Gas, mining-rich Peru shifts right in elections

OREANDA-NEWS. April 12, 2016. Voters in gas and minerals-rich Peru shifted to the political right in elections yesterday, choosing two market-friendly candidates who will compete in a 5 June run-off.

Former congresswoman Keiko Fujimori pulled in the most votes, with 39.5pc in the latest official tally. Pedro Pablo Kuczynski (PPK), a former finance minister and a favorite of the foreign business community, took 24pc.

Markets quieted significantly with the results, after left-wing candidate Ver?nika Mendoza received just 18.7pc of the vote.

"A Fujimori-PPK runoff is widely regarded as the market's preferred outcome, with both candidates pledging to maintain pro-business policies, unlike Mendoza, whose populist rhetoric and recent surge in the polls had generated market anxiety. With policy uncertainty out of the way, we believe a relief rally is likely to boost Peruvian assets in the near term," JPMorgan said.

Prior to yesterday?s election, polls for the hypothetical run-off had PPK and Mendoza in a statistical tie, but PPK beating Fujimori. The two top candidates now have to reboot their campaign, with both pledging on election night to focus on policy debates.

The new president will replace center-left Ollanta Humala, who is constitutionally barred from seeking another consecutive five-year term.

Fujimori won in 16 of Peru's 26 regions or states, while PPK carried just one. Mendoza carried seven regions in the south, while Gregorio Santos won his home region, Cajamarca, and 4pc nationally. Santos, a far-left candidate, was Cajamarca governor until June 2014 when he was arrested on corruption charges. He has not been sentenced so was able to compete, the first candidate in Peru's history to run from prison.

Preliminary vote counts give Fujimori's party 68 seats in the 130-member unicameral congress, providing her with a simple majority. PPK's and Mendoza's parties will have 20 seats each, with the rest shared by three smaller parties.

The battle going forward will focus on some of the country's resource-rich regions, including Cusco, where the Camisea gas reserves are located, and Apur?mac, site of the massive \\$10bn Las Bambas copper project. Mendoza carried those regions with nearly 50pc in each. Cajamarca, where Santos won more than 40pc, hosts the stalled \\$5bn Minas Conga copper mine.

Mendoza ran on a platform pledging greater state control of natural resources. She pledged to renegotiate contracts for Camisea's block 88, used for domestic consumption, and block 56, used for 4.4m t/yr Peru LNG, South America?s only major liquefaction plant.

Mendoza and Santos promised to give communities the right to veto extractive projects, with Santos arguing against additional mining in his region.

The final weeks of the campaign saw movement by the leading candidates toward these policies. PPK moved the farthest, stating at a 5 April closing rally that he too would renegotiate the Camisea gas contract. "We are going to renegotiate. I have the guts to do it. Peruvian gas for Peruvians," he said.

Fujimori said she is not in favor of re-opening contracts, but offered to find ways to build new gas distribution networks so that Peruvian households have access to gas. She has a different approach to mining, with her government plan calling for mining companies to include communities as shareholders.

The top finishers issued vague promises to revive struggling state-owned oil company PetroPeru. The company was forced to close the northern oil pipeline after two ruptures in February. The line might not re-start until June or July. The move has forced Canada's Pacific Stratus Energy to invoke its force majeure clause and shut down wells on formerly prolific block 192. It has not produced oil in six weeks.

National oil output from 25 blocks was 39,900 b/d in March, down 40pc from the same period last year, according to the oil and gas investment agency PeruPetro.

PetroPeru is also hoping to implement a long-planned \\$3.5bn upgrade of its 65,000 b/d Talara refinery. The project was approved in December 2013, but the company has yet to secure financing.

Fujimori and PPK have pledged to reorganize PetroPeru, but their government plans do not go into specifics about the company's future or the Talara upgrade, which would increase output to 95,000 b/d and allow PetroPeru to meet fuel quality laws. Legislation requires diesel to have 50ppm of sulfur, but Talara is producing diesel with 2,500ppm.