i j Camisea Energy Project - Meeting with IDB Date October 29 2002 Location Office of the USED Inter-American Development Bank 1300 New York Ave NW Room NE- 101 Washington DC Re Proposed IDB Loan for the Camisea Energy Project Peru Time 2 30 p m 8 20577 Participants USED s Office- Inter-American Development Bank -r Jose Fourquet US Executive Director John Hurley Senior Counselor Inter-American Development Bank Robert Montgomery Head Environmental and Social Unit Private Sector Department Eduardo Figueroa Principal Environmental Engineering Specialist Public Sector Dept Philippe Birebent Senior Investment Officer Private Sector Department Jean-Marc Aboussouan Private Sector Specialist US Treasury Keith Kozloff Senior Environmental Advisor Office of Development Finance Barbara Holloway Director of Loan Review Office of Multilateral Development Banks Gwyn Koepke International Economist Office of Multilateral Development Banks State Department Alan Yu Office of Environmental Policy Oceans Environment and Science John Struble Bureau of Economics Business and Agriculture Kerri DiZoglio International Economist Office of Development Finan e US Agency for International Development Stefan Medina Office of Donor Coordination and Outreach The following notes were put together by Stefan Medina of USAID and Keith Kozloff of Treasury and are based on IDB answers to questions submitted by Treasury prior o the meeting Contributions to the questions were submitted by a number of USG agencies including USAID Hosted by the USED's Office at the Inter-American Development Bank the meeting provided the opportunity for USG officials to question IDB officials about the specifics of the IDB's assessment of and potential participation in the Camisea energy project in Peru I Camisea Energy Project - Meeting with IDB Camisea - Initial Questions for IDB Staff General 1 When did the IDB's environmental staff first engage with TGP What was the status of project construction at that time The IDB officially signed a mandate letter to begin due diligence in February 2002 2 What has IDB told TGP regarding the consortium's financial exposure in proceeding with the project implementation prior to the completion of environmental assessment and Board approval Topic not discussed as the IDB is contractually involved with only the downstream component of the project IDB has not made any commitments to TGP at this time as it has not completed due diligence activities 3 Is IDB contemplating any tranching of loan disbursement to en ourage compliance with environmental and social safeguards by the consortium The IDB representatives stated it was too early for a definitive answer as they had not completed their due diligence However they would usually use tranche lending in this scenario This would involve • • • 4 Project must meet all IDB established environmental standards May include additional benchmarks set according to a specific timetable May in the case of Camisea even go beyond the framework of a traditional loan agreement to broaden the required commitments to environmental protection such as funding for environmental reserves and performance bonds Based on its due diligence to date does the IDB consider the existing and projected social and environmental impacts to be acceptable consistent with Bank policy No unacceptable impacts have been identified to date based on the information the IDB has obtained about the downstream project The IDB representatives also stated that the consortium was informed that the IDB would withdraw from the project if the project does not meet acceptable social environmental standards With respect to next steps in IDB's due diligence the next document to be prepared is the pre-SEER The IDB has posed questions to the consortia has received acceptable responses from TGP but is still waiting for responses from Pluspetrol The IDP hopes to build consensus with civil society organizations by January then present the project to its Committee on Environmental and Social Impacts 2 Camisea Energy Project - Meeting with IDB 5 Since the upstream and downstream components of the project are obviously dependent on each other does the IDB differentiate its oversight and policy compliance role with respect to the two components The IDB's direct contractual involvement is solely with TGP and the downstream component of the project However they will look at the cumulative impact of the entire project prior to becoming a direct participant IDB staff also stated that they would not finance the downstream part of the project if the project as a whole did not meet their social environmental impact standards They are also working with the US Export-Import Bank to maintain pressure on the consortium to make the necessary changes to their current operations Follow up please specify how the IDB is coordinating with Ex-Im especially regarding changes being requested in the project 6 Given that Pluspetrol has said it intends to complete with the project regardless of IDB fmancing how would the IDB characterize its value-added to this project IDB staff clarified that Pluspetrol not TGP made the statement about completing the project without IDB support The IDB believes that they have contributed to the improvement of the environmental and social standards of the project Follow-up 6a Elaboration of this response is a key piece of information IDB staff also believe that their involvement has positively influenced Pluspetrol If the overall project goes well Pluspetrol is well-positioned to expand production beyond Block 88 into Block 56 but if there are problems another company might be preferred In addition the IDB feels _that it has contributed to the increased involvement of the GoP in monitoring the impact of the project A $5 million IDB loan is currently in the process of being approved and would be used to improve the monitoring and governing capacity of the GoP in relation to the Camisea project Follow-up 6b Since the TA is a stand-alone project how has the IDB contributed to the increased involvement of the GoP outside of it An additional question was raised by the USED-IDB Executive Director as to whether the IDB officials believed the project would go forward without IDB funding The response was Yes but they referred to a number of factors that would complicate that scenario It would be very difficult for the consortium who although they have the funds to support a project of that size would feel extremely uncomfortable tying up that much equity in a single project-especially as it would draw funds from other potentially lucrative projects 3 Camisea Energy Project - Meeting with IDB Furthermore as the US Ex-Im Bank has stated that it would not participate in the project if the consortium did not meet IDB's environmental standards this led to the point being made that the IDB has a significant amount of leverage over the project sponsors Therefore the potential exists for substantial pressure to be placed on the consortium to resolve many of the social and environmental concerns 7 Given its involvement with the project to date does the Bank consider that the consortium has the technical and organizational capacity at the present time to manage the whole project in an environmentally and socially sound mannei At this time the IDB officials deferred comment on this question until they have finished their due diligence However they did state that they hoped that this would be the case Government capacity to manage project 8 The World Bank's recent Country Assistance Evaluation for Peru identified concerns in the mining and petroleum According to the CAE the Bank's impact in strengthening the environmental capacity of the GoP has been minor due to weak institutions and government commitment What is the IDB's assessment of the GoP's capacity to monitor and enforce environmental and social safeguards with respect to the Camisea project and the incentives to do so of relevant ministries IDB officials stated that at this time the GoP does not have sufficient capacity to effectively monitor the environmental and social impact of the Camisea project They also acknowledged that the GoP is behind in supervising the project Toward improving that capacity the IDB is currently arranging a loan for $5 million of the estimated $7 2 million required to the GoP for the monitoring of the project The IDB stated that without this loan the GoP would not have the capacity to effectively monitor the project IDB is advancing some funds to the GoP to expedite their involvement The GoP is distributing a request for proposal for a project-specific ombudsman The GoP hopes to approve an organization to fill this role by 12-11 · 9 Is the IDB's financing of Camisea conditioned on any improvements in GoP capacity · See Q #8 10 According to the World Bank the IDB is strengthening government capacity to address the environmental social and economic dimensions of the Camisea project Please describe IDB activities in this regard including assistance to clarify responsibilities for social and environmental safeguards in concession agreements 4 _ Camisea Energy Project - Meeting with IDB The IDB has helped to establish CONAM to bring together environmental groups within Peru to help coordinate their activities and the exchange of information The fact that this is the first time that the IDB has helped to establish a sector specific environmental watchdog organization is put forth as an example of their c01nmitment to enforcing proper implementation of environmental standards IDB officials also stressed the importance of GoP participation in this process Documents are currently being drafted that will provide more information on this question and it is expected that this information will be distributed to the relevant USG agencies 11 Please describe any land titling activities that IDB is conducting in the area around the project that might be subject to incursions IDB officials stated that there was already a loan in place for land-titling purposes and that all of the land surrounding the upstream project was properly titled However the IDB is also providing additional funding for studies to finalize the categorization of the land-particularly as it relates to the reserves for indigenous peoples Also Pluspetrol and TOP have contributed to a fund to facilitate the titling of land to a broader area The IDB is also helping to develop a master plan for zoning to facilitate future titling Although not finalized it is expected that the GoP will contribute to this fund in part through the royalties it receives from the Camisea project This fund would be managed privately 12 Will the IDB make· available to the Board any proVJs10ns in concession agreements production-sharing agreements or other commercial documents that specify the responsibilities for social and environmental safeguards of the respective parties Pluspetrol has offered to produce some of the documents including the concession agreement Development benefits According to IDB staff there are three types of local development benefits - 1 direct compensation for loss of property income or livelihood due to project activities during construction 2 compensation mechanisms in the social and environmental management plans for losses incurred during project operation such as from long-term use of the right of way and 3 creation of a community development fund that will be capitalized by· royalties from project sponsors to the Government NGOs from the Urubamba River area have been solicited for their input on compensation and development plans 5 Camisea Energy Project - Meeting with IDB IDB staff has concluded that the compensation procedures being used in the downstream components meet IDB standards With respect to the downstream component IDB has verified that reasonable values are being applied and that no arbitration has been needed Regarding the upstream component some people including settlers have claimed that compensation values have not been fair The IDB has not yet ascertained the validity of these claims Follow-up 12a Does the Bank have copies of the compensation plans and have the plans been determined to meet Bank standards for fair compensation Was land-based compensation offered if land was expropriated Is it ascertained that all compensation measures are in accordance with Peruvian law Follow-up 12h How has the Bank been able to assure that consultation requirements were met and that affected people gave their informed consent to resettlement and compensation as required by IDB policy Follow-up 12c Which upstream and downstream communities are participating in planning for the community development fund Follow-up 12d Is the Bank considering the establishment of an advisory committee for this project similar to what was done for the Darien Gap Development Project in Panama 13 Are there any provisions for providing gas for heating for local poor communities surrounding the pipeline in the highland areas Yes there are presently ongoing discussions on tap-offs to municipalities along the pipeline route that include the GoP TGP etc However the importance of this access or lack thereof to many of the communities was also raised 14 What is IDB's projection of the impact of the project on domestic electricity prices The IDB officials stated that the economic and market analysis has not been completed However some preliminary estimates were a decrease in the cost of energy of approximately 16% by 2015 and an estimated total value of the project of $10-11 billion to the Peruvian conomy Questions were raised as to' whether the cost savings of the project would actually reach the small consumer 15 Given recent experience with other extractive industries in Peru how is the IDB ensuring that the government complies with its canon that calls for profit sharing with local communities · A law has been established that a percentage will be devoted to social projects in the provinces but implementation will have to be watched · 16 In the IDB's financial analysis of the project what resources are set aside to address post-approval impacts 6 Camisea Energy Project - Meeting with IDB IDB officials stated that it is too early to assess what the important issues are that will need to be watched how well the company is prepared and what supplemental actions may be necessary They hoped to be able to provide a better answer after completing their due diligence on the project 17 Please summarize the process for securing exploration and drilling rights and of contracting for royalties for this project How does its transparency and competitiveness compare with international best practices The IDB did not provide information on this question as they are primarily involved with the downstream project However they did- state that it was their understanding that Pluspetrol made a bid of 37% whereas TotalFina made a bid of 33 5% for royalties to the GoP They believed the process to be legitimate as there were no protests of the process 18 What is the IDB's view of the VAT subsidies available to the petroleum industry in Peru At this time the IDB has no official stance on this issue but will provide a response to the question Environmental assessment process 19 Given the status of pipeline construction and acquisition of land for the gas processing plant has the IDB ascertained the consortium's willingness to change the routing siting of the pipeline access roads and other infrastructure based on staff Board or public review of the final environmental assessment If not what additional measures would the IDB propose to prevent location-sensitive environmental impacts IDB officials stated that TGP has changed the route of the pipeline as a result of environmental archaeological and other concerns However they did acknowledge that TGP is behind in addressing some issues ex soil erosion but that TGP is making a significant effort to resolve these issues A related question was asked as to whether the IDB would be sending people to monitor erosion and other environmental concerns during the rainy season The IDB response was· that although there will be IDB monitors in place the logistical difficulties of transportation during the rainy season will make this difficult The officials also stated that they expected to have feedback on the issue in February after the rainy season ends Follow-up 19a Will the post-rainy season monitoring report be available to the public and Board sufficiently prior to the scheduled March Board date for proper review 7 J Camisea Energy Project - Meeting th IDB 20 Please indicate where the environmental assessment presents a side-by-side comparison of the environmental social and economic attributes of the different sites considered for the gas liquids processing and related facilities When were the analyses of alternative alignments for the pipeline and of alternative sites for the gas processing plant completed For the fi actionalization plant Pluspetrol has submitted documentation to INRENA but the report is not public at this time This report contains information on why that specific site was chosen over the other available options Both the IDB and the GoP have requested more information 21 What was the nature of stakeholder consultation in the decision to locate the gas processing plant near Pisco prior to land acquisition The IDB officials stated that there was extensive consultation with stakeholders ex 13 in August They also asserted that it was not uncommon for a company to purchase land prior to finalizing the plans of the project The land could be used for a number o different purposes or even sold off if proved unnecessary 22 How has the IDB confirmed the accuracy of baseline environmental studies In addition to the numerous site visits IDB officials plan to confirm the accuracy of the studies through their due diligence In this effort they have also enlisted the aid of an international consultant Follow-up 22a Given the sequencing of the Environmental Impact Assessment and the start of construction how did the EIA inform decisions by the consortia regarding the location of the pipeline and construction choices Follow-up 22b What evidence have the project sponsors provided to the Bank that the right of way ROW for the pipeline was chosen in such a way as to minimize resettlement or disturbance to the indigenous communities and the natural resources they depend on Environmental Standards 23 Please summarize any IDB monitoring and engagement with the Consortium undertaken to date regarding each of the following issues and the IDB's plans for project oversight going forward The following monitoring activities have been established • TGP has hired an engineering company • TGP and Pluspetrol have hired an environmental consultant 8 Camisea Energy Project - Meeting with IDB • TGP has hired a local NGO to train X communities in monitoring • The GoP OSINERG has X monitors in the field_- • The IDB has X monitors in the field IDB staff stated that there are enough monitors in total but the problem is lack of coordination access to monitoring reports and credibility of information provided IDB is trying to improve coordination among various monitoring activities Follow-up 23a Given the large disconnect between IDB and NGO statements about the extent of the sponsors' compliance with standards and policies to d i te how is the IDB assuring the credibility of monitoring data Follow-up 23h What steps is IDB taking to ensure that data from the all above monitoring activities is made publicly available on a regular basis Follow-up 23c Does the Bank intend to establish an independent monitor Follow-up 23d What is the IDB's estimated budget for its own monitoring over the life of the project • Actual location and width of the planned right-of-way especially in sensitive areas such as forests The planned width of 25 m has on occasion been expanded due to safety and logistical issues The IDB has stated that upon completing construction the company would offer compensation according to the number and severity of the violations They also stated that these variations are typical for a pipeline project especially given the terrain involved At this time IDB officials stated that they were unaware of any significant violations Follow-up 23e NGOs have alleged that the ROW is being changed in many areas because it was never examined on foot prior to the start of construction it was surveyed by air and now many physical problems are encountered on the ground that require deviations from the original ROW What evidence have project sponsors provided that any changes in the ROW are still meeting the standard on minimizing resettlement and disturbance for example animal habitats because hunting provides an important component of local diets • Selection and enforcement of environmental standards for this project i e water effluents waste management air emissions Although the question was not answered directly by IDB officials they stressed during the broader discussion that all IDB environmental standards· would be complied with for the IDB to be involved with the project IDB standards have been adopted by the environmental management procedures of the consortia 9 Camisea Energy Project - Meeting with IDB • Allegations of violations of law or procedure such as forced contact with indigenistas deaths of workers and a local child and construction of unauthorized access roads According to IDB officials there has been incidental contact with voluntarily isolated communities and cited a specific instance in Santa Rosa The IDB cited the company for the inappropriate contact and IDB officials stated that it has not been repeated In addition they stressed that despite the number of allegations there has been no proof of further inappropriate contact In June-July 2002 the IDB raised health and safety issued with the consortium and this has led to increased safety for workers TGP recognized the lack of compliance with safety standards and has implemented and continues to implement changes to improve the health and safety of the project The IDB acknowledged the sad loss of a local child lost allegedly to the wake of a barge not operating under proper guidelines but stated that it had not been proven that the child was lost directly as a result of the barge IDB officials also stated the it was_ their understanding that the barge operator had been fired and the family had been compensated financially • Prevention of induced social and environmental impacts due to use of access roads by loggers settlers etc There has been construction of unauthorized roads although IDB officials referred to them as minor infractions that would likely lead to fines by the GoP At this time IDB officials stated that loggers or settlers are not using the access roads However they acknowledged the need to remain vigilant to ensure these people do not use them in the future Follow-up 23f Is the IDB satisfied with plans by the consortium for 1 enforcing nocontact rules 2 limiting ·access by migrants to the project area and 3 preventing deforestation Please also specify IDB plans in regard to the prevention of such induced impacts in the future IDB officials also stated that some of the complaints of a lack of compensation are actually coming from settlers and not from the indigenous peoples in the area • Protection against invasive species Not directly addressed in the meeting • Avoidance of impact on areas that are the subject of conservation programs by the World Bank GEF or bilateral donors i e debt for nature swap 10 Catn1 sea Energy Project - Meeting with IDB The IDB is currently helping to provide funds to facilitate the protection of the areas involved both directly and indirectly with the project Follow-up 23g Please specify IDB plans and funding levels for protected areas • Avoidance of adverse social or economic impacts on indigenous communities adjacent to the project Health issues are being watched and there are programs in place to handle emergencies IDB officials also stated that compensation is also available if needed Follow-up 23h Does IDB consider the sponsors' disease prevention plans and the present level of health monitoring to be adequate • Enforcement of the policy of no forced contact with voluntarily isolated communities IDB officials stated that no direct link has been established between seismic testing and the movement of the semi-nomadic communities in the Camisea region At this time they state that no one has come forward to· claim that they were forced from their land and that furthermore there is no proof that these peoples will not return to those areas once the seismic testing has been completed However as part of their commitment to ensuring the commitment to proper guidelines the IDB is currently funding anthropological studies to gather more information to clarify this issue Follow-up 23i If someone from an indigenous community had been forced to leave what would have been their mechanism to complain When will the anthropological studies be completed • Loss of natural habitat and biodiversity including beyond the immediate footprint of the facilities IDB officials stated that the footprints of the project are relatively negligible given the enormity of the_ _ _ _ _ _ reserve However indirect impacts from the project on biodiversity are being studied as part of their due diligence Follow-up 23j What is the area of indirect biodiversity impact that to be included in the IDB's due diligence • Control of erosion and sedim ntation 11 Camisea Bnergy Project - Meeting th IDB Soil erosion is the IDB's #1 environmental concern at this time and it will continue to be monitored by IDB staff They also stated that given the importance of maintaining the proper slope of the pipeline it is in the company's best interest to protect their investment and limit soil erosion as much as possible Therefore they expected the company to continue their efforts to stabilize the pipeline and limit erosion According to company representatives in a previous meeting there are between 500-600 people currently working on controlling soil erosion in the area The IDB also echoed that there has been a significant increase in the number of consortium employees addressing the issue The key will be to limit erosion in both the short- and the long-term Follow-up question k Please respond to the findings on erosion sedimentation and associated recommendations contained in the September TGP monitoring report Has the IDB requested that construction be temporarily suspended until erosion control measures are completed on the portion of the project where land has been disturbed 24 Given the problems experienced by the OCP pipeline in Ecuador by Techint how does the Bank intend to ensure that this contractor avoids similar problems in Peru The IDB has looked into OCP and state that they have gone beyond this to look at the issues surrounding other pipelines as well They will be monitoring the project and even if approved could withdraw funding if necessary 25 Please indicate what specific changes the Bank has requested in project design or implementation to reduce social or environmental impacts and what the consortium has done in response The IDB officials stated that they would follow-up with more information to better answer this question However they did state that they have positively influenced the actions of both the consortium and the GoP to improve the social and environmental effect of the project in the region Follow-up 25a This is the most important question for a detailed response For each item listed please indicate the business as usual plan of the consortium what specific changes the IDB requested and the actual changes made by the consortium 26 How would the IDB compare the environmental standards and procedures of the current consortium compared to those adopted by the previous Shell consortium or the World Bank · IDB representatives stressed the importance of viewing the promises and actions of Shell in the proper context Shell had made many very positive promises but pulled out of the area prior to actually having to implement many of them There were good things but IDB staff questioned whether it would have continued given the size and complexity of the project 12 Camisea Energy Project - Meeting with IDB '' In addition Shell enacted a huge and very effective PR campaign that the current consortium has decided not to pursue IDB officials argued that this was to the detriment of the current project and that they had suggested a PR campaign to the company last year The company has shown how they have complied with WB 4 04 and are currently addressing any gaps in compliance to WB and other standards Transparency and role of affected stakeholders 27 How has the IDB ensured that affected stakeholders are being afforded an opportunity for meaningful participation in project decision-making GoP and the IDB have helped to sponsor a number of public consultations after the EIA were completed The fact that the IDB held a public consultation in Washington for a specific project is very unusual and they assert illustrate their commitment to monitoring the negative impacts of the project The IDB believes that their consultation measures have substantially exceeded normal requirements 28 Was the EA summary made available to indigenous peoples in local languages and in a format they could understand How have their comments been taken into account and answered Yes many items have been translated and made available 29 In the August meetings how did the IDB encourage participation What environmental social and economic information was presented about the project for review in advance of the meeting What assurances did participants receive that their concerns would be considered What other follow-up actions were offered A local company in Peru was hired to encourage participation This was done through the newspapers radios and a number of other means and proved effective given the strong response to the campaign In addition the consortium helped to provide transportation lodging and food for those people who had difficulties in attending the meeting and helped to provide many different groups with good representation Documents and a list of questions were submitted prior to the meeting allowing for many answers to be presented ·at the meeting The consortium is currently drafting additional answers that will be posted on the Camisea website IDB officials stressed that the majority of NGOs support the project assuming that their social and environmental concerns are addressed and that it is actually a small group of NGOs that oppose the project They also stated that some of this group in 13 l Camisea Energy Project - Meeting th IDB would oppose the project on purely ideological grounds regardless of the activities of the consortium 30 What if ny legal representation is available to affected indigenous groups Yes representation has been made available and that a new office of the national ombudsman has been established in Camisea In addition the GoP is currently searching for an ombudsman to handle the Camisea project specifically 31 Please describe the public notice and comment competitive bidding representation of indigenous peoples and local elected officials in the process of negotiating the contracts or leases at each stage A written answer will be forthcoming and the IDB officials requested clarification on the at each stage aspect of the question Also there is no competitive bidding in relation to indigenous peoples 32 How will payments by the consortium to the government be publicly reported The IDB officials were not positive on this topic although the company's annual reports would be required to include this information A Treasury official added that the GoP's budget process is relatively transparent Although the IDB will not specifically monitor the payments they will request more information from the GoP and forward that information to USG officials 33 Given the payment arrangements for local monitors what provisions is the IDB_ establishing to ensure the integrity and independence of on the ground oversight of the project over its operating life The issue has been brought up by the IDB to the consortium TGP is currently paying an NGO to train monitors and there has been a recent agreement for the reports prod1 J ced by these monitors to go directly to the GoP and not the company The GoP will be responsible for helping to direct -and coordinate the monitoring activities by locals and companies will be helping to pay for the monitors · Follow-up 33a According to its resettlement policy the Bank will only support operations that involve the displacement of indigenous communities or other low income ethnic minority communities if the Bank can ascertain that i the resettlement component will result in direct benefits to the affected community relative to their prior situation ii customary rights will be fully recognized and fairly compensated ii_i compensation options will include land-based resettlement and iv the people affected have given their informed consent to the resettlement and compensation measures · Has the Bank ascertained that the gas field and pipeline projects meet each of the four standards set out in this policy statement 14 _ • ' '' Camisea linergy Project - Mee ng rith IDB Follow-up 33b Under Peruvian law what conditions limitations safeguards are imposed on development activities inside the Nahua Kugapakori Reserve Follow-up 33c Have Bank staff detennined that gas field development in this Reserve is consistent with IDB resettlement policy and international good practice with respect to informed consent and compensation 15