Peruvian presidential candidate Ollanta Humala, a one-time ally of Venezuela’s Hugo Chavez whose late surge in the polls is leading investors to dump the nation’s bonds, said he’d renegotiate energy and mining contracts with foreign companies if he wins next month’s vote.
Humala, who narrowly lost the previous runoff in 2006 to President Alan Garcia, said he favors renegotiating deals with companies such as Hunt Oil Co.’s $4 billion Peru LNG plant and the $1.6 billion Camisea gas fields project to ensure Peru’s industry is supplied ahead of fuel exports.
“We must recover sovereignty over Peru’s natural resources because the multinationals now own our gas and prefer to sell it abroad,” Humala said March 23 in an interview at his hotel while campaigning in the city of Trujillo, 480 kilometers (300 miles) northwest of Lima. “There must be a mining windfall tax as the current model isn’t sustainable.”
Peru’s currency and bonds dropped this week after polls showed the 48-year-old Humala closing in on frontrunner Alejandro Toledo, forcing investors to reassess the threat of a nationalist government taking the reins of South America’s sixth-largest economy. Humala trailed Toledo, a former president, by less than two percentage points in a poll by Lima- based Datum Internacional published today in Peru 21 newspaper.
Stock Exchange Loss
The Lima General Stock Index fell 1.5 percent to 22,218.87 at 2:39 p.m. New York time. Peru’s currency weakened 0.2 percent to 2.7885 soles per U.S. dollar and the yield on its benchmark August 2020 bond increased 12 basis points to 6.720, a nine- month high.
Humala, a former army lieutenant colonel, led 50 soldiers a decade ago who seized and occupied for a week one of Southern Copper Corp. (SCCO)’s mines. He’s surged in the polls ahead of the first round of voting April 10 amid pledges to impose a mining windfall tax and ramp up state control of the country’s natural resources.
The value of mining exports from Peru, the world’s second- largest copper producer and No. 1 in silver, rose 27 percent to $21 billion last year as metals prices surged. A windfall tax may discourage about $40 billion in future investments by companies including Anglo American Plc (AAL), Xstrata Plc (XTA) and Cia. de Minas Buenaventura SA, Peru’s National Society of Mining, Petroleum & Energy has said.
“Raising taxes will mean a series of mining projects won’t happen,” Buenaventura’s Chief Financial Officer Carlos Galvez said today in a telephone interview. “It would provide the government with a few years of financing for social projects and eventually run out for lack of investment.”
Mining companies in Peru, which account for 60 percent of tax income, currently pay up to a 3 percent royalty. Peru’s foreign debt is rated investment grade by Moody’s, Standard & Poors and Fitch Ratings.
“A nationalist government would change the rules of the game and possibly even the terms of existing contracts,” said Enrique Alvarez, head of Latin America fixed-income research at IDEAglobal in New York. “By interfering, you would have a very negative signal sent out to additional foreign investors in these industries.”
Humala is most popular outside the capital. While campaigning in Trujillo, street vendors and grease-smeared mechanics tussled to greet and hug the candidate while chanting his name.
Humala, who lost the 2006 runoff to Garcia by 5 percentage points, seized Southern Copper’s Toquepala mine in 2000 to protest the corruption that beset the government of then- President Alberto Fujimori, who later fled into exile. Humala was pardoned by interim President Valentin Paniagua, who replaced Fujimori, and was sent by Toledo to Paris and Seoul as a military attache.
During this year’s campaign, he started donning a suit and has downplayed his friendship with Chavez, saying he won’t emulate in Peru the Venezuelan leader’s policy of expropriating companies. Humala said he hasn’t visited Caracas since 2006.
“We need a strong state, but we will respect investment and private property,” Humala said. “We’re not going to copy foreign models.”
Humala will find it harder to win a second round runoff, according to Datum, whose poll showed him losing in an eventual showdown with any of four candidates including Toledo and former Finance Minister and banker Pedro Pablo Kuczynski.
Datum’s poll published today surveyed 1,214 people from March 19 to 23 and had a margin of error of 2.8 percentage points.
“PERU LNG has had successful and transparent relations with all of the four administrations that have been chosen by Peruvians in the elections of the past decade,” Peru LNG general manager Igor Salazar said today in an e-mailed response to questions. “We are confident that the next administration will honor the LNG contracts and continue the support of the PERU LNG project.”
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