The plan that Maple Gas Corp. of Dallas, Texas, took to prospective investors seemed a long shot at best.It was 1993, and the company was proposing to drill gas wells in a remote section of the Peruvian jungle that was controlled by anti-government subversives. The gas would fuel an electric power plant to be built next to a town controlled by cocaine drug traffickers. And all of this would happen in a country that was just getting its yearly inflation rate below three digits and was still an outcast to the world's financial community.
Furthermore, the proposed facilities would be built east of the Andes mountains, meaning that thousands of tons of equipment and material would have to be shipped 3,200 km up the Amazon River by freighter, then off-loaded onto barges and hauled another 800 km up the smaller Ucayali River during the four-month rainy season when the river was deep enough for barges to reach their destination (see graphic). Then the equipment would be trucked to the project sites on washboard-surfaced, potholed dirt roads that turned to mud when it rained.
The price tag? A quarter of a billion dollars. Not an easy sell.
The idea might have seemed far fetched, except that the economic case for the project was overwhelmingly strong. Peru's electricity demands were growing 9 percent a year. The country desperately needed more low-cost power, and the gas was just 2,500 meters under the jungle floor. The project's payback period was calculated at less than eight years and the profit potential was excellent.
It looked like a perfect opportunity for Maple Gas. The company had just sold off most of its assets in the United States to concentrate on developing a more lucrative foreign venture. At the same time, Peru had started privatizing its energy sector and was preparing to award concessions to commercialize existing hydrocarbon reserves. Among the properties the government was putting up for bid was the Aguaytía gas field, which had been discovered by Mobil Oil in 1961 in the jungle west of Pucallpa. The field had never been developed because of the high cost of building a pipeline to transport the gas over the Andes to Peru's coastal cities.
Maple executives saw a different way to tackle the problem of getting the energy from the wellhead to the consumer. They proposed building a gas-powered electricity generating plant at Aguaytía and running transmission lines across the Andes, figuring that this alternative would cost much less than a pipeline.
In 1993, Maple outbid other companies in a public auction to win a 30-year concession to develop and commercialize the Aguaytía gas field. As soon as the concession papers were signed in early 1994, and long before Maple had any guarantee of financing, the company began planning for construction. In fact, Maple became so confident of success that it began putting most of its money into the Aguaytía project.
The first thing Maple did after it won the concession was to run tests on the wells drilled in the Aguaytía field 33 years earlier to confirm the results. Maple hired a burly, retired Peruvian special forces commander, Jorge Meza, to assemble a security team to protect people working in the project area. Although the Peruvian government had by then made substantial progress in controlling guerillas and drug trafficking, security was still a very real problem.
"It was still an area of high risk from subversives," recalls César Valderrama, area operations manager for Maple Gas. "We practically had a regiment of marines at the well site. It looked like a battlefield. We were surrounded by soldiers."
Meza and others also recommended a community action program to develop long-term relationships with residents near the project's multiple sites, and thereby help avoid local opposition that might delay construction. Maple sent medical teams into villages to immunize children and teach basic hygiene, and the company sponsored programs with local schools.
SEARCH FOR INVESTORS
The well tests proved positive: there was enough gas to fuel a new 155,000 kW power plant as well as Pucallpa's existing 20,000 kW power plant for at least 28 years. In addition, gas liquids could be processed into bottled gas for cooking and gasolines to generate further income. Maple now had a viable "integrated" gas and electricity project to sell potential investors.
But investors were skeptical, particularly when they saw the local conditions. Meza recalls one instance: "I drove a group of Americans across the route of the transmission lines. No car had been there for 30 years. We had to spend the night in a very poor hotel high in the Andes. These were investors used to five star hotels. So I told them: ‘Tonight you'll be staying at a hotel with more than five stars. You'll be at a hotel with all the stars of the heavens.'"
But as the months passed, the strengths of Maple's proposal became increasingly apparent. By 1996 the company had put together a group of equity investors and banks willing to commit a total of $254 million to the project, including a $60 million loan from the IDB. The financing arrangement broke new ground and drew accolades from international project finance experts.
In Peru, the project was seen as a resounding vindication of the government's privatization program. "Aguaytía is the first private sector ‘test' of Peru's economic reforms," stated the IDB loan document.
Construction began in August, 1996, and was to be completed in just 18 months. Contractors would be charged substantial penalties for each day of delay. The company hired some 2,200 construction workers. Conditions in the jungle were tough: high humidity, temperatures up to 45 degrees (C), tarantulas and poisonous snakes, and frequent, thundering downpours that mired trucks and equipment in mud.
"You either catch cold from the air conditioning, or you have stomach problems from the water, or both," says Beat Naef, project manager of the electricity plant for Asea Brown Boveri, a Swiss/Swedish firm that won turn-key contracts to carry out the project, except for the gas well drilling.
Planning had to be meticulous because of the extremely complicated logistics. If the giant generators, transformers and other pieces of heavy equipment and machinery were not built and shipped on time, they would not make it the 4,000 km up the Amazon and Ucayali rivers to Pucallpa before the river level dropped to unnavigable levels.
The equipment started arriving in January 1997. "We unloaded the last shipment on the last day Pucallpa's port was open," recalls Valderrama.
Now the 122-ton generators, 86-ton transformers and other equipment had to be hoisted off the barges and onto the trucks for their arduous trip overland to Aguaytía. This would be the job of a 140-ton crane, which was trucked in from Lima in six pieces, a 785-km trip that took four days.
A special 60-wheel 10-axle flat bed truck (which itself weighed 36 tons) was brought in to transport the heaviest equipment to the various sites. A U.S. engineering firm was contracted to strengthen the 12 bridges on the 164-km road between Pucallpa and Aguaytía. Where it was too expensive to reinforce the bridges, crews built bypasses. Each heavy load took about a week to reach Aguaytía, moving at a tortuous three km per hour. Trucking costs alone were $3 million.
"If you had a heavy load on a truck and it rained, you had to wait for hours after the rain stopped for the road to dry before you could move on," says Naef. The 300 km of pipelines for natural gas and natural gas liquids, and 400 km of electricity transmission lines were routed alongside existing roads in order to minimize the impact on the environment. Maple employed a team of archeologists to ensure that important sites were not disturbed by construction of the transmission lines across the Andes. These and other environmental measures added $10 million to the project's cost.
This March, gas operations are to begin and one of the two gas turbines at the Aguaytía electric power plant is to begin operations. Full commercial operations are expected by April 1.
"The officers of Maple Gas had to have a lot of tenacity to sell this project to investors," says Valderrama. "Most were afraid. Aguaytía was one of the first large private investments in Peru."
Much has changed in Peru since Maple Gas arrived on the scene. The country has consolidated sweeping economic reforms and is becoming a magnet for investors. In 1997 the inflation rate dropped to 7 percent and private foreign direct investment hit $7 billion, four times the 1993 level.
The Aguaytía project now looks like a superb investment, not the risky venture of five years ago. "It has become an example for other companies to follow," said Valderrama.