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Peru Prime Minister Revives Proposal for Petrochemical Plant

Source: Reuters 5/2/2018, Location: South America

Peru’s prime minister revived the idea of building a petrochemical plant in southern Peru that would be fed by a natural gas pipeline, the construction of which has been delayed by more than a year.

Peru had awarded the $5 billion natural gas pipeline project in 2014 to a consortium led by Brazilian builder Odebrecht , which had planned to connect it to a proposed petrochemical plant that would be built by its subsidiary Braskem SA.

But those plans were derailed by a massive graft scandal involving Odebrecht that snagged the project’s financing and led the government to rescind its contract early last year.

In a speech to Congress before asking for a vote of confidence, Prime Minister Cesar Villanueva did not say when the government would hold a new auction for the pipeline but described it as an “anchor project” key to developing the country’s poorer southern regions.

“The natural gas pipeline must deliver gas to all of the south. But it can’t just deliver the gas, it must also transform it through the installation of a petrochemical plant to make the investment in gas more profitable,” Villanueva said.

Villanueva also told lawmakers that the government plans to eliminate tax exemptions that do not deliver broad benefits but will not “significantly” raise tax rates as it seeks to trim the fiscal deficit.

“We will not resort to the shortcut of significantly raising tax rates,” Villanueva said. Instead, the government will focus on broadening the tax base, reducing tax evasion and avoidance and cutting unnecessary government spending, Villanueva said.

Villanueva said tax exemptions cost the government 16 billion soles ($4.89 billion) per year. He did not specify which tax exemptions might be eliminated.

Peru is one of Latin America’s most stable and robust economies, but last year the fiscal deficit widened to 3.2 percent of gross domestic product while economic growth slowed to 2.5 percent and the poverty rate rose for the first time in 16 years.

Peruvian President Martin Vizcarra promised to refocus the government on infrastructure development to revive growth after his predecessor, former president Pedro Pablo Kuczynski, resigned in March in a graft scandal.

Vizcarra’s government plans to increase public investments by 17.5 percent this year, following a 2.3 percent contraction in 2017, Villanueva said. It also wants to cut the poverty rate to 18 percent by 2021 from 21.7 percent, he added.

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