Industry Trend Analysis - Pipeline Re-tendering Prompts Thermal Power Forecasts Revision - FEB 2017

BMI View: We have revised our forecast for natural gas- and oil-fired power generation in Peru over the next five years as a result of the cancellation and re-tendering of the contract for the development and operation of the Southern Peruvian Gas Pipeline. We expect the pipeline to be eventually completed despite the current delays , du e to its political relevance and international investors ' continued interest in the project.

The Peruvian government's decision to retender the contract to build and operate the country's most important gas pipeline project, after the original consortium failed to secure financing, has prompted us to expect the facility to be completed in 2021 instead of 2019, as we had previously anticipated ( see ' Odebrecht Pull-Out Will Delay Southern Peruvian Gas Pipeline ' , April 20 2016). Consequently, we have revised our forecasts for Peru's natural gas- and oil-fired power generation over the next five years, as two thermal power plants that are scheduled to be served by the pipeline will have to run on diesel for longer, before having access to feedstock and switch to natural gas.

The administration led by President Pedro Pablo Kuczynski announced on January 23 that it will cancel the current contract and will put it back up for bidding over the coming months. The decision was taken after the existing consortium - composed by Brazilian conglomerate Odebrecht, Spain's Enagas and Peru's Grana y Montero , and known as Gasoducto Sur Peruano (GSP) - said it was unable to access financing for continuing work on the project, which is 37.6% completed, according to a statement released by the consortium. Securing financing by January 23 2017 had been set as a definitive condition for the concession to continue. The consortium will now have to pay the government a USD262mn fee for not meeting the contract's terms.

An Expected Key Driver Of Southern Peru's Economic Development
Map Of The Southern Peruvian Gas Pipeline
Source: Proinversion, BMI

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