Petroperú has been a state-owned energy company since 1969 and originally held a central role in the energy sector. However, after a process of sector privatisation in 1992, the company’s role has been limited to the transportation, storing, refining and commercialisation of energy commodities. Despite the comparatively limited role that Petroperú has played recently, plans to return the company to hydrocarbons production could see the firm’s activities range from upstream to the addition of further downstream ventures, as well the potential establishment of a petrochemicals complex.

The economic success of private enterprise following the end of the Cold War seemed to herald the end of “inefficient” state-owned enterprises (SOEs). Private wealth, investment and business became the primary drivers of the economy, spurring growth throughout the 1990s. Yet SOEs have since re-emerged over the past decade, leading to the development of state-driven capitalism. Led by China and Russia, SOEs now play a very noticeable role in the world energy market.

SOEs control the vast majority of the world’s energy reserves – amongst the world’s top 10 largest energy companies, many of these are SOEs: Saudi Aramco (Saudi Arabia), Gazprom (Russia), the China National Petroleum Corporation, Petróleos de Venezuela and Petrobras (Brazil) easily compare to private multinationals such as ExxonMobil or BP. However, the SOE model varies drastically from country to country. Even within Latin America there are several distinct models of SOEs in the energy sector. Petroleos de Venezuela holds a virtual monopoly over the oil and gas industry. Meanwhile, Petrobras’s example of the state as a minority stakeholder in the production of hydrocarbons provides yet another model for any changes at Petroperú.

Days Gone By

During the 1970s and 1980s, Petroperú was responsible for virtually all oil production, minimal though it was. When the country embarked on a multi-sector privatisation programme under the government of Alberto Fujimori, Petroperú was forced to sell all its petroleum blocks in addition to its refinery in La Pampilla, which was taken over by Spanish firm Repsol in 1996.

As Petroperú was considering the sale of its second major refinery, Talara, the price of oil products coming from La Pampilla skyrocketed and even eclipsed that of imported products. The government thus decided to maintain Petroperú’s ownership and operation of the Talara refinery, to keep some control over the potential dramatic price increases from the privatisation process or swings in the global supply-demand dynamic.

Refined Growth

The Talara refinery has been Petroperú’s primary asset over the past 15 years and a $2.7bn expansion is currently being evaluated. As of September 2013 Petroperú retains a 61.1% market share in refining. In addition, as of the end of 2012, Petroperú maintained a 47.8% market share of the domestic petroleum transportation system, its primary competitor being Repsol. The proposed refinery expansion would increase Talara’s capacity by roughly 50%, from its current 65,000 barrels per day (bpd) to 95,000 bpd, when the expanded plant is reopened in 2016. The expansion project will also help clean up the refining process by decontaminating fuels to less than 50 parts per million (ppm) of sulphur, whereas current levels are roughly 2000 ppm. In addition, Petroperú is seeking to modernise two of its smaller refineries, the Conchan refinery, which currently produces about 14,000 bpd, and its refinery in Iquitos, which produces 10,000 bpd.


To finance refinery expansion, Petroperú is preparing an initial public offering (IPO) on the Lima Stock Exchange, which would see up to 20% of the company floated. The IPO has been in the works for years, with several announcements by both Petroperú and the government suggesting the IPO would happen in 2011 and 2012. However, in July 2013 Petroperú officially announced it would delay the IPO for at least 18 months because there is still outstanding work to be done. In preparation for the IPO, Petroperú contracted Société Générale to perform the due diligence on the Talara expansion and structure the financing for the project, while the company itself has been releasing financial statements.

Vertical Integration

To cut costs, improve efficiency and increase profit margins, vertical integration seems particularly logical for Petroperú, as its refinery and transport business is severely limited in terms of commercialisation, compared to upstream production. The concept of Petroperú returning to the exploration and exploitation of oil is part of a broader scheme to modernise the company under the current administration.

The most probable scenario for Petroperú’s return to the upstream business will likely see it take on public-private partnerships with private sector firms through the acquisition of soon-to-be expired and already producing lots, thus nullifying exploratory risks. The company could potentially take a 25% stake in petroleum lots due to a return to state control between 2013 and 2016.

In addition, Petroperú has made clear that it is also interested in expanding its downstream activities, in particular involvement in petrochemicals. Talks have been ongoing with Brazil’s Braskem, the largest petrochemicals firm in the Americas, over the possibility of establishing a petrochemicals industry along the southern Peruvian coast, where a second gas pipeline should provide a sufficient supply of natural gas and ethanol by 2018.

In late 2011, the Petroperú and Braskem entered into a memorandum of understanding to study the feasibility of establishing a petrochemicals plant with a capacity to produce 1.2m tonnes of ethylene and polyethylene per year by 2019 or 2020, using ethane from the Camisea gas field. While such an achievement would be a significant milestone in Peru’s industrialisation process, the plan also faces numerous hurdles, the largest of which in the short-term is the lack of a guaranteed feedstock.


The company also faces several challenges in its other ventures. Though there are no laws preventing Petroperú from re-entering the upstream oil and gas sector, after nearly two decades on the sidelines some industry players doubt the company’s capacity to take on such a task. While there is support for the model of the state as a minority stakeholder, there are reservations from the private sector as to what exactly Petroperú would bring to the table, apart from possible financing.

There are also concerns over whether the state may seek to take even greater control of the sector, in the form of larger stakes in oil and gas blocks, particularly as the nationalisation of private sector oil and gas assets has become something of a worrying trend in the region, exemplified by Argentina’s takeover of Repsol’s share of YPF and Ecuador’s recent “restructuring” of its oil and gas industry.

Gustavo Navarro, commercial director of Petroperú, identified another challenge facing the company when speaking with OBG: “One of the our biggest challenges is actually overturning the misconceptions that many people have of Petroperú as an avaricious state enterprise with numerous advantages when it comes to competing against the private sector. This is simply not true; in fact, it is the reverse.” Indeed, Petroperú is obligated by law to bring petrol to pumps in all areas of the country, particularly those which are not considered economically viable or attractive to private sector companies, while it is also responsible for paying pensions and other legacy costs of numerous privatised assets.


Having been stripped during the broad privatisation process of the mid-1990s, Petroperú’s ability to generate revenues has been severely constrained. In this context, it is only natural for a company to seek to diversify its revenue streams. Concerns over Petroperú’s capabilities are perhaps dramatised to an extent, as minority stakeholders are rarely the primary party responsible for overseeing operations. Furthermore, fears of a nationalisation or restructuring of the industry are only partly realistic, as it would take considerable changes to national law before any such major alteration could occur, though it is certainly not impossible.

Thus far, Petroperú has signalled its expansionary plans – whether it be re-entering the upstream or expanding in the downstream – to join the market under the same rules and regulations as private sector companies in an impartial manner. However, some within the private sector remain sceptical as to whether the government’s agenda will remain unbiased, and initial contracts signed by Petroperú will certainly be put under a microscope. Overall, after over two years of expressing intent, delayed IPOs and several different expansion strategies being proposed, it is difficult to predict exactly how the company will develop in the medium to long term.