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Bush donors pursue gas pipeline in Peru

Two Texas energy companies, both closely tied to the Bush White House, are lining up administration support for nearly $900-million in public financing for a Peruvian natural gas project that will cut through one of the world's pristine tropical rain forests.

A top priority of Peruvian officials, who see it as key to energy independence, the Camisea project has encountered fierce opposition. Worldwide environmental groups and some members of Congress argue that the massive extraction and pipeline project will destroy the rain forest and the lifestyle of its indigenous people.

The project backers' quest for financial support from U.S. development banks will test the political pull of the Texas companies, Hunt Oil Co. and Halliburton Co., which have longstanding ties to the Bush-Cheney administration and the Republican Party. Next month, Hunt vice president Steve Suellentrop will accompany Commerce Secretary Don Evans on a trade mission to Peru, where President Bush traveled in March to promote Andean trade.

An international consortia, led by Dallas-based Hunt, Argentina's Pluspetrol and Peru's Tecgas, began work earlier this year on the $1.6-billion project in the southeastern part of Peru's Amazon basin. Hunt brought in Halliburton's Kellogg Brown & Root unit to engineer a proposed next phase, a $1-billion plant from which Hunt hopes to export liquid natural gas to the United States by 2006.

The controversy surrounding the project highlights the conflict between Bush's energy policy, which advocates mining fossil fuels globally, and U.S. environmental safeguards, which detractors say the administration plays down. Government spokesmen say that no decisions have been made on public financing and that a careful review is under way.

Under federal regulations, projects receiving backing from the Export-Import Bank of the United States and the Inter-American Development Bank must pass rigorous reviews to ensure that they will not threaten rare natural habitats.

But, according to the Washington Post, officials reviewing the Camisea loan applications, who asked not to be identified, say the project is proceeding despite warnings that it may run afoul of international environmental standards. Independent reviews commissioned by project developers have also noted problems, including fuel spills, unauthorized pipeline route diversions and destructive erosion and landslides.

This month, Peru's energy ministry fined the pipeline consortium $1-million for clearing too much land, including parts of a protected nature preserve, and building unauthorized access roads. The companies have appealed.

Concerns about the project have recently generated interest on Capitol Hill. Staffers for Sens. Patrick Leahy, D-Vt., James Jeffords, I-Vt., and Dianne Feinstein, D-Calif., have met with representatives of an array of concerned environmental groups, from the measured World Wildlife Fund to the activist Friends of the Earth.

"Even a carefully designed and well-managed project _ which this, so far, is not _ will cause permanent harm," said Leahy, the lead Democrat on the committee that gives U.S. funds to the Inter-American Development Bank and the Export-Import Bank. "If it goes ahead, far more needs to be done to mitigate the damage."

Hunt and Halliburton declined to comment. A White House spokeswoman said the decision is up to the two agencies reviewing the loan applications.

The Export-Import Bank, a federal agency, and the Inter-American Development Bank, a public lender run by the United States and other countries, are considering as much as $500-million in financing. Development banks in Europe and South America are ready to give about $370-million.

Spokesmen at Ex-Im Bank and at the Treasury Department said no final decisions have been made. "Environmental concerns in all projects funded by the multilateral institutions are important, and we take them seriously," said Treasury Department spokesman Tony Fratto.

The project envisions 21 wells from four drilling platforms over two fields, heliports, worker camps, sludge pits and water and waste disposal facilities. A gas-and-liquid separation plant is being built in the forest. Two pipelines, 700 and 335 miles long, will cross the Andes then fork toward Lima and the Paracas National Reserve, Peru's only marine sanctuary.

The sponsors hope to provide natural gas to the West Coast of the United States through a terminal in Baja California, Mexico, potentially feeding the lucrative California market. Its backers intend the project to be one of South America's biggest natural gas export ventures, rivaling a similar gas export effort in Bolivia.

The resources of the Lower Urubamba River region, from its famed mahogany trees to exotic plants used in pesticides, have long attracted outsiders. In the late 1800s, rubber barons raided the area and enslaved its tribal people. Yet Camisea today remains as it was then _ mostly inaccessible, except by river.

In the 1980s, Royal Dutch Shell prospected for oil in a 5-million-acre area of Peru's Ucayali Basin, slicing through the rain forest to conduct seismic tests. Poachers invaded, illegally harvesting trees and importing influenza, whooping cough and other maladies that killed four out of every 10 people in some indigenous tribes.

Shell geologists found no oil but discovered a "world class" natural gas field with 13-trillion cubic feet of gas and 600-million barrels of condensate, a fossil fuel that includes propane, butane and heavier hydrocarbons used in gasoline. Peru's government opposed Shell's plan to remove the gas.

Shell made a new effort in the 1990s, and tribal people objected, aided by environmental groups such as the tiny California-based Amazon Watch and the larger OxFam International. Shell tried to placate the opposition, paying $1-million for the region's first biodiversity review, conducted by the Smithsonian Institution's Monitoring and Assessment of Biodiversity Program. Scientists noted the jungle's "nearly pristine condition" and its wealth of unique, "unidentified species."

The scientists persuaded Shell not to build roads into the region and to adopt strict policies against contact with indigenous people.

But, in 1998, antitrust disputes with the government forced Shell to pull out of the project. Indigenous leaders were elated. Today, they feel differently.

"If we'd only known," said Lelis Rivera, director of the Center for Development of Amazon Indigenous Peoples, or CEDIA, "we would have one thousand times over have preferred Shell."

In 2000, Peru awarded the Camisea concession to a consortium led by Hunt and Pluspetrol, and separately awarded the pipeline contract to another consortium including Hunt, Pluspetrol and five other companies. The consortia pledged to adopt Shell's social and environmental programs.

President Alejandro Toledo during a recent U.S. trip called the gas project "vital" to the financial rehabilitation of Peru, which has more than $30-billion in foreign debt. Officials say it will cut energy costs, replace dirtier fuels, provide jobs and boost tax revenue.

But the government set a 2004 deadline for project completion, and the companies say time pressures have caused them to cut corners.

"We have challenges, big challenges _ environmental, social, also timing challenges," said Alejandro Segret, chief executive of Transportadora de Gas del Peru, the pipeline consortium.

TGP hired Knight Piesold, a consulting firm, to monitor environmental compliance. The firm's oversight reports criticized the consortium for failing to control erosion and for violating a 50-foot width limit on the pipeline route. Camisea project officials last month said they had hired 600 workers to control erosion that is leading to landslides. But the consulting firm's latest report says problems continue; Knight Piesold is calling for construction to stop until erosion problems are fixed.

Erosion has also affected the indigenous people, a report said.

The pipeline right-of-way slices by the hamlet of Shimaa, home to 600 people. There, erosion has muddied streams used by inhabitants for drinking and washing, said Rivera, the indigenous group director.

Schoolchildren must trudge through the right-of-way, which turns into a mud pit when it rains.

Last summer, students blockaded a construction road to protest the lack of clean drinking water. Supplies were delivered but remain inconsistent, Rivera said.

Some environmental groups have called for an immediate construction halt. The World Wildlife Fund, which ranks Camisea on its list of 200 places deserving conservation, contends that "the starting point of forest destruction" will be the cleared pipeline paths that will bring "increased deforestation and habitat loss, hunting for bushmeat and trade and contamination of headwaters."

Another environmental coalition, including Friends of the Earth and Amazon Watch, commissioned an independent analysis, which found that the project would have "irreversible impacts on the biodiversity of this area and on the indigenous groups."

Last month, during a meeting at the Inter-American Development Bank, conservation groups aired a list of complaints: workers intruding on isolated tribes; pipeline route changes without notice or review; erosion muddying rivers; declining fish and game populations; and seven worker deaths.

Environmentalists have also cited the drowning of a 7-year-old Machiguenga girl who was swept up in the wake of two speeding Pluspetrol supply boats on the Urubamba River near Kirigueti.

"The project is past the point where it could ever have been brought into compliance with internationally accepted environmental and indigenous-peoples standards, including many of the IDB's own minimum standards," the groups said in a joint statement.

The Inter-American Development Bank's environmental project reviewer, Robert Montgomery, played down the consortia's mistakes at the meeting. "I don't believe we can necessarily penalize people in perpetuity," Montgomery said. "If they have had past bad actions and they are willing to improve, we have to take that into consideration. We still are working on the assumption of making this project environmentally and financially viable."

Decisions at the IDB eventually go to a 14-member board that represents 46 member countries. The United States and Peru will play pivotal roles in this particular vote.

The government of Peru and the companies involved in the project have met several times with U.S. officials. U.S. government staffers involved in the reviews said that they have been made aware of the administration's keen interest in the project, but added that they do not know to what extent such interest is related to the political clout of Hunt or Halliburton.

Jon Sohn, international analyst for Friends of the Earth, said the connections are obvious to project opponents. "Hunt and Halliburton were involved in their campaign fundraising, in their transition policies and in Vice President Dick Cheney's secret energy plan."

Last month, Hunt Oil's chief executive, Ray L. Hunt, toured Camisea with Toledo, said Carlos Garaycochea, Peru's vice minister of energy.

The U.S. representative to the Inter-American Development Bank is Bush appointee Jose Forquet, a Treasury official. Forquet mobilized Hispanic support for Bush's 2000 campaign and was a Bush "pioneer," an elite donor who raised at least $100,000. Forquet declined to comment.

Separately, at the Export-Import Bank, where officials are considering a $200-million project loan, a spokesman declined to answer specific questions. Philip Merrill, Bush's nominee to run the bank, is another major Republican donor who is also a friend of Cheney and his wife, Lynne.

Until 2000, Cheney was Halliburton's chief executive. Ray Hunt was appointed to Halliburton's board with Cheney's backing and still serves today.

Hunt is also a longtime friend of and contributor to George W. Bush, who named him to the Foreign Intelligence Advisory Board. Hunt raised money for Bush's father in 1992 and was tapped by the younger Bush in 2000 to chair the Republican National Committee's Victory Fund, to which he and his wife gave $20,000.

The Hunts have donated at least another $460,000 to Republican state campaigns, and their company, its employees and the spouses of employees have given more than $1-million to GOP causes since 1995, according to the Center for Responsive Politics.

Hunter Hunt, vice president of Hunt Oil and Ray Hunt's son, was Bush's "primary policy adviser responsible for energy issues," according to Hunt Oil's Web site.

Text accompanying map not provided for the electronic library. Please see microfilm.

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