The Peruvian government has threatened to take over the operations of three foreign oil companies, including Occidental Petroleum, if they do not agree to new contract terms by midnight tonight.
Government negotiators were hoping to sign a letter of intent containing the outline of new oil concession contracts, which would permit continued discussions on specifics.
The government has been negotiating with three companies, Occidental Petroleum Corp. of Los Angeles, Belco Petroleum Corp. of New York and Bridas Exploraciones y Producciones S.A. of Buenos Aires, since early November. Belco is a wholly owned subsidiary of InterNorth of Omaha, and Bridas is a U.S.-Argentine consortium.
President Alan Garcia personally ordered the rescinding of concession contracts in late August, saying the oil companies had used tax credits inappropriately for extracting petroleum deposits more rapidly instead of for exploring for new reserves.
Although the dispute has been clouded by complicated legal issues, the bottom line is that Garcia, a left-of-center populist, wants to redefine Peru's relationship with foreign capital in the touchy area of natural resources.
This nationalistic stand already has brought Peru into conflict with the U.S. government. A close adviser to Garcia said the State Department has informed the Peruvian government that sanctions would be taken against Peru if the government does not reach a satisfactory agreement with the companies.
In an impromptu news conference on Christmas Day, President Garcia said the oil companies would have to use their own capital, about $425 million, to explore for oil in compensation for tax credits that already had been awarded. Garcia said Occidental would have to invest $267 million, adding that new concessions would be made available to contractors on the basis of a 50-50 production split with the state oil company Petroperu, as is currently the case.
The government issued decrees today that annulled tax provisions made by the previous government for the petroleum contractors. In effect, the maximum tax rate applied to oil profits was increased from 41 percent to 68 percent.