Peru Investigating Irregularities in Bids Awarded to China National Petroleum Company
On June 18, the Peruvian Congress announced that it had identified several “grave” irregularities in the hiring of a subsidiary of China National Petroleum Corporation (CNPC), BGP Worldwide, by the country’s state-owned oil firm Perupetro. The Peruvian company hired BGP Worldwide to work on a series of geophysical studies valued at over $2.4 million. The Peruvian Congress has requested the Oversight Committee to conduct a thorough investigation into the matter.
Perupetro hired BGP Worldwide to study the hydrocarbon potential of the Madre de Dios basin, in southeastern Peru. The study, which is to take no more than 200 days, is to cover the areas of Huepetuhe in Madre de Dios, as well as Camanti in Cusco, both of which lie within the Peruvian Amazon.
The concern from the Peruvian Congress appears to be centered on favorable treatment the Chinese company appears to have received in the bidding process.
- According to Peruvian lawmakers, the adjudication was completed in just 48 minutes after the tender was published on December 24, 2019. Moreover, the bid process only included only one other firm, the Colombia-based Geofields SAS, which was disqualified on the basis of “insufficient experience.”
- Top-level executives’ employment histories in CNPC were also a focus of the initial inquiry into the award. During a meeting of the Commission of Energy and Mines, the president of Perupetro, Seferino Yesquen Leon, confirmed that both he, as well as the technical manager which required the contract in question, previously worked at CNPC.
Albeit not a focus of China’s activities in Peru, the Peruvian hydrocarbons sector has nonetheless been a subject of interest to CNPC, which acquired Petrobras’s Peruvian assets in 2013 and is active in the country via a number of subsidiaries. In September 2017, CNPC and its subsidiary South-America Petroleum Exploration Technology Company (SAPET) carried out new drilling works in development wells on the north coast of Peru.
The investigation of the Madre de Dios studies comes at a critical time for the Peruvian oil sector and CNPC’s position in it. News broke in mid-June that Perupetro will not seek to negotiate an extension on eight major oil-producing blocks, and instead will put these blocks up for international auction. Together, the eight blocks produce 60% of the country’s oil. Notably, CNPC, which has operational licenses for three of these blocks, is to be the only company exempt from Perupetro’s new non-renewal policy, and was expected to be in a strong position to acquire the remaining blocks by the time of the auction in July of this year.
Although Peru, the seventh-largest crude oil reserve holder in Central and South America, has sought to increase its oil and gas production for years, neither of these are yet a significant source of economic activity for Peru. As of 2017, refined oil and petroleum gases represented 5.27% ($2.57 billion) and 1.93% ($943 million) of Peru’s exports by value. That year, Peru’s refined oil exports were directed mainly at Panama (31.34%) and the United States (29.13%), as well as Brazil (17.12%). Over half of its natural gas exports were directed at Spain (58.19%).
It is foreseeable that the auction’s postponement due to COVID, and the Madre de Dios investigation, could have a negative impact on CNPC’s standing in Peru.