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Privatization in Peru on hold, pending elections
Journal of Commerce / December 7, 1999

By Larry Luxner

LIMA -- President Alberto Fujimori, whose government has generated over $8 billion in privatizations of state-owned property since 1990, hasn't yet said whether he'll run for an unprecedented third term -- and the waiting game is making investors nervous.

While government officials talk about privatizating the major airports and seaports, analysts say nothing is likely to happen until after the May 2000 elections.

"Every election in Latin America is of concern to investors, who prefer to have long-term vision," says Jaime A. Garcia, general manager of the 430-member American Chamber of Commerce in Lima. "We don't anticipate that any of the four major candidates would change Fujimori's free-market economic policies. That's not the main concern. Our main concern is job creation, and how we can lower the poverty rate. Foreign investment in mining, telecommunications, agribusiness is going to help, but it won't solve the problem of job creation over the next 10 years."

Garcia, interviewed last month in Lima, said that as of September 1999, the total stock of foreign investment in Peru was $8.099.6 billion, up $574.9 million (7.64%) over September 1998 figures. Investments between January and September were mainly in the financial sector ($140 million); industry ($36 million); petroleum ($27 million); services ($24 million); commerce ($18 million); mining ($12 million) and agriculture ($10 million). Capital came mainly from the U.S., Argentina, Chile, the United Kingdom and Canada.

Meanwhile, U.S. investment of $2.15 billion accounts for 70.7% of the total foreign investment on the Lima Stock Exchange, followed by Holland (16.5%). The largest investors in the short term are Southern Peru Copper Corp ($1.5 billion); Shell Occidental ($768 million); Cyprus Amax Minerals Co. ($683 million); Empresa Minera de Mantos Blancos S.A. ($526 million); Panworld Minerals ($450 million): BHP (Australia); $369 million); Grupo Repsol ($320 million) and Doe Run Mining ($300 million).

According to government figures, Peru has a GDP of $65 billion, but some observers say it's not more than $50 billion. Either way, most economists agree that privatizations have contributed in a major way to Peru's economic health. This year, in fact, Peru will be one of the only countries in South America to show GDP growth.

Fujimori, a strong supporter of privatization, is easily leading his most serious contender, Lima Mayor Alberto Andrade, by more than 20 percentage points. While few observers expect the authoritarian president to lose, investors have taken a back seat, particularly when it comes to state auctions of seaports and airports.

Together, privatization of the ports of Ilo and Matarani are expected to generate $160 million in investment, according to state agency COPRI. Other ports will later be included in the process, including Paita, Salaverry, Chimbote, Callao and General San Martin -- which together account for 99% of Peru's total cargo traffic.

Garcia says it's about time the government took this crucial step.

"We are in a better situation than five years ago, but compared with our neighbors, we still need to improve," he said. "It's not enough to talk about the past, which is what all the politicians do. They've been talking about this for seven years."

In 1997, according to COPRI, Peru's seven ports handled a combined 13.9 million metric tons of cargo, led by Callao (9.06 million tons), San Martin (1.46 million tons) and Matarani (1.07 million tons). In 1997, Callao handled 321,567 TEUs of containerized traffic, or 86% of Peru's total, while Ilo (with 12,783 TEUs in 1997) has seen a 66.4% growth in containerized traffic during the last five years.

Undoubtedly, Callao is the big prize -- and experts say it will need at least $300 million in port infrastructure investment. Principal commodities exported through Callao include metals, minerals, fishmeal, general cargo and containerized goods, while leading imports are grains, petroleum, chemicals, fertilizers and containerized cargo.

Separately, the Peruvian government plans to begin transferring the operation of the country's main airports to the private sector by year's end.

At present, Corporacion Peruana de Aeropuertos y Aviacion Comerical (Corpac) oversees 33 airports and 28 aerodromes. With 1,600 workers (900 in Lima and 700 elsewhere), Corpac's main airports are Aeropuerto Internacional Jorge Chavez in Lima, adn international airports in Arequipa, Cuzco and Iquitos; Corpac's total capacity is 7.5 million passengers, 200,000 flights and 120,000 metric tons of cargo per year. In 1997, the agency had income of $90 million, and handled 5.68 million passengers and 59,724 tons of cargo.

Planned investment at Lima airport alone is $150 million to $200 million. Projects to be developed include main building improvement, aircraft fueling systems, freight warehouses and runways. Jorge Chavez International Airport accounts for 97% of Peru's total international passenger traffic, and 99% of its air-cargo business.

Parsons Latin America has been selected as engineering consultants to prepare the basis for 30-year concession. Total expected investment could reach $500 million.

"They really want to promote Lima as a passenger and cargo hub for South America. It's ideally situated," says Kevin Tynes, vice-president of Parsons Latin America.

Most of the airlines providing scheduled passenger operations also carry air cargo in their lower deck, including American, LanChile, Ecuatoriana, Aeromexico, KLM, Alitalia and Lufthansa. However, Arrow Air and Challenge Air Cargo provide regular all-cargo services between Lima and U.S. cities, and Martinair provides similar cargo links to Amsterdam. In 1997, the airport accounts for 17,042 kilograms of national cargo and 66,465 kilos of international cargo.

AmCham's Garcia says the concessioning of operations at the nation's airports will boost Peruvian exports -- particularly perishable items that need to be sent by air.

"If we are going to export flowers, we don't have infrastructure for refrigeration," he said. "We have to be faster. We need to work 24 hours a day, seven days a week. Now they don't work on Sundays."

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