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Petroperú: reality and ideas to improve its role

Petroperú is a Peruvian state company.  Photo: Andean
Petroperú is a Peruvian state company. Photo: Andean

Petroperu it registered losses for a value of 60.9 million dollars between the months of July and September 2022. This was only the tip of the iceberg of a crisis that has dragged on since previous years. Not only due to mismanagement, which has affected its operational capacity and cash flow, but also due to an over-indebtedness in the investment for the modernization of the old Talara refinery.

Six billion dollars were invested late in a project that was not carried out under criteria of administrative efficiency and that only had one bidder. As if that were not enough, the original budget ended up increasing almost four times more. This disbursement, much greater than the company’s equity, meant a big problem for its risk rating.

Currently, the Peruvian entity must import products to meet its share in the domestic market. And it must do so without refining capacity, since the modernization of the Talara refinery it was mounted on the pre-existing installations.

This situation occurs in the midst of a trend of high fuel prices, mainly due to the war in Europe. However, the context will become more complicated once the disbursements for the different financial operations, typical of the state company, begin.

In September of this year, Fitch Ratings downgraded credit rating Petroperu to “junk bond”, and that complicated their ability to import. It had a first loan of 750 million dollars to be able to operate, but it finally collapsed. This has led to a $1 billion capital contribution and another $500 million loan.

Added to the foregoing is the delay in payment of the fuel stabilization fund, which is further complicated by the precarious cash situation. The State asks wholesalers not to raise prices, following what is happening in the international market. In exchange, they are guaranteed to pay the difference. But, many times, there are delays of up to six months or a year to pay off the debt.

An underlying issue is the reengineering of Petroperú, said Pedro Gamio.  (REUTERS/Mariana Bazo)
An underlying issue is the reengineering of Petroperú, said Pedro Gamio. (REUTERS/Mariana Bazo)

Petroperu it has problems of bad or debatable investments, wrong management and problems of weakness in its corporate governance. A comprehensive report is required to show us what is suspected, that the investment in Talara has decapitalized the company. This will make it difficult for it to play its role in blocks 64 and 192, which require a large investment and technical capacity that does not exist today.

The search for top-level partners that take on these challenges should be evaluated, maintaining a minority participation of the public entity. It is also important to check if in the fields that are to be returned in talara, which have a lower level of investment and a quick recovery, the national company can recover a vertical integration that it lost. This in any case requires an investment capacity that is not available today.

Also keep in mind that Petroperu has assumed the temporary administration of the natural gas distribution operation in Arequipa, Moquegua and Tacna. This program is delayed due to lack of resources.

A underlying theme is the reengineering of the company. There are technical cadres of advanced age and a 30% surplus of personnel in administrative tasks. This affects your management. In accordance with the magnitude of the crisis, it would be necessary to evaluate a greater intervention, in order not to repeat the problems that it faces today. This is an urgent task. It is not possible to be disposing of its diminished utilities, with a picture of seriousness of the patient. If this situation continues, it would mean that the board is overwhelmed by union pressure.

Petroperu It wasn’t fully sold in the 1990s because they realized they needed it to fulfill a role of market regulator. A sharp rise in prices due to a situation in the international market could and can cause a social and political crisis for the government in power.

But the best solution is to have a solid corporate culture, with efficient government and without mistreatment or misuse by the authorities of the moment. This is not impossible to achieve. It would have to be an agreement at the highest level, with the intervention of the Congress of the Republic, the Comptroller General of the Republic and the academy representing civil society. Transparency and meritocracy is urgent.

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