Dispelling uncertainty and overseeing investments in energy, oil & gas and mining, independent regulator Osinergmin strikes a balance between the objectives of the State, those of investors, and those of the users of public services. Jesús Tamayo Pacheco, Chairman of the Board at Osinergmin, provides details of what’s in store for Peru’s energy sector.
Speaking of Peru is speaking about world-class mineral resources, ambitious gas infrastructure projects that have attracted international investors, and an electric potential where non-conventional renewable energies begin to be important. What is the role of Osinergmin in mining, gas and energy in Peru?
We regulate the electricity and natural gas public services. We also supervise and monitor that electric and hydrocarbon companies provide quality services, and that their facilities and operations are conducted in accordance with safety standards, thus safeguarding the welfare of the population.
Additionally, we monitor compliance with security measures in the infrastructure and activities of large and medium-sized mining companies.
Christine Lagarde described Peru's economy as one of the most vibrant in the world, a fact that is reflected in the choice of Lima as the venue for the meetings of the World Bank and IMF. Undoubtedly, an analysis of economic growth cannot leave aside the impact and development of the energy and mining sector. How have you seen the mining and energy sector contribute to the economic performance of Peru?
The country has experienced major economic development, with high rates of growth that have been sustained and accompanied by the energy sector.
New industries have been created, new energy needs, lighting, among others. It is important to point out that in some regions of the country, if the GDP grew by 6%, the energy sector grew by 20%; while in others, there has been a growth of over 10% in the past eight years.
Likewise, Peruvian mining occupies the first places in the world ranking, as Peru is the third largest producer of silver and copper and the seventh of gold.
Mining, like hydrocarbons, is a national priority concern, and this is reflected in the National Energy Plan 2014-2025. What is the main purpose of the National Energy Plan 2014-2025?
The main purpose of the National Energy Plan is to analyze the sectorial policy measures to be implemented and to evaluate how these relate to the basic objectives of having a competitive energy supply, universal access to energy, and the development of projects with minimum environmental impact.
The plan proposes to have a more diversified energy matrix, with a greater participation of renewable energies, especially hydro energy, thereby reducing dependence on hydrocarbons such as diesel, and replacing them with natural gas for vehicular transport.
Osinergmin oversees compliance with the construction of facilities by the agreed deadlines and under the technical and safety standards needed, as well as the quality of services.
The energy demand of the national electricity grid (SEIN) will undergo strong growth in the coming years, due to the economic development of Peru. The country wants to take advantage of a hydraulic potential of 65,000 megawatts, make its power plants more efficient, and enhance the development of non-conventional renewable sources through new tenders. What is Peru's potential for producing renewable energy and what is the role of Osinergmin in attracting foreign investment and providing the best legal framework for it?
Currently, slightly more than half of the country's energy comes from renewable sources: 50% from hydroelectric generation, 3% from non-conventional renewable energy (solar, wind) and the rest is obtained from the thermal generation of natural gas.
Peru has great hydroelectric potential, which we will use to diversify our energy matrix and thus ensure that natural gas is used not only for electricity generation, but as a substitute for imported oil too, which is mainly used for transport. Thus, diversification of the energy matrix will lead us to be less dependent on imported fuel, and it will also lead us to regional interconnection.
I would also like to point out that under the development of renewable energies, Peru will develop a pioneering system of great magnitude.
The Ministry of Energy and Mines has signed a contract with a company that will install 150,000 solar panels in remote areas of the country, where it is very expensive to provide power with conventional power grids.
The company will install, operate and be responsible for this system for 15 years.
We believe that this project will contribute to increasing the penetration rate of the electricity service, because Peru, despite all its economic development, is still among the lowest places on the list of countries giving rural electrical services in Latin America.
We think that with this effort we will take a quantum leap. Osinergmin will be responsible for overseeing the proper functioning of the system of solar panels.
As regards the national electricity plan, how big has the investment of foreign groups been?
We have many foreign companies in the country that have invested in the electricity sector.
Thanks to this, over the last 10 years the installed capacity has doubled, and now we have about 7,500MW of installed capacity in the country.
Especially, recent projects are related to combined cycle gas plants, which are concentrated at about 60km south of Lima, where we have about 3,000MW of natural gas.
The sub-Andean is one of the most prolific hydrocarbon trends in South America. Peru is estimated to reach a total of over 4,000 million boe of proved reserves, in which there is natural gas and liquid natural gas. It is foreseen that the project of the natural gas pipeline in southern Peru will attract a record investment of $4 billion. How is your institution working to provide maturity to a state of exploration that is still insufficient, and what is the potential that makes it attractive for investors? Because there is a remnant of 50 million hectares for new contracts and investment…
The Gas Pipeline in the South of Peru (GSP) is the second major challenge after the Camisea project.
It is important to remember that with the implementation of Camisea, natural gas began to be transported through a pipeline of approximately 729km, which starts in the Amazon basin of the Camisea River, in the department of Cusco, crosses the Andes and reaches the Pacific Ocean.
It is being used in industries, vehicles and homes in Lima, the capital of Peru, and in the department of Ica.
After 10 years into this project we have made about 47% of the country's electricity be produced based on natural gas; at the household level, 250,000 homes use this fuel and 250,000 cars already run on natural gas.
Now we are seeking to serve the south of the country, starting with the Cusco region, where there are deposits of natural gas.
Thus, with the pipeline project in the south of Peru we will provide natural gas to the departments of Cusco, Apurimac, Puno, Arequipa, Tacna and Moquegua.
A pipeline of approximately 1,000km will be built, which works at high altitude, in some places up to 4,000m high, and that will allow us to transport natural gas for home and vehicular consumption and power generation.
Today thermal plants that will produce 1,500MW are already functioning in the south of the country; originally they worked with diesel when there were emergencies, but they are being prepared to use natural gas to approximately 2019.
I consider it important to note that, as part of this project, there are plans to transport natural gas to 10 cities of the high Andean region of Peru. To do this, ProInversión is leading a concession process to hire a concessionaire that will operate the distribution networks of natural gas, allowing its use at the household level.
The GSP will mean a very large contribution to GDP, and to the development of the southern region, as there are the large mineral deposits in that area, the richest mining area of the country, where there are exploration and exploitation projects, and surely large deposits to be discovered.
This agency, apart from providing supervision, is also responsible for the quality of service given to the citizen. How has your regulatory framework been adapted to provide better quality of service to the citizen?
Indeed, as a regulatory body, we seek a balance between the objectives of the State, those of the investors and those of the users of public services, for whom we work.
Constantly we get feedback from the needs of consumers and we improve our standards, ensuring that users get the best service.
As an example, I can mention that three months ago we adopted a rule that allows a reduction in the deadlines for dealing with complaints by both on the part of electricity distribution companies and us.
We have reduced the maximum deadlines from 30 to 10 days in cases of frequent complaints; while for more complex problems, the deadline is still 30 days.
I think this rule is a sample of what we do every day to improve the service we provide the users.
I also want to mention the development of mechanisms to decentralize our activities in order to provide better service to the citizens.
For some years we have had service points for users in all regions of the country; trainings were held there, they received complaints and some paperwork.
Today, from those regional offices, supervision and control activities are deployed, including sanctions. Gradually we are decentralizing more services.
On the other hand, we have come closer to the citizens, signing agreements with district and provincial municipalities of the most remote places of the country.
Giving training to one of its officers, equipment and provision of connectivity to our regional office, we give assistance on-site and we give users information about their rights and duties.
Thus, in 2014 we doubled the number of complaints dealt with in comparison to the previous year because more people are informed about what they can do and how they can be better served by distribution companies.
Our audience is the United States, specifically the enclaves of Washington, New York and South Florida. How does Osinergmin work with U.S. companies whose activities are linked to the sectors that you supervise?
We supervise U.S. companies in all sectors: mining, electricity and renewables. We monitor them so that they, as well as companies from other countries and also Peruvian companies, comply with the law.
We do not have major problems with international companies operating in Peru in the energy sector and mining.
They are responsible for enforcing the rules and protecting the environment, their staff, their facilities, and for checking that all mining activities and production with negative external factors are done in such a way that their effects are minimized and the services are provided with the required quality and competitive prices.
The United States and its companies are leaders worldwide in both mining and hydrocarbons, where components such as innovation and technological investment make a difference. In what areas would you like to find more investment from U.S. companies?
I think there are many fields. For example, we have not yet developed what is called a smart grid, which consists of the use of information technology and communications, combined with energy efficiency.
That allows us, from the demand side, to manage the power supply. I think there is a lot to do in this area, as we are preparing the new regulatory framework that will let us begin with this.
On the other hand, geothermal energy has not been developed in Peru yet.
A potential of 3,000MW is estimated, but it requires high investments to start exploration projects to detect and analyze the capabilities of this energy, as a step prior to exploitation.
The American industry has experience in this field, and it could develop it in Peru.
In the mining sector, I think there are always more modern processes, avoiding the generation of toxic substances through the use of new technologies.
I think there they may also contribute a lot to bringing modern technology to the treatment of minerals and their extraction.
And to conclude, if you were to tell an American investor why they should invest in Peru and not elsewhere in the region, given your knowledge of the rules of Peru, what would you tell them?
We have stable, clear and transparent rules, professional organizations and segregation of duties.
On the one hand, we have a regulatory agency responsible for issuing the great directives, for granting licenses, the Ministry of Energy and Mines; and on the other hand, we have an independent regulatory body with its own resources, which is Osinergmin.
I am convinced that the independence of the regulatory body makes our country a great place for foreign investments, which respect the environment and comply with national regulations and the best international standards.