Peru annuls five Discover Petroleum oil contracts amid alleged concession kickbacks

A full-fledged scandal over alleged oil kickbacks has forced the ouster of Peru’s Energy and Mines Minister Juan Valdivia, as well as two top state oil company executives, and led the government to suspend five joint exploration and development contracts recently awarded to state-owned oil company Petroperu and Discover Petroleum of Norway.

“We consider it very serious that a state employee betray the state and country’s trust by meeting with lobbyists to split commissions,” Peru President Alan García said late Sunday night, just hours after investigative TV news program Cuarto Poder broadcast audio recordings purportedly of Perupetro Vice President Alberto Quimper and Romulo Leon Alegría, a prominent member of Garcia’s ruling Aprista party, discussing under-the-table payments conditioned on Discover Petroleum obtaining oil concessions.

“The best way to respond to these atrocities and these rats is to immediately act to purge our government and our state from all acts of corruption,” García said, before he publicly sacked Quimper and demanded that he be arrested.

Quimper in his own defense questioned the authenticity of the recordings.

“This conversation could have been taken out of context, edited or it could have been a colloquial question that ended up being the basis for a formal complaint at the highest level in this country,” Quimper told Radio Programas radio. “If now the answer is arrest, I am in my home. They can come, issue an arrest warrant. I’ll go because I have absolutely nothing to hide.”

In recent years Perupetro, the state oil licensing entity which signs contracts and grants concessions for all companies doing oil operations in Peru, has been steadily increasing the number of exploration and production contracts.

Though it was argued in September that three-year-old Discover did not appear to have the financial backing to take on extensive offshore drilling, Perupetro awarded concessions to the Norwegian company and Petroperu to jointly explore four offshore blocks and a potential gas field in the Madre de Dios jungle.

But it wasn’t until the four audio tapes were aired that the scandal tied to the concessions widened.

Fernando Rospigliosi, a former interior minister during ex-President Alejandro Toledo’s 2001-2006 government and a longtime opponent of Garcia, said an anonymous person left the audio CD, which he later delivered to Cuarto Poder’s TV studio.

According to the recordings, Quimper, Leon and Ernesto Arias-Schreiber, the legal representative of Discover in Peru, were to receive $10,000 monthly in exchange for manipulating the bidding process for the concession to explore the offshore oil blocks and gas field.

Early Monday morning, Valdivia submitted his resignation to Garcia.

“What we have done,” Garcia said, “is when (Valdivia) immediately came to the (government) Palace to resign because he said ‘I have nothing to do with this dirty mess but I am responsible for this political sector’ we said, very well, we accept your resignation.”

“I have never met with Mr. Quimper,” said Valdivia. “I have never even spoken with the presidents of Petroperu or Perupetro. Now we can see that there has been an illegal and gangster-like agreement between these two people.”

“Especially deplorable is the fact that Mr. Quimper has involved Perupetro’s board,” added Valdivia. “I am angry and I don’t know what these people are capable of doing. All the efforts one does to get this country ahead are being smashed by people of this sort.”

“I had nothing to do with this,” Valdivia said in comments to state news agency Andina, “and I feel hurt morally and they have even stated my name.”

In addition to the departure of Valdivia, Quimper’s public sacking and Leon’s quick Sunday resignation as a member of Apra, César Gutiérrez, the president of PetroPeru, also resigned from his position Monday.

Denying involvement with the bribes, Gutiérrez said that he resigned to protect the state company. His name was not mentionned during the audio conversation.

“What I want to clear is the company’s name,” said chief executive of Perupetro, Daniel Saba. “Perupetro has embarked in a permanent process of improvement. We are doing a great deal and carrying out many things that come from previous governments, and all this could be thwarted by a conversation between these two people who shall remain unnamed. This is absolutely unjust.”

“The process (by which concessions are granted by Perupetro) is so transparent,” added Saba, “that the participation of people external to this process is not necessary for a company to win or lose, this has to be clear.”

Petroperu, however, has been involved before in questionable actions.

In 2002, PetroPeru’s chairman, Raul Pasco, resigned after a probe was launched into the use of $1.4 million of company funds – without the approval of Congress – to finance then-President Toledo’s redecoration of the presidential residence. Among other things, a jacuzzi and pool table were installed. Funds were also used to decorate his wife Eliane Karp’s office, located in the Petroperu building.

Later, in 2003, Toledo fired the head Petroperu after local media reports accused Hector Taco Tamo of partying on business trips. Taco allegedly used state company funds to organize orgies and parties in provincial cities like Iquitos.

Audio conversation extract published in daily El Comercio:
– León: “Your fees should be deposited in your account.”
– Quimper: “Have yours arrived?”
– L: “Not yet. They won’t pay me until the contract with Petroperu is approved.”
– Q: “And the fat man (this person has yet to be identified)? Why are they going to pay him?”
– L: “Because his has no conditions attached. I think baiting the fat guy is going to be very difficult.”
– Q: “We have to get the fat guy to sign up, and in your case we don’t need any more information.”

Meanwhile,  Luciana Leon, the youngest lawmaker in Congress and daughter of Romulo Leon, said she would vote for a full congressional investigation into the scandal. Romulo Leon was minister of Fisheries and a congressman during President Garcia’s first term in 1985-1990, which was plagued by corruption.  Following accusations of corruption at the time, Leon was expelled from the Aprista party in 1991, but reinstated in 1998.

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