Peru Threatens to Seize Foreign Oil Companies : Greater Investment and Higher Taxes Demanded

Peruvian President Alan Garcia has threatened to take over the operations of three U.S. oil companies unless they agree by midnight to invest more and pay higher taxes.

Peru suspended the contracts of the companies--Occidental and Belco and a joint U.S.-Argentine consortium--last August over a tax dispute and gave them until today to negotiate new contracts.

Garcia told reporters last night that the companies, which together pump two-thirds of Peru’s 180,000 barrels per day (bpd) output, would have to pay higher taxes and invest at least $267 million between them in searching for more oil.

Decrees published today raised taxes on oil profits to 68% from 41%.

Garcia suspended the firms’ contracts in August after accusing them of misusing tax exemptions granted by the previous government of President Fernando Belaunde Terry.

Western diplomats said seizure of the firms’ installations could lead to suspension of U.S. aid to Peru. According to the companies, their investments in Peru are worth $1.9 billion.

In 1968, Peru expropriated oil installations of a subsidiary of what was then Standard Oil Co. of New Jersey, settling compensation after six years of negotiations.

Garcia said Wednesday night that state-owned Petroperu Corp. will take over operation of the U.S. oil fields unless agreement is reached on new contracts.

Meaning Unclear

Any dispute between Peru and the oil companies would be handled by judicial means, he said. Diplomats said it was not clear if this means international arbitration.

Los Angeles-based Occidental Petroleum Corp. operates three subsidiaries in Peru.