PRIVATE SECTOR VIEWS OF HUMALA: THE MAN WITH NO

C O N F I D E N T I A L LIMA 001258

SIPDIS

SIPDIS

USTR FOR BHARMAN
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR OASIA/INL
WHA/AND, WHA/EPSC, EB/TPP/BTA

E.O. 12958: DECL: 03/27/2014
TAGS: ETRD ECON EINV PGOV PE
SUBJECT: PRIVATE SECTOR VIEWS OF HUMALA: THE MAN WITH NO
PLAN

REF: A. LIMA 1247


B. LIMA 728

Classified By: Ambassador J. Curtis Struble. Reasons: 1.4 (b/d).


1. (C) Summary: Spanish investors in Peru are taking a
wait-and-see attitude to leading Presidential Candidate
Ollanta Humala, but most believe they can live with what he
might do, according to the Spanish Ambassador. Private
sector representatives in the mining, oil, and gas sectors,
including some Spanish investors, are increasingly concerned
about Humala's comments and hostile attitude toward them.
The Mining, Petroleum, and Gas Society President described
Humala and his technical team as uninformed, incoherent, and
without a clear plan. While some business leaders we
consulted do not believe Humala will nationalize private
companies, he undoubtedly will raise their taxes, royalties
and permit fees. Some U.S. company representatives expect
the investment climate will deteriorate and several planned
investments under consideration could fail to materialize
under a Humala administration. End Summary.

Spanish Firms Confident of Weathering Humala Government
-------------- --------------


2. (C) The Ambassador on March 27 met privately with Spanish
Ambassador Julio Cuesta de Albi to compare notes on
contingencies being taken by the business community in the
event of a Humala electoral victory. According to Cuesta de
Albi, Spanish investors expect a Humala government to
increase the cost of doing business, but most of them believe
they can weather what Humala intends to do. Many of the
Spanish business leaders are reassured by the role of
Humala's vice presidential candidate Gonzalo Garcia,
calculating that the Central Bank Board member is sincerely
interested in maintaining macroeconomic stability and
unlikely to adopt too radical a course.


3. (C) The Spanish Ambassador indicated that Humala is an
untested leader with no business experience, and that Spanish
firms will take a wait-and-see attitude. It remains to be
seen whether Humala would continue to listen to Gonzalo
Garcia or swing in another direction once in office. Another
concern is whether he would give investors adequate
protection when commodity prices drop or rigidly insist on
higher royalties. The Spanish Ambassador had the impression
that a couple of Spanish firms have already opened
backchannel lines of communication to the Humala camp.
(Note: he did not identify them, but we suspect them to be
Telefonica and Repsol. End Note.)


4. (C) Spanish investors in mining are more worried than
other firms, the Spanish Ambassador added. He sees that fear
as justified, inasmuch as Humala's discourse on mining is
tougher, charging that the mines do not generate employment
(except for guards and drivers),export rocks rather than
value-added products, and leave nothing but pollution and a
hole in the ground.

Humala's Team Lacking
--------------


5. (C) The President of the National Society of Mining,
Petroleum, and Power (SNMPE) Carlos del Solar told us on
March 24 about his two meetings with the Humala camp. The
first, a four-on-four, lasted two hours. The meeting
revealed the limited knowledge of Humala's leading advisors,
who had no plan and hold deep prejudices based on a lack of
information. Accompanying Humala were VP candidate Gonzalo
Garcia, businessman and Humala confident Salomon Lerner, and
Teofilo Casas, a former head of ElectroPeru that President
Toledo had fired early in his term. In the second meeting
with Humala's so-called technical team, Casas participated
again with nine others, most of whom were long-ago retired
engineers from PetroPeru.


6. (C) Del Solar described Humala and his team as incoherent,
uninformed and clueless on the key issues of Peru's mining

and other extractive industries. Del Solar expressed
disappointment with Gonzalo Garcia, noting that he expected
more from a Central Bank Board member. Del Solar identified
Casas as an extremist on the mammoth Camisea natural gas
pipeline project, and feared that he would be Humala's choice
as Minister of Energy and Mines. (Note: Carlos Del Solar
also serves as Hunt Oil's top executive in Peru overseeing
Phase II of the Camisea project, which envisions exporting
gas to Mexico and the United States. Nonetheless, he said
Hunt Oil is moving ahead with its plans.)


7. (C) Del Solar highlighted the bizarre exchange on Humala's
nationalization plans. Humala stated that the government
should have a larger share and participation in the
extractive industries. When Del Solar emphasized that the
government receives more than 50 percent of company profits
in taxes and royalties, Humala concluded then that there
should not be a problem. However, before departing, Humala
stated that he hoped there were no traitors in the group;
otherwise they would see them in the trenches, shooting at
each other.

U.S. Companies Worried and Waiting
--------------


8. (C) Among the U.S. energy and oil companies we contacted,
none have requested to meet with Humala. Maple Gas President
Rex Cannon expressed concern to us about Humala's advisors,
who he said appear to be socialists with poor economic
credentials. If Humala were to become President, Maple Gas
hopes to continue to work with the career officials at the
four key government entities on energy issues. Cannon did
not expect Maple Gas to be a likely immediate target because
its operations (petroleum production, refining, and power
generation) have not generated controversy. Cannon said the
firms that should worry are those with high media attention
and a perception of excessive profits, environmental
problems, and social conflicts.


9. (C) Canon cautioned, however, that the firm would consider
the rapid dismissal of GOP agency professionals as a very
negative sign. Any expropriations by the new administration
would also force them to reconsider their options. Despite
the campaign rhetoric, Cannon did not expect Humala to
nationalize an industry right away or outright, or throw out
a company like Camisea pipeline operator TGP. Cannon
expected an Humala administration to impose higher taxes,
permit fees, and royalties. He lamented that projects in the
planning or negotiation stage are particularly vulnerable,
because new permitting requirements could be imposed or even
renegotiation of contracts. Maple Gas has some pending
plans, such as an oil drilling project and an ethanol plant,
both of which may be delayed until the direction of the new
government is more clear.

Comment: Foreshadowing Rough Times Ahead
--------------


10. (C) Humala's threatening rhetoric, uninformed advisors,
and lack of a coherent plan are a dangerous combination.
Mistrust of the private sector runs high, as demonstrated by
Humala's refusal to meet with the head of Peru's largest
confederation of industry associations (CONFIEP). There are
several Humala targets in the business community. For
example, Yanacocha gold mine (majority owned by Denver-based
Newmont) is among the largest income tax contributors in
Peru, and Humala recently singled out the firm for not paying
royalties. If Humala were to win, many in the private sector
expect new hurdles and bureaucratic problems, which will
adversely impact on Peru's investment climate.

STRUBLE