.

On June 30th, the Peruvian government dismissed the head of Petroperú, German Velasquez, and fined the state-owned energy company $3.5 million for its fourth spill of the year. Further to this, Peruvian Prime Minister Fernando Zavala announced on August 31st that the executive branch would seek special legislative powers to restructure Petroperú. This announcement was met with opposition condemning the legislation as an effort to privatize the company. Finally, on November 1st, 2016, the pipeline was shut down.

Currently, the Peruvian government does not have laws governing oil spills or any other man-made environmental disasters. As such, all penalties regarding energy accidents are sanctioned by interest groups operating independently from the government. This adds an extra layer of complexity to any energy accidents, as it involves a third party with its own agenda. The prominent agencies include the Supervisory Agency of the Investment in Energy and Mining of Peru (OSINERGMIN), and the Agency for Environmental Assessment and Enforcement (OEFA).  

Many local inhabitants feel that the government is simply not doing enough. In particular, Peru’s indigenous communities are mobilizing to denounce oil pollution and to demand proper clean-up and reparations. Protesters’ most recent demands include the replacement of the deteriorated pipeline, remediation of 40 years’ worth of oil pollution in the Amazon, compensation for damages, and environmental monitoring laws. These groups claim that the Peruvian government is in violation of a number of treaties and conventions, which stipulate that the government must consult local indigenous communities and any peoples concerned before pursuing such a project.

While indigenous communities have title to some of the land in the Peruvian Amazon (where most oil projects are carried out), the State has title to all below-ground natural resources, including oil and gas. These legalities create a context for ongoing conflict between the government and indigenous groups. In response, Peruvian government officials announced that an official delegation will meet with Indigenous demonstrators (approximately 2000 individuals) of the blockade.

It is clear from these examples that energy accidents can have direct adverse effects on energy resource investment. Mismanagement of pipelines can result in spills that not only force government intervention into companies, but also taint the image of the company. Government interference into the inner workings of a company can have negative effects on the efficacy of the company. Negative media attention can also harm the willingness of investors, as well as prompting legal restrictions on energy resource investment. In conclusion, energy accidents are highly politically risky problems that can result in the deterioration of a suitable investment climate.