President Demands Higher Taxes, Greater Investment : Peru May Seize Foreign Oil Firms

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

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

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

The president of Occidental Oil & Gas Corp., David Martin, arrived Thursday at the head of a delegation for talks with the government on a new contract, a company spokesman said.

Decrees published Thursday raised taxes on oil firm 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.

Expropriation in 1968

In 1968, Peru expropriated oil installations of a subsidiary of Exxon (then Standard Oil of New Jersey), settling compensation after six years of negotiations.

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

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

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

Occidental Petroleum Corp. of Peru, based in Bakersfield, pumped an average of 84,505 barrels per day last year.

A consortium known as Oxy-Bridas, operating on the Pacific coast, pumped 12,024 barrels per day last year. It is 63% owned by Occidental Peruana Inc. of Bakersfield, with another 21% share held by Canadian Occidental Peruana Ltd., based in Canada.

The remaining 16% is held by Buenos Aires-based Exploraciones y Produccion SA.

New York-based Belco Petroleum pumped 26,790 barrels per day last year from offshore platforms in the Pacific Ocean off the port of Talara, 710 miles north of Peru’s capital.