Interview with Francisco Ísmodes, Peru’s Minister of Energy and Mines

LatAm Investor: What have you done to improve the environment for investors?

Minister Ísmodes: Since becoming Minister for Energy and Mines 14 months ago I have focused on strengthening the sustainability and competitiveness of the mining and energy sector, which are the critical aspects when investors are evaluating a new project.

Boosting mining and energy investment is a key priority for this government. Our early success in this field is demonstrated by the Fraser Institute, which ranks us as the 14th-best mining jurisdiction in the world. That’s a big improvement from 2017, when we were ranked 19th out of 83, but our goal is to get into the top ten by 2021.

The Fraser Institute evaluates two aspects of a mining jurisdiction: the geology and the regulatory landscape. In the former we have an enviable situation, while in the second we are working to improve our competitiveness. To foster a better business environment in the sector we have developed a range of initiatives. We are trying to streamline the bureaucratic permit process. So, we’ve developed new mining regulation that should come into effect later on this year. Likewise, in energy we have developed new environmental rules for gas distribution and for electricity subcontractors.

We are using the latest technology to cut through bureaucracy with our Single Digital Window, that allows extractive companies to apply for permissions and monitor their progress online. We’re also using old-fashioned dialogue, with the Mining and Energy Executive Roundtable that was set up last year. The idea is for mining, hydrocarbon and electricity investors to highlight existing problems in the business environment and come up with suggestions about how they could be solved.

Finally, we also realise that it’s not just a question of better regulations – we also need to improve the performance of the Ministry of Energy and Mines. We need to be more agile at enacting policy, attracting the best human talent and properly monitoring mining and energy projects to ensure that they are delivering the economic growth and social development that the country deserves.

LatAm Investor: Mining investors complain of Peru’s excessive bureaucracy; how are you cutting red tape?      

MI: We know that the industry is frustrated with the waiting times for paperwork, permits and approvals. We’re aware that this is an ongoing challenge and are confident that some of the measures I explained earlier will help reduce bureaucracy. We want investors to see us a strategic partner, not part of the problem. That’s why we are developing the Single Digital Window. The idea is to integrate the different procedural requirements so that investors don’t have to chase lots of different permits with many different agencies and ministries.

LatAm Investor: Las Bambas was blockaded by protesters; why does the government not defend the rule of law in mining protests?

MI: The Last Bambas copper mine began commercial operation in 2016 and since then has confronted various social conflicts that unfortunately couldn’t be solved. The project simply doesn’t have a harmonious relationship with the communities living along the road where the mine transports its output to the port. So the government decided to get involved and resolve the underlying issues once and for all. To do that, we have strengthened the mechanisms for dialogue, as that is how we exercise rule of law and promote sustainable mining. Various state ministers travelled to the area to work with the communities on a strategy for developing Apurímac. We will keep working on the points agreed with Fuerabamba and the other communities in Challhuahuacho, Apurímac, Chumbivilcas and Cusco.

The project simply doesn’t have a harmonious relationship with the communities…

Nowadays we don’t need states of emergency to guarantee the operation of the mine, nor to maintain social order. And that has been made possible by dialogue. Despite the difficult moments during the conversation, the government assumed its responsibility and resolved the conflict, which represents a guarantee both for investors and the communities that live around mining projects.

LatAm Investor: Analysts expect an electricity price crunch in Peru in 2022; will it happen?

MI: I must point out to your readers that electricity prices in Peru, both for industrial and residential clients, are among the lowest in Latin America. We have enough offer to supply the growing demand in coming years.

Looking forward, we are working on a new regulatory framework that will fortify the electricity system, promoting more competitive investment. The key element is planning, which is why we are now identifying and kickstarting the projects that will supply demand over the next 20 years. Indeed, we are creating an Energy Planning Office, that will look at medium and long-term power generation projects that can meet demand and protect the environment.

As for the ‘price crunch’, the critical area is the south of the country. So, we are trying to speed up the construction of a gas pipeline that will supply the southern regions. That gas will be used directly by consumers but also to power generation plants. The Southern Gas Pipeline should arrive in the city of Ilo by 2024, so we are also working on a temporary plan that will alleviate any energy needs before the pipeline is built.

LatAm Investor: Around $25billion of mining projects are stalled in Peru; what can you do to ‘unblock’ them?

MI: We are analysing all of the projects that have arrived at the pre-execution stage and it’s clear that some have a more favourable social environment than others. This year we expect three new projects to begin: Tía María, Corani and the expansion of Santa María. Together they represent an investment of just over $2billion.

In total, in 2019 we expect an annual investment of more than $6billion in the mining sector. Money that translates to important revenues for the State and the mining regions. It’s also a big increase on the $4.9billion that we received in 2017.

The portfolio of ready to build mining projects is worth around $58billion and our commitment is that by 2021 we will have $21billion of these already underway. Ultimately unblocking projects happens when you strengthen the competitiveness and sustainability of the industry – a process that takes time.

Peru is one of the most attractive destinations for junior miners and we are trying to boost exploration even further.  Between now and 2021 we have 56 projects, for more than $540million of investment. So far this year, we’ve already received 24 Environmental Management applications for new projects. Moreover, there are plenty that already have approvals but were on standby waiting for prices to improve, which has happened now. The mining sector has recovered its dynamism and we’re not going to let it lose its way.

LatAm Investor: Explain to our readers why Peru is attractive to mining investors?

MI: Being in the top 15 for the Fraser Institute rankings shows that we have exciting geology and fair regulations. But we will keep working to improve the regulatory environment, which will persuade more international companies to invest here.

The investment opportunities can be found up and down the country. Mining takes place in just 1.2% of Peru’s national territory, so there remains an enormous potential for further discoveries. We are a polymetallic country that offers a range of opportunities for every type of producer. For example, we recently made an important lithium discovery in the south of the country and we are now working on a special lithium regulatory framework.

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