Independent Report Alleges TGP Botched Camisea Construction - Peru

Santiago, Chile - US-based non-profit environmental consultancy E-Tech International found that four ruptures in the first 15 months of operations of Peru's Camisea natural gas ...

An independent report by US-based non-profit environmental consultancy E-Tech International found that four ruptures in the first 15 months of operations of Peru's Camisea natural gas liquids pipeline were caused by defective construction methods employed by the operating consortium TGP.

E-Tech International presented the report to the Inter-American Development Bank (IDB) in Washington DC on February 27.

The author of the report, Carlos Salazar Tirado, is a certified pipeline welding inspector who inspected sections of the Camisea pipelines during the construction phase in 2002-2003.

"The fundamental conclusion of this report is that the principal concern of the consortium building the pipelines was to complete the project within the timeline established by the Peruvian government," the report said.

Each day of delay beyond the target completion date in mid-2004 would have resulted in fines that could have risen to as much as US$90mn, the report said.

"The consequence of the rush to complete the project was a series of omissions and irregularities during construction that violated standard pipeline construction practices and Peruvian regulations," the report said.

Instead of choosing a less physically challenging pipeline route that would have taken longer to build, TGP rushed construction and used special piping joints to pass through difficult areas that carry a greater risk of weld failures, the report said.

Furthermore, welding was done by inexperienced and uncertified workers, and at least 40% of the pipeline used in the Camisea project was leftover piping from other projects that was stored outside for long periods of time and corroded before being shipped to Peru, the report alleges.

The report also accuses TGP of doing inadequate soil stability evaluation and hydrostatic testing.

TGP vehemently denied the claims made by the report, saying in a statement that the report "does not correspond with reality in any way and the affirmations seriously lack technical and factual support."

TGP said all piping used in construction was manufactured exclusively for the project in accordance with quality standards, and that all welding, inspection and testing of the pipeline was conducted by qualified and certified personnel.

The company also said that the leaks inspected by independent specialized laboratories have concluded that the quality of the tubing and welding were in no way connected to the spills.

Robert Montgomery, chief of the environmental and social unit of IDB's private sector department, affirmed TGP's stance that the report lacks supportive data, but stated that the claims do warrant an investigation of the pipeline's construction.

During the presentation of the report, Salazar was asked on what basis he had made these allegations as the report comes across as statement of fact. "At least during the meeting, nothing was presented by [Salazar] - no technical data that would support those allegations," Montgomery said.

Montgomery said this was the first time he had heard anything with respect to deficient construction methods.

"The bank clearly takes very seriously any such allegations," Montgomery said, adding that the IDB is currently conducting its own review of the report, which should be completed by the end of the week.

Although the bank has not identified any systemic problems, "another year could have been added [to the construction of the pipeline] and it could have changed things," he said, highlighting the extremely short timeframe provided to TGP to carry out construction works.

"I think the task was harder than maybe some people anticipated. It's very easy to say we're going to build a pipeline through the jungle over the Andes, but it's complicated," Montgomery said.

"If [the IDB] identifies anything that is wrong, we will work with the company and the government to resolve that issue," he said, adding that both the company and the government have been very open to the bank's recommendations in the past.

The IDB provided a US$75mn loan to TGP to help finance downstream activities in the Camisea project, as well as a US$5mn loan to the Peruvian government to strengthen its capacity to administer environmental and social aspects of the project.

In early November, a Peruvian government source told BNamericas the problems on the Camisea natural gas liquids pipeline could be due to the TGP consortium having used lower quality materials to cut costs in the construction of the pipeline, but TGP CEO Alejandro Segret denied this allegation, saying landslides were the main cause of the incidents.

Peru's energy and mines ministry has downplayed the incidents on the Camisea pipeline, saying that such leaks are normal in the first two years of operation of a new pipeline.

But local people are losing patience with TGP and the frequency of the leaks. The latest spill occurred in November 2005 in a tributary of the Urubamba river in the Machiguenga reserve, leaking about 6,000 barrels of liquids, environmental NGO Amazon Watch reported.

As a result, Machiguenga Indians blockaded the Urubamba river for several days to prevent construction of the project's second stage.

TGP is led by Argentine construction firm Techint, which has a 23.4% stake in the pipeline. Other partners are Argentina's Pluspetrol and US company Hunt (22.2% each), South Korea's SK and Algeria's Sonatrach (11.1% each), Belgium's Tractebel (8%) and Peruvian construction company Grana y Montero (2%).

Peru's President Alejandro Toledo turned on the taps of the Camisea natural gas project in August 2004, two decades after the reserves were discovered.

Total investment in the project was some US$1.7bn during the first phase. Gas is transported 720km from wells in block 88 in the Amazon jungle across the Andes to the coast. There are two pipelines, one for natural gas and one for natural gas liquids (NGLs).

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