Peru's Aim To Buy Refinery, Stations Causes Firestorm Of Criticism

--Peru considering buying refinery, service stations

--Opposition says government shouldn't purchase the oil sector assets

By Robert Kozak and Ryan Dube

LIMA, Peru--The possibility that Peru's government may buy a refinery and a chain of service stations is causing a fire storm of protests, with critics saying that President Ollanta Humala is pushing for greater state control of the economy.

Government officials like Finance Minister Luis Miguel Castilla have acknowledged that the government is looking at having state-owned Petroleos del Peru SA (PETROBC1.VL), or Petroperu, take a minority stake in the assets that Spain's Repsol SA (REP.MC, REPYY) could sell.

"The decisions that the government takes, when they have to be taken, will be based strictly and scrupulously on commercial and economic aspects, not ideological ones," President Humala said late Sunday in a television interview.

"If we aren't clear that technically, economically, and commercially it is a good opportunity, and that the risks are going to be limited, then we won't do it," said Mr. Humala, who held a closed-door meeting in Lima last week with Repsol chairman Antonio Brufau.

The ownership of oil resources in Peru is a heated political issue.

Petroperu was created in the late 1960s during the left-wing military dictatorship led by Gen. Juan Velasco from expropriated properties. Mr. Humala, a former military officer, is an admirer of Gen. Velasco, although he has ruled out running socialist policies.

The mere suggestion, however, that Petroperu could become the sole owner of all the oil refineries in Peru has caused a vivid backlash from the private sector.

Alfonso Garcia Miro, head of Peru's largest business group, Confiep, was quoted as saying Monday that if the government buys Repsol's assets, then this would be the start of a process of giving Peru an economic model like that followed in Cuba and Venezuela.

"A dividing line has been drawn between the confidence that we had in the government and what its true intentions are," said Mr. Garcia Miro.

"I'm warning the millions of business owners that we represent, that they're going to be threatened in their business," he added.

The board of directors of Petroperu is divided on the issue and hasn't approved any purchase of Repsol assets, while sources say the decision to study the purchase came from the office of the president.

The controversy has led to speculation that Finance Minister Castilla, an orthodox economist with close ties to the business community, could resign if the government goes ahead. Mr. Castilla has denied that he has any plans to step down.

Critics say that if the government controls all the refining capacity in the nation, plus having a chain of service stations, then it could try to gain political approval by offering subsidized petroleum products.

On Monday, Energy and Mines Minister Jorge Merino said that Repsol hasn't made a firm decision to sell its assets in Peru, and he ruled out that the government might want to control fuel prices.

"The government is concerned that fuel prices aren't abused, but we don't want to control prices, only to have regulatory mechanisms that don't alter the rules of the free market," Mr. Merino said.

Over the weekend, the government published regulations that will strengthen Petroperu, allowing it to participate in all hydrocarbon activities, including exploration and production as well as industrial processes and retail. The regulations allow Petroperu to make investments without receiving authorization from the finance ministry.

Former President Alan Garcia called the new regulations "unconstitutional," comparing the government's plans to policies of leftist administrations that have boosted the state's presence in the economy.

"It is unconstitutional, it changes the laws, avoids tenders and excludes Congress," a message on Mr. Garcia's twitter account said.

Write to Robert Kozak and Ryan Dube at [e-mail]

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