Lima defends decision to suspend Tullow contracts

Peru's government is seeking to reassure investors that a decision not to ratify contracts for five offshore oil blocks with Ireland's Tullow Oil is a temporary move that will not affect the broader industry.

The energy ministry announced on 26 May that it would begin a round of meetings this week with hydrocarbon companies to explain the reasoning behind its move.

The government on 23 May published legislation reversing a decision from two months ago giving hydrocarbons agency PeruPetro the green light to sign contracts for the blocks, which cover more than 2.3mn hectares off the northern coast.

The blocks have been embroiled in politics from the start. The original decree approving the contracts was signed 21 March by then-president Pedro Pablo Kuczynski on the same day he resigned to avoid an impeachment hearing in a corruption scandal.

The ministry defends the decision, which energy and mines minister Francisco Ismodes said is only temporary, arguing that it will resolve doubts in coastal fishing communities and have a long-term positive impact for the industry.

"What we are doing is taking a step back so that we can move forward. If we did not resolve the questions about this process we would be looking at a social conflict that would paralyze any work," Ismodes told Argus on 24 May in his first interview with a foreign media outlet since taking office in April.

While recognizing the political implications of Kuczynski's eleventh-hour approval, the minister said the reason for the new decision was to correct a faulty citizen participation process used by PeruPetro to award the blocks.

"This is not about Tullow, but having PeruPetro to do a better job. We are basically saying to Tullow, ‘wait while PeruPetro does what it should have done.' We need to address misinformation and a lack of information," he said. "When you do not provide information, you help feed fears."

The ministry is already dealing with social protests that have stopped work at seven of 44 existing exploration and production blocks.

Ismodes said the ministry is talking with Tullow, which has said it is "deeply disappointed" by the decision. Two hydrocarbons industry groups in Peru have also been critical.

The government has given 120 days to PeruPetro to come up with a new process for addressing concerns from communities about hydrocarbon activities.

Ismodes said that in the meantime his office will work with the production ministry, which oversees fishing, to address other concerns in fishing communities.

"I have talked to fishermen and they have complaints, which are justified, that they do not benefit from investment. Piers used by small-scale fishermen are in bad shape and coastal communities lack basic services, like water and sewage. We need to address these problems," he said.

The ministry also has to contend with a potential decision by the country's 130-member unicameral congress to void the upstream contracts. Seven bills – two submitted this week – to annul the contracts are currently before the congressional energy commission. One of the bills, submitted by the left-wing Nuevo Peru caucus in April, would not only void agreements with Tullow but also three contracts signed with US firm Anadarko in October.

Ismodes said he hoped legislators would reconsider. "These bills are not in line with what we are trying to do. We want to improve the process and address the concerns of communities. The legislation proposed would resolve the underlying problems," he said.

The minister said he would prefer that the congress finish work on a new general hydrocarbons law that could incorporate changes legislators have raised about the five blocks.