V INGEPET 2005 (EHS-4-RS-09)

TOWARDS SUSTAINABLE DEVELOPMENT IN PERU:

OPPORTUNITIES PRESENTED IN THE HYDROCARBON SECTOR

Robert C. Scace, Lila Barrera-Hernández, Ian Morrison ─ Stantec Consulting International

Abstract
In Peru the advent of a natural gas industry to support economic growth and concurrent endeavours to
improve social and environmental management in the hydrocarbon sector through changes to institutional
arrangements and decision-making processes holds promise for diffusion to other areas of the national
economy. The national and international prominence of the Camisea project has brought focus to the
prospect of sustainable development in the sector through a process that engages environmental
conservation, social equity and economic growth. The authors examine this emerging socio-political
landscape from the perspective of their recent contributions to institutional strengthening in Peru in
support of the principles of sustainable development. These contributions include analyses of
construction and operations activities for the upstream, downstream and distribution components of
Camisea; an environmental and social strategic plan for sustainable development of the nation’s
hydrocarbon sector; guidance and information transfer to state officials on best available technology and
institutional arrangements from Canada and other countries with mature hydrocarbon industries and
regulatory arrangements, and a framework for planning regional distribution of natural gas. This paper
addresses desirable outcomes for the hydrocarbon sector from a sustainable development perspective
and offers a road map to sustainability. The authors engage key sustainability themes and principles such
as adaptive management and continuous improvement, considered fundamental to the sector’s
contribution to fulfilling Peru’s commitment to sustainable development. They conclude by reporting that
the process is under way, but must be vigorously supported by all stakeholders.

Sustainable Development: Directions, Challenges and Opportunities

Global Directions
It is axiomatic that what befalls the common future of humans in large measure will be determined
through our ability to engage the paradigm of sustainable development. The imprint of global
development, the pervasiveness of global communications, and terms established by governments and
institutions as global lending entities dictate that any project or program rightly should be evaluated for its
sustainability. Development on the sole basis of revenue generation potential cannot be supported
without incorporating social and environmental variables. Sustainable development requires sound
environmental and social performance and economic efficiency as fundamental underlying principles,
both in creating a framework for strategic planning at the national level and in planning, building and
operating individual projects in local communities and landscapes. In short, thinking and acting
sustainably throughout society are global action prerequisites for our common future.

Agenda 21, adopted by Peru and a host of other countries at the 1992 United Nations Conference on
Environment and Development, called on countries to develop National Sustainable Development
Strategies to build on and harmonize extant sectoral economic, social and environmental policies and
plans. Latin America’s commitment to sustainable development is expressed in the 1994 Summit of the
Americas and particularly in the Declaration of Santa Cruz de la Sierra (1996). The World Summit for
Sustainable Development in 2002 encouraged countries that adopted Agenda 21 to make progress in
formulation and elaboration of National Sustainable Development Strategies and to begin their
implementation by 2005.

Recent guidance views these strategies as moving beyond the traditional approach of the single master
plan document for sustainable development. Rather, documents could be generated on a sub-national
basis – on behalf of individual economic sectors, for example – as meaningful contributions to national
objectives for sustainable development. These reports or strategic plans would become a coordinated set
of participatory processes of analysis, debate, capacity-strengthening, planning and investment that
integrates the environmental, social and economic objectives of society, seeking appropriate trade-offs
where integration of objectives is not possible.

Peru: Opportunities in the Hydrocarbon Sector

Peru holds enormous potential to benefit over the long term from development of its extractive industries.
To accomplish this end it must adopt an appropriate regulatory approach, possess sufficient institutional
capacity to manage competing interests and engage many stakeholders in effective public participation.
Contemporary events point to the hydrocarbon sector as an ideal candidate to pursue sustainable
development on a sub-national basis in Peru. Because the industry likely will experience rapid growth in
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the short term, there is the opportunity to create a foundation and to fashion the tools of governance
necessary for Peruvians to benefit as a whole from the sector. Will these actions build an industry that is
a model of sustainability for others in the national economy to follow?.

Development of the Camisea liquids and gas project has invigorated the hydrocarbon industry in Peru.
Hitherto there has not been significant industrial activity in Peru and the country has imported a significant
portion of its hydrocarbon requirements. Now, revenues generated from foreign direct investment and
production-sharing agreements have potential to make a significant contribution to national well-being.
Substantial oil and gas resources of the Amazon basin have been leased for exploration and exploitation,
gas lateral pipelines and additional production facilities are being investigated, and conversion of
industries to natural gas is ongoing.

In general terms the resources lie to the east of the Andes and must be shipped across the mountain
ranges to processing and distribution facilities along the Pacific coast. Along the way industry activity may
touch the lives of a spectrum of societies, from non-contact peoples in the jungle to the metropolitan
sprawl of Lima. The challenge is to ensure there is direct economic benefit to Peru, those benefits are
appropriately distributed and potential or ongoing environmental and community issues have been
appropriately identified, addressed and mitigated – both for individual projects and as part of a national
strategic goal for the sector.

Public Participation
Meaningful public involvement in development decision-making is integral to the sustainable development
process. Information disclosure cannot be substituted for a participatory process. In Latin America where
a pressing need for economic growth and alleviation of poverty accompanies the inflow of new investment
capital, there is a risk of unsustainable development decisions that exclude or diminish stakeholder
involvement. Uncertainties, conflicts and incomplete responses when combined with inadequate
environmental controls and enforcement, can only heighten the tensions intrinsic to sustainability. Project
delays and community violence are among the seemingly inevitable outcomes.

Effective public participation adds to a decision’s sustainability by contributing to its transparency and
because it may anticipate and prevent conflict. The quality of decision-making also may be well served
through introduction of relevant new variables or information and by building consensus. Distribution of
benefits may be more reasonably addressed and the role of publics in the project may extend beyond the
approvals process to participation in management plans and eventual roles for communities during
construction and operation.

Increasingly, energy sector development in Latin America is on lands traditionally occupied by indigenous
and tribal peoples with highly adapted lifestyles who may not share in the benefits of development but
who may be adversely impacted through environmental change and facilitated access to once remote
landscapes. There have been institutional responses such as ratification of ILO 169 by Peru and other
Latin American countries, but adaptive and refined participatory processes are required to move towards
equitable outcomes.

Towards Sustainable Development in Peru

In Peru, Law 26821 of 1997 on sustainable use of natural resources is directed to promotion of
investment in natural resources development while recognizing the need to balance economic growth,
environment and resource conservation and human well-being generally. The law epitomizes other
legislation and regulations in Peru that seek to engage a balance contributing to quality of life; inevitably
that balance is at risk when procedures are engaged to enhance the investment climate over short time
periods, to attract foreign capital or to compete with similarly resource-rich countries. Provision for
appropriate evaluation of spatial and temporal impacts and benefits of such endeavours on affected
landscapes and communities is particularly challenging in such a climate. Such is the present experience
in the hydrocarbon sector where contemporary practices and procedures have consequences for the
country as a whole.

Challenges to Overcome
Challenges inherent in Peru in pursuit of a measure of sustainability arguably are best epitomized in the
hydrocarbon sector. The rapid onset of development, the emerging scale of that development exemplified
in the Camisea project and its ancillary activities, the engagement of an array of national and international
government, private sector and other stakeholders, the unfolding import of the industry on the national
economy as a whole, and civil unrest released among affected publics revealed significant difficulties that
had to be addressed within civil society. Issues arose relating to institutional capacity, the regulatory
framework, concession granting policies and meaningful public consultation and other matters. The
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concession granting process, for example, did not take into consideration in a meaningful way the
environmental and social consequences of hydrocarbon development; there were disruptions in
communities that caused work stoppages during the construction of Camisea and delays in drilling in the
northern provinces, and the imprecations of international non-government organizations almost
undermined project financing for Camisea. The implications were clear; the Government of Peru had to
improve its capacity to promote sustainable development or risk having the country lose the great
opportunity inherent in the hydrocarbon sector to contribute to the nation’s long term well-being. A road
map to sustainability could do much to acknowledge the existing problems and provide a route to short-
and long-term solutions.

A Canadian Contribution
Stantec Consulting International Ltd. (Stantec) in 2003-04 undertook three integrated tasks sponsored by
the Canadian Petroleum Institute (CPI), based in Edmonton, Alberta and funded by the Canadian
International Development Agency (CIDA). The working contributions were part of a larger drive to
redress known deficits in established approaches and procedures that seriously undermined realization of
sustainable development in the sector. Stantec has worked with the CPI and with extractive industries in
Peru for many years. The work reported on here represents one aspect of the CPI’s long-standing
program in Peru to improve regulation of the hydrocarbon industry through participation with various
authorities there. Program definition, task development and field participation in this instance were
organized in concert with the Ministry of Energy and Mines, OSINERG – Organismo Supervisor de la
Inversion en Energia - and Perupetro. Logistics in the field were made possible through the joint
cooperation of companies executing concessions awarded by the Government of Peru.

The tasks were to:

• Provide a ten-year strategic plan for sustainable development of the hydrocarbon industry in Peru.
• Provide guidelines for the evaluation, monitoring and enforcement of regulations during construction
of hydrocarbon facilities, based largely on “the Camisea experience,” but with a view to application
throughout the hydrocarbon industry.
• Provide guidelines for the evaluation, monitoring and enforcement of regulations during operation of
hydrocarbon facilities, drawing on procedures and practices of internationally recognized agencies
such as Alberta’s Energy and Utility Board and presenting to and engaging Peruvian government
regulators and inspectors in a training program aimed at communicating the best available policies,
processes and practices upon which to draw for “made in Peru” solutions.

The strategic plan used a risk-based framework. High impact areas were identified, an international best
practices or “ideal system” visualized and stakeholders consulted. A gap analysis was performed against
the attributes of the present system and used together with the risk analysis to prioritize actions
recommended over a ten-year horizon. There are many forms of risk to consider for the hydrocarbon
sector – societal, environmental, material, individual and many ways to measure and analyze it. Risk is a
means to accommodate a spectrum of values and clarify choices to be made.

The second task examined the institutional and operational capability of OSINERG to effectively fulfill its
mandate and ensure that construction of hydrocarbon facilities proceeded according to the “transactional
rules” governing a concession. There was analysis of the legal and regulatory framework, extensive field
inspection of facilities under construction, dialogue with stakeholders and recommendations for more
effective organization and procedures within OSINERG.

The third task dealing with operations addressed both the relative absence of rules and enforcement as
these related to existing facility integrity, contingency planning and allowable limits of offsite effects, and
provided guidance for addition of operating stock to the capacity of the hydrocarbon industry. Much
information transfer took place with extensive documentation presenting a spectrum of information from
environmental discharge standards to enforcement ladders to deal with compliance infractions. Three
functional areas were considered: technical regulation; environmental and social regulation, and
enforcement methodologies and approaches.

The strategic plan is the focus of this paper; the other tasks represent elements of implementation of the
plan.
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Present Challenges and Desired Outcomes

Our work on the hydrocarbon industry followed four interrelated lines of enquiry: institutional
arrangements and regulation; the natural environment; the social (or community) environment, and the
economic environment. The risk-based approach to these components revealed key issues facing
sustainability. Upon isolation of these issues it was possible to work on (a) desired or target outcomes for
each of the four components and (b) to lay out a road map for their realization. The focus in this paper is
upon targets (Section 2.0) and the route to be followed by each of the four components (Section 3.0); a
few of the issues are cited below, however, to illustrate the types of challenges we have identified.

Issue Identification
Institutional Arrangements and Regulation.
• Responsibility for aspects of environmental management has been distributed among several
agencies; notwithstanding inter-agency communications the existing system appears cumbersome,
time consuming and inhibits effective, timely response on matters requiring early resolution.
Mandates of the different agencies may be unclear, leading to uncertainty, power vacuums and some
overlap and competition (notably in relation to social impact management). There is no distinct “lead
agency” and the decentralization process under way added a new layer of concern.
• Current regulations address the issue of scope of Environmental and Social Impact Assessment
Studies and subsequent Assessment in broad terms. No project specific terms of reference are
issued and used, leading to “self-guided” studies with variable scope and detail of issues covered.

The Natural Environment.

• The standard of care afforded the environment has been and remains inconsistent; the condition has
been created through many contributory causes – inconsistent regulations and similarly inconsistent
measures to minimize impacts, monitor the environment and effect appropriate remediation.
• Hydrocarbon facilities and operations were approved without adequate knowledge of baseline
biophysical (ecological) conditions of host environments and thus potential short- and long-term
impacts and mitigation opportunities.

The Social Environment.

• The concept of adequate, meaningful public participation is not fully understood and applied.
• Government often acts as “ambassador” of the private proponent, preparing the ground for future
interaction between the selected developer and the communities whose capacity to negotiate from a
relatively equal footing with the private investors may be significantly reduced.

The Economic Environment.

• Unmitigated adverse social and environmental impacts have a direct negative effect on economics of
the sector as a whole. Inefficiencies resulting from instability in project development include: higher
political risk; higher financial hurdle rates for project justification; higher costs of financing; higher due
diligence costs and more costly syndicating costs.
• Exclusion of environmental and social concerns has produced imbalance in the distribution of costs
and benefits, creating periodic and in some instances chronic social unrest and environmental
degradation.

Target Outcomes
Represent desired conditions for the hydrocarbon sector, to be achieved within the next ten years or
sooner. They result from government, industry, the various publics and international institutions
embracing principles of sustainability – including adaptive management and the search for continuous
improvement – and demonstrating progress along the way. The targets are presented according to the
components noted above.

Institutional Arrangements and Regulatory Framework

Outcome #1: Sector-wide Environmental Management System that is Efficient and Reliable.
Regulations and other norms: In addition to changes in regulations to reflect implementation of a strategic
plan for sustainable development, Ministry of Energy and Mines documents that guide management and
practice in the hydrocarbon sector will have been revised to reflect the goal of sustainable development.
These will include environmental guidelines prepared specifically for Peru and those adapted from
international sources.

Government agencies with responsibilities for environmental, social and indigenous community matters
as these interrelate with the hydrocarbon sector will have achieved consensus on effective
implementation of applicable laws and regulations as part of their respective mandates.
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Interagency coordination and institutional efficiencies: Baseline information required for the hydrocarbon
sector will be collected by individual agencies in keeping with the responsibilities of their respective
mandates. Interagency coordination of information sharing through common data bases, common or
appropriately interlinked geographical information systems and other means will facilitate access on the
part of hydrocarbon agencies.

Institutional arrangements for environmental and social management in the hydrocarbon sector within the
Government of Peru will have been streamlined to make them more efficient, effective and time
responsive.

On an annual or other appropriate timeline the sector will be advising other agencies of priority baseline
or other information needs to assist in the environmental, social and economic planning and management
of Peru’s hydrocarbon resources.

Outcome #2: Public Registry of Information.

A well organized data base is essential to assessing social and environmental risk and vulnerability for
sound environmental management. Necessary information includes data concerning the state of different
media, ecosystems and species. It also includes data on land use, relevant socio-economic information
and similar data. Performance information also is necessary as it relates to product and process
inputs/outputs and includes data on environmental hazards and regulated emissions, discharges and
waste monitoring data. Such information is included as a requirement of important international law
instruments ratified by Peru (e.g., Convention on Biodiversity; Framework Convention on Climate
Change). The requirement is as much about organizing available information as it is about collecting
more information.

Administrators of the hydrocarbon sector will have available a comprehensive, contemporary suite of
information bases on the environments, social and economic conditions of those regions and areas of
Peru where hydrocarbon exploration and exploitation has taken place to the present and where the sector
is expected to be active during the first half of the 21st century. The information will have been gathered in
a systematic, organized program of field, laboratory and office research and will be the basis for both
broad based sector planning and for initial consideration of specific proposals that have been advanced to
gauge whether they will be sustainable.

Comprehensive baseline information will be in place regarding the location and environmental condition
of antecedent (legacy) hydrocarbon sites, notably through sampling and monitoring for soil and water
contamination and delineation. Also, there will be a comprehensive inventory of contaminated sites; these
sites will have been prioritized in terms of severity of impact and urgency for remediation.

Baseline information acquired for areas/sites proposed for development will have been subjected to gap
analysis and outstanding information will be obtained, in part, through the work of proponents and
operators of hydrocarbon facilities as part of licensing agreements and/or environmental impact
assessments.

Outcome #3: A Decision-Making Process that is Conducive to Transparency, Consistency and Fairness,
Including Adequate Opportunities for Public Input.
Peru will have achieved an Environmental and Social Impact Assessment (ESIA) process that is thorough
in scope. Information used for preparation and reporting of ESIAs will include in addition to scientific and
technical data, inputs obtained from affected populations including categories of information broadly
referenced as traditional ecological knowledge and traditional resource use. There will be rules outlining
approach to issues and circumstances that are new or that could not reasonably have been foreseen in
the ESIA and subsequent mitigation and management plans and agreements. The process of public
participation will be transparent and will recognize the rights and responsibilities of government for
decision-making in the hydrocarbon sector.

Outcome #4: Enforcement and Compliance Policy, Guidelines and Protocols that Promote Maximization
of Results Relative to the Available Resources, as well as Transparency and Predictability.
There will be a pre-set list of enforcement priorities; also in place will be a set of comprehensive protocols
addressing environmental monitoring and measurement. The latter will have been developed in response
both to national needs and in consideration of accepted international practice. Private enforcement
opportunities will be enhanced.
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Outcome #5: Availability of Adequate Financial, Human and Material Resources.

Peru will have determined the scale, rate of development and key issues attached to environmental
management in regard to the hydrocarbon sector. Appropriate financial, human and materials resources
will be in place to further progress of the sector towards a condition of sustainable development.

The Natural Environment

Outcome #1: Protecting Special Environments and Societies.
The existing national agenda to protect and sustain special environments throughout Peru will be
reflected in continuing creation of designated parks and reserves and other means of formal protection for
specific geographical areas of terrestrial and marine environments. Protection will be extended to
landscapes, habitats and species (including species at risk) that should be accorded appropriate
protection. The national agenda will likewise be extended to sites that are accorded special status
because of their cultural and historical artifacts and associations. Planning, development and operations
in the hydrocarbon sector will acknowledge these natural and cultural heritage areas/sites. The sector will
respond through adherence to regulations regarding their ecological and cultural integrity and through
voluntary actions that represent appropriate stewardship to the national patrimony.

Peru will continue to recognize and appropriately safeguard indigenous and native societies and cultures
whose lifestyles are in considerable measure circumscribed through choice by their relationships with
their host environments and loss of which relationship would impair the sustainability of these societies.
Planning, development and operations in the hydrocarbon sector will take note of these societies and
their intimate association with their environments. The sector will respond through adherence to
regulations established to sustain these communities and environments and through voluntary actions
that represent appropriate stewardship of Peru’s diverse societies and host environments.

Outcome #2: Achieving an Appropriate Standard of Care.

A standard of care for hydrocarbon exploration, analysis, development, operation and abandonment and
decommissioning will have applicability to all stakeholders engaged in the hydrocarbon sector, including
regulators, lessees, licensees, contractors and operators. The standard of care will be to acceptable
international standards, it will be rigorously applied through bonds, compliance and due diligence
arrangements, inspections, internal and third party audits and other means. The standard of care will be
subject to principles of adaptive management and continuous improvement; accordingly standards will be
subject to change. Standards of care will be clearly known and well established, as will be provisions for
addressing failure to meet current standards.

Outcome #3: Management of Legacy Issues.

The severity of impact on the environment at legacy sites having been determined through site sampling,
laboratory analysis and other means, remediation of top priority sites will be under way. Management of
these sites will be an expression of a national strategy to remediate legacy sites to an appropriate
standard of care. Planning for management of legacy sites will have identified appropriate post-
remediation land uses in consultation with affected communities. Post-remediation monitoring of legacy
sites will include periodic testing to confirm that appropriate standards of care are maintained.

Outcome #4: Integrating Sustainability Initiatives.

Sustainability initiatives in the hydrocarbon sector wherever possible will be enhanced through
commensurate initiatives directed at other local or regional land uses so that adverse cumulative
environmental effects may be reduced. An example was set early in the century in environmental
management measures not only to reduce fractionation plant-to-marine loading platform pipeline impacts,
but additionally engage in environmental clean-up of existing industrial discharges to Paracas Bay.

The Social Environment

Outcome #1: Increased and Meaningful Public Participation.
By creating the conditions for effective, timely and meaningful participation, procedural requirements can
procure that the public gets a fair and reasonable opportunity to influence decision-making and make a
difference. The public does not replace the administrator in its decision-making role. Rather it helps to
create the conditions necessary for the final decision to be sustainable.

The term “public participation” will be in common use to demonstrate that government in determining
policy and practice outcomes as an expression of civil society, will fully engage stakeholders in matters of
environmental planning, development and management as these apply to the hydrocarbon sector in Peru.
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Public participation will have evolved a range of actions to engage stakeholders in a process that extends
beyond information sharing and incorporates participation, consultation, capacity building and means for
negotiation at national and decentralized (regional, community) levels.

A common terminology will be in place that has been clarified and given context under the common
umbrella of public participation.

Public participation will be extended beyond its current primary formal engagement in the preparation of
ESIAs, to encompass the full scope of hydrocarbon sector activities that intersect with the environments,
communities and overall population of Peru.

The process is to fully engage the indigenous, native and rural communities potentially affected by, and
having an interest in hydrocarbon planning, development and management nationally, regionally and
locally.

Government agencies with responsibilities for environmental, social and indigenous community matters
as these interrelate with the hydrocarbon sector will have achieved consensus on effective
implementation of public participation as part of their respective mandates.

Existing public participation regulations will have been modified and clarified to reflect strategic directions
of public participation in Peru. Revise public participation regulations will represent an appropriate step to
align domestic law with international law on the subject of public participation.

The Economic Environment

Outcome #1: Equitable Distribution of Benefits.
From an economic perspective contributions to a sustainable hydrocarbon sector will have ensured that
project economic justifications have incorporated costs of prevention or mitigation of negative
environmental and social costs and provided for equitable distribution of project benefits. This outcome
will have been made possible through strengthened national institutional arrangements outlined above,
and implementation of social and environmental management practices that reflect commitments to the
practice of sustainable development. Appropriate procedures will be in place to undertake risk analysis of
proposed policies, programs and projects that reasonably reflect their environmental, social and
environmental consequences. Likewise, effective enforcement mechanisms will be in place to assure that
upon their approval, these matters are implemented and performed in a sustainable manner. Rigorous
auditing will be a hallmark of the drive for effectiveness.

Hydrocarbon Sector Road Map

Sustainable development is a matter of endless improvement. The important consequence of pursuing
the desired outcomes of the strategic plan through specific actions would be a well established process in
which all parties engage. Not only must there be a process for engagement, there must be belief in the
principles espoused. We suggest that one decade or less is a not unreasonable timeframe in which to
achieve this state of human affairs, provided there is action on all the constituent parts of the road to
sustainability. Set out below is a recommended plan of action together with reference to an initial set of
indicators by which to measure progress.

The plan was first presented to the Peruvian authorities in February 2004.

Regulatory and Institutional Framework

Outcome #1: Sector-Wide Environmental Management System that is Efficient and Reliable.
There should be a general review of the enabling laws of respective agencies, to clarify their mandates,
remove overlaps and gaps, and improve coordination. A process to streamline activities and provide inter-
agency feedback and communications is desirable. Consensus is needed on key common terminology
and definitions; once adopted they should be incorporated into and reflected in all regulations and
practice.

• The Dirección General de Asuntos Ambientales (DGAA – now DGAAE, see Section 4.0) ideally
should take the lead regarding common definitions. In particular, definitions of environment and
sustainable development included under D-S 046-93, Tit. XVI, should be reviewed to include a
balance of environmental, social and economic factors. Also needed is a working definition of public
participation, its stages and methodologies.
• Perupetro and the DGAA should work together to identify potentially sensitive social and
environmental issues prior to commencement of the bidding and contracting process for hydrocarbon
leases. Information collected would form the basis for ESIA terms of reference.
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• ESIA regulations should be reviewed to set realistic timeframes for adequate, informed decision-
making. (Best practices allow anywhere from 6 to 24 months to complete ESIA process and arrive at
final approval.) Currently stipulated terms seem insufficient to allow meaningful public participation
and engage other stakeholder agencies such as INRENA, DIGESA, DICAPI, etc.
• Formal channels should be created and maintained between Perupetro, DGAA and OSINERG. Each
agency should at least be kept informed of the main decisions taken by sister agencies, such as
opening of bidding processes, signature and termination of contracts, approval, terms and
cancellation of permits, and enforcement actions. Coordination with INRENA, DIGESA and DICAPI
also should be achieved.

Outcome #2: Public Registry of Information.

Generally, information tools should be developed and refined to facilitate decision-making and
enforcement.

• One agency should be assigned the task of developing common sector-wide templates for collecting
and storing information.
• A single mapping system should be adopted.
• Proponents and developers should be instructed to submit information and maintain records in a
format prescribed and used by government agencies. Regulations on disclosure of information should
be drafted.
• Information should be collected and stored in a publicly accessible registry.
• Periodic inter-agency information meetings are desirable to update and instruct peers on regulatory
developments and other important information.

Outcome #3: A Decision-Making Process that is Conducive to Transparency, Consistency and Fairness.
Generally, social and environmental factors have to be placed on an equal footing with economics in the
decision-making process, from the early stages of planning and before irreversible decisions are taken.

• Determination by Peru by means of “inclusion” and “exclusion” lists of proposed projects and activities
in the hydrocarbon sector that are/are not to be subject to environmental impact assessment. The
lists need not be exhaustive.
• Expand the scope of ESIA per Decreto-Supremo 046-93, Art. 10 to include requirements inter alia to
submit information on:
- Alternatives to the project, including the “no development” alternative.
- Public consultation activities undertaken in anticipation of and during planning and design stages
of the proposal, report outcome of activities. Revision to include Decreto-Supremo 003-2000-EM.
- Public consultation plans for duration of the project (revision of regulations to include Decreto-
Supremo 003-2000-EM).
- Cumulative effects.
• Refine requirements for Environmental and Social Management Plan(s) (ESMPs).
• Hydrocarbon projects will have comprehensive ESMPs that take into account the work and findings of
ESIAs and any other documents that provide guidance on the project’s environmental and social
management. ESMPs are required for all phases of the project, they are to be prepared to an
acceptable level of detail to project authorization and they are to be updated as appropriate when
circumstances warrant, such as findings of monitoring programs, additional assessments or major
new findings regarding the environments and communities within which the project operates.
• ESMPs include parameters and procedures for:
- Conservation and Reclamation (including, e.g., footprint rehabilitation, revegetation, erosion and
sedimentation control, slope stabilization, soil restoration).
- Emergency Measures (including spills and emissions response).
- Water supply/treatment, Wastewater (including process water) and Solid Waste Management.
- Access Management.
- Monitoring, Measurement and Auditing.
- Biodiversity Management (including sustainability indicators, monitoring, contingency and
recovery arrangements).
- Methods and Mechanisms for Compliance with Standards (notably emissions and effluents),
including non-compliance reporting and methods for remediation.
- Environmental Performance Reports (prescribed contents and frequency of reporting).
• Enhance power to deny approval of ESIA studies by requiring that studies presented for approval in
the new application be “substantially” different from the original one. Define “substantially” in relation
to modifications in project design and not in relation to relevance and quality of information submitted
in the original application. Any defects or omissions in the information contained in the original ESIA
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studies should be addressed in the original assessment process through DGAA’s authority to require
corrections and additional information, and the public’s input.
• Achieve transparency, predictability and consistency in decision-making by creating model terms of
reference for ESIAs, as well as guidelines for assessment and approval. An inter-agency task force
would draft the document(s).
• Subject matters addressed in ESIAs are to provide information on the following to appropriate levels
of detail:
- Project description to level of detail adequate for preparation of the ESIA.
- Baseline conditions of potentially affected environments and communities.
- Potential impacts of the project.
- Residual adverse effects and cumulative environmental effects.
- Knowledge deficiencies.
- Risk analysis.
- Monitoring and measurement.
• Review and adjust terms of reference on a project-by-project basis. Current best practices require
proponents to refine draft ToRs that are reviewed and eventually approved by the permitting authority
following public input.
• Clarify scope of ESIA and ESMP approval in relation to new and unforeseen circumstances Review
regulations, specifically D-S 046-93, arts. 10,50 and definition of extension of activities to include and
define “new and (reasonably) unforeseen circumstances” and to include power to modify existing
permit to issue new terms and conditions to mitigate, compensate or otherwise manage new and
unforeseen impacts. It is suggested the new threshold requirement that triggers changes in permits
and conditions be defined in terms of the impact of those circumstances (e.g., “adverse,” “significant,”
“adverse and significant”).
• Include requirements for notification on the part of the project developer in relation to new and
unforeseen circumstances or issues encountered during project development, activities and
operations.

Outcome #4: Enforcement and Compliance Policy, Guidelines and Protocols that Promote Maximization
of Results Relative to the Available Resources, as well as Transparency and Predictability.
Generally there is the desire to achieve consistency and predictability in compliance and enforcement
actions by developing a set of protocols and guidelines for enforcement and action (fiscalization).
Fairness and transparency considerations require that the choice of responses to a violation obey some
set of pre-determined and publicly available criteria that can be tied to: the nature of the violation
(including seriousness of the harm), the desired result, the history of the violator and its attitude after the
fact, the approach taken in similar circumstances and so on.

• Appoint inter-agency task force to draft an “enforcement and compliance policy” including protocols
and guidelines for application.
• Use cost-benefit analysis to determine priority enforcement targets. Set priority enforcement targets.
• Publicize policy documents, protocols and guidelines.
• Develop opportunities for “private enforcement” through enhancement of existing rules on third party
(public) reporting of infringements; i.e., Ley 26631 of 1996 and Decreto Supremo 046-93, art. 53.
Currently, under art. 53, the person reporting the infringement (“whistle-blower”) must fully support its
claim. Instead, the revised rules could require that the whistle-blower request an inspection to be
conducted by the enforcement authorities upon a bona fide suspicion of infringement. Frivolous or
bad faith reporting could be discouraged through the imposition of penalties.

Outcome #5: Availability of Adequate Financial, Human and Material Resources.

The principal thrust of actions for this outcome centre on training and publicity on the subject. Actions
include provision of training for key personnel and potential private enforcers in target communities,
publicizing rules and regulations, and organizing cross-cultural training sessions for government,
environmental non-government organizations (ENGOs), indigenous and community groups and industry.

The Natural Environment

Outcome #1: Protecting Special Environments and Societies.
The following actions are proposed.

• Maintain a registry of protected areas and sites that have been accorded special protection and
include in the registry areas and sites proposed for similar status or for limited or prescribed uses
because of their special ecological and cultural-historical affiliations.
V INGEPET 2005 (EHS-4-RS-09) 10

• Where hydrocarbon sector activity is proposed or ongoing, identify the characteristics of these areas
and sites that justify their special status, the activities inside or outside special areas that could take
place at risk to their values, and identify options that may be available to accommodate and sustain
respective land use activities.
• Identify alternative means available to accommodate hydrocarbon activities in protected and other
special landscapes by employing tools such as land zoning, avoidance planning, habitat restoration
and salvage archaeology.
• Establish procedures to incorporate identification and valuation of special environments in ESIAs,
ESMPs and other pertinent documents that provide for assessment and management of project
impacts from environmental and social perspectives.
• Apply both scientific and traditional knowledge when ascertaining the potential impacts of proposed
hydrocarbon activities on designated or anticipated areas of heritage resources.
• When hydrocarbon projects are proposed, infrastructure and operations should be evaluated relative
to their potential to intersect with the interests and home places of special societies.

Outcome #2: Achieving an Appropriate Standard of Care.

The following actions are proposed.

• Undertake periodic reviews of standards of care applied to the sector through regulations, guideline
documents and other reference materials with a view to: performing a gap analysis respecting the
comprehensiveness of standards and the validity of standards presently engaged relative to
international standards and the goal of sustainability in Peru.
• Ascertain how effectively standards of care are being imposed by/adhered to on the part of sector
stakeholders and ascertain ways and means to improve the existing situation where it is found to be
inadequate.
• Ensure that standards of care are effectively communicated to all stakeholders (and in ways they
each can comprehend), and the public generally is made aware of their existence, purposes and
parameters.

Outcome #3: Management of Legacy Issues.

There should be action at the earliest possible opportunity with management of legacy sites through
implementation of site remediation at priority sites, proceeding on a systematic basis until all legacy sites
have been restored to predetermined standards of care.

Outcome #4: Integrating Sustainable Initiatives.

Wherever hydrocarbon initiatives are proposed their relationship to existing land use plans and other
planning materials and initiatives has to be ascertained so as to optimize the potential for integration of
sector activities on a sustainable basis with those existing and planned in the affected areas. Use of
compatible mapping techniques (GIS) is essential.

The Social Environment

Outcome #1: Increased and Meaningful Public Participation.
In general there has to be definition of the appropriate meaning and role of public participation in
sustainable development of hydrocarbon resources. For indigenous communities, recognizing that
indigenous and tribal peoples require special government attention can be regarded as a step in the right
direction. However, rather than assuming their representation, care should be taken in giving those
communities adequate opportunities and tools to directly voice their own concerns and to contribute to
finding solutions to issues posed by energy development and cultural heritage preservation. Consultation
and participation rights must be fully regulated. Moreover, it is not sufficient that the proponent identify
and consult with indigenous and tribal communities only during the developmental stage of a project.

• Inter-agency dialogue through workshops and other means is highly desirable, to achieve consensus
on the meaning and scope of public participation as it pertains to decision-making, equitable
distribution of benefits, enforcement and other matters.
• Participants in these endeavours should include DGH, DGAA, Perupetro, OSINERG, CONAPA, local
authorities and the Defensoria del Pueblo. The process also should produce identification of a “lead
agency”.
• Clarify the appropriate role of stakeholders in public participation, i.e., civil society, industry and
government. Review and re-position the government as facilitator and decision-maker, but certainly
not as the “ambassador” of private investors.
V INGEPET 2005 (EHS-4-RS-09) 11

• Review and refine regulation to address scope, timing and stages of public participation; establish
requisites to address practice and cultural realities. (For example, the conduct of participatory
activities should avoid the typically confrontational style of judicial or administrative proceedings).
• Review rules on standing to participate, to accommodate the sector’s definition of stakeholders. The
rules are key to promoting openness and transparency and to implementing a balanced process.
• Review rules on physical access, particularly D-S 046-93, to explicitly incorporate social concerns.
• Develop consensus among government agencies regarding interpretation and application of public
participation regulation.
• Check regulations and practices against ratified principles of international law. Appoint individuals or
an organization to perform regular updates of developments in international law.

The Economic Environment

Outcome #1: Equitable Distribution of Benefits.
Before distribution of benefits may take place there must be adequate compensation for damages to and
use of land, Benefits are substantially different from compensation. The objective of the latter is to restore
or provide for loss of socio-economic norms in place before commencement of project work. Distribution
of benefits is directed to enhancement of baseline socio-economic conditions that may reach not only the
project affected population, but citizens in a regional or national context. Knowledge of socio-economic
conditions prior to onset of a project is imperative and this is why appropriate levels of enquiry for ESIAs
and ESMPs are necessary.

• Collection information on socio-economic conditions, including matters of individual and communal

title to land.
• Collect information on individual and community value systems ascribed to environments that support
preferred lifestyles.
• Coordinate and collaborate with authorities responsible for land titling in communal, native or
indigenous landscapes.
• Identify the organizations and their leaders in communities, native and indigenous groups that will
negotiate for compensation and benefits for those they represent.
• Develop guidelines for compensation and for distribution of benefits respectively.
• Engage affected stakeholders in an ongoing dialogue directed at developing consensus on matters
related to compensation and benefits.
• Develop information on indigenous “life plans” as a basis for a distribution of benefits that is culturally
relevant.
• Explore opportunities for entrenching “Impact and Benefit Agreements” within the regulatory
framework.
• Train facilitators who will be able to work effectively with community, native and indigenous
stakeholders.

Sustainability Indicators
Actions undertaken during the next few years require application of sets of indicators to measure
progress towards sustainability. These sets should be developed in response to environmental, social
and economic actions under way and ideally should be selected from quantifiable or measurable criteria.
The difficulty with non-quantifiable indicators lies in vulnerability to value-based interpretations of their
relative success and an absence of means whereby to measure their contribution to progress towards
sustainability. Thus examples of indicators for the natural environment might include the number of legacy
sites already adequately remediated or under active remediation and the number of revisions to
standards of environmental care to reflect appropriate stewardship in instances of resource development.
Indicators to monitor social sustainability might include the number of community development
agreements between companies and affected communities relative to the number of projects under way,
or the number of livelihoods created or lost. For economics the indicators might be flow of investment in
an environment more attuned to sustainability, savings in health care or savings in numbers of days
dedicated to conflict resolution among stakeholders.

Indicators should be established soon so that a reliable baseline is in place by which to address the rapid
expansion of the hydrocarbon sector.
V INGEPET 2005 (EHS-4-RS-09) 12

Continuous Improvement and Prospects for Transferability

Already there are tangible and encouraging results to report regarding engagement of sustainability
principles in Peru’s hydrocarbon sector. These successes are expected to win the continued support of
the Peruvian and Canadian governments, in itself an endorsement of continuous improvement in the
sector. The prospect that other sectors of Peru’s economy will evaluate and draw on the hydrocarbon
experience in support of their respective sustainability goals is appealing and heartily endorsed.

The target outcomes and road map to sustainability described here have been adopted by the Ministry of
Energy and Mines. The DGAA has been renamed Dirección General de Asuntos Ambientales
Energeticos (DGAAE) to reflect the sector’s reorganization and renewed focus on the oil and gas
industry. The number of staff required to address the agency’s enhanced duties has been increased and
DGAAE has been actively working on and implementing its strategy. Support has been forthcoming in
part through the auspices of the Inter-American Development Bank and in part through revenues
generated by the Camisea project. There is the distinct prospect of a reinforcing cycle of improvement,
encouraged by additional international support to foster sustainable development.

Embedded within the strategic directions for the hydrocarbon sector are the products of guideline
recommendations for evaluation, monitoring and enforcement of regulations throughout the life cycle of all
industrial developments in the sector. Substantial revisions to policies, protocols and practices to which
OSINERG, for example, must respond in performing its duties will greatly improve the effectiveness of the
agency. Consultations with private industry reveal support for these changes. Although more initial effort
and cost is required on the part of industry, the changes will benefit long-term operations, ultimately
reducing life cycle costs.

Application of a risk-based methodology in the program has proved effective, whereby attention has been
directed to regulation of existing conditions that most significantly impact on the standard of living.
Priorities have been assigned to people most directly affected by developments and as part of planning
and consultation there is established the hierarchy of avoidance and mitigation; and when these
alternatives are not possible, compensation.

The process to date not only has produced contributions in report form, it has extensively engaged
information sharing and technology exchange between Canadian contributors to the program and
practitioners on the ground in Peru. Substantial efforts have been made to reinforce these relationships,
through intensive course work, site visits in Peru and in Canada and voluminous contribution of
international resource materials upon which to draw for “made in Peru” solutions.

The “Camisea experience” has produced valuable lessons regarding key issues that must be addressed
early in a project’s development process and the institutional responses necessary to achieve satisfactory
solutions. Though formulated for the National authorities, the strategic direction reported here provides a
ready road map for action on institutional strengthening at the regional level as the industry grows and
local authorities become increasingly involved in decision-making.

Overall, the process should contribute to meaningful public participation, socio-political stability, a
defensible and scientifically-based regulatory system, protection for Peru’s diverse natural environment
and cultural heritage, increased competition for development, reduced project costs and a monetary
surplus to be shared by private developers and the country.

Much is yet to be accomplished towards sustainability in the hydrocarbon sector, but it is not too soon for
other sectors to look closely at progress to date and to assess whether there are elements that may be
successfully transferred to their own operations. Change does take time and early evaluation is desirable.

Technical and Economic Contribution

Today, effective strategies for national self-advancement among developing nations are challenged by
realities attached to global economic imperatives. The means to encourage international investment
within national borders without undue stress on national institutions and with appropriate distribution of
direct and indirect benefits to state populations continue to challenge us. The prospect of supporting
capacity building within developing nations through strengthening of their technological and institutional
arrangements is a meaningful route open to developed nations and international agencies. In turn,
capacity building encourages the notion that sustainable development is attainable and more readily
facilitates the institutional, physical and community mechanisms that contribute to that goal.
V INGEPET 2005 (EHS-4-RS-09) 13

We believe the Canadian contribution to capacity building for Peru’s hydrocarbon sector has potential to
benefit the country in myriad ways over the long term. To achieve long term targets such as those
outlined in this paper requires continued commitment on the part of both nations, however. Peru has
entered a period expected to produce significant hydrocarbon development within the nation. Continued
mutual endeavours will far outweigh benefits achieved to date; they will assist Peru in striving for that long
term balance among environmental, social and economic aspirations perceived to be the hallmark of a
nation embarked on the road to a sustainable future.

Acknowledgements
The authors wish to acknowledge the sponsorship of the Canadian International Development Agency
and the Canadian Petroleum Institute in supporting the program of institutional strengthening of Peru’s
hydrocarbon sector. We also acknowledge with pleasure the enthusiastic participation and constructive
support of the Ministry of Energy and Mines, OSINERG and Perupetro in the drive to a common future.
Not to be overlooked are the many other agencies that have given of their time and resources to make us
better understand the aspirations of the Peruvian people. The support of private sector companies also is
very much appreciated, notably Pluspetrol and TGP, not only in their courtesy in expediting extensive
field inspections, but also in their willingness to share insights on their operations respecting Camisea and
other endeavours.