CONTACT Magazine, October-December 2014

MAGAZINE OF THE AMERICAN CHAMBER OF COMMERCE OF PERU

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ENVIRONMENTAL REGULATIONS MUST NOT HINDER THE ENTREPRENEURIAL ACTIVITY

OR NEGLECT SUSTAINABILITY.

GO GREEN (AND AHEAD WITH ENTREPRENEURSHIP)

Special report: Social Responsibility P. 28

14 WILL CARBON CREDITS BE REPLACED?New trends on green finance

INTERVIEW WITH PERU’S VICEMINISTER OF ENVIRONMENT Details of COP 20 and Peru’s participation

6 PERU’S ECONOMIC OVERVIEW FOR 2015What to expect for monetary and fiscal policies?

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EditorialGreen light for doing business?

It Happened in PeruThe most relevant issues regarding the Peruvian economy

InterviewGabriel Quijandría, Viceminister of Strategic Development of Natural Resources

Central ReportKeeping an eye on regulationCarlos Aranda, Southern Perú Copper Corporation

Central ReportNew environmental regulation for Oil and GasGiancarlo Guardia, GeoPark; and Tiffany Bayly, Moche Energy

Central ReportFrom the Carbon Credit Markets to Responsible Capital MarketsPilar Dominguez, A2G

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AMERICAN CHAMBER OF COMMERCE OF PERU(AMCHAM PERU) Avenida Victor Andres Belaunde 177, 1st floor, San Isidro, Lima 27, Peru / T. (51-1) 705 8000 / F. (51-1) 705 8026 / www.amchamperu.org.pe / [email protected]

BOARD OF DIRECTORS

HONORARY PRESIDENT a.i. Brian Nichols, Embajador de los Estados Unidos de AméricaHONORARY DIRECTOR Harold Forsyth, Embajador del Perú en los EE.UU.PRESIDENT Lieneke Schol, Microsoft Perú S.R.L.1ST VICEPRESIDENT Federico Cúneo, Amrop S.A.TREASURER Esteban Chong, PricewaterhouseCoopersSECRETARY Raúl Barrios, Barrios & Fuentes Abogados

EXECUTIVE DIRECTOR Aldo R. Defilippi

DIRECTORS Felix Antelo, Lan Perú S.A., Guillermo Browne, Merck Sharp & Dohme Peru S.R.L., Bárbara Bruce, Hunt Oil Company of Peru L.L.C. Suc. del Perú, Luis Felipe Castellanos, Banco Interbank, Alejandro Desmaison, Delosi S.A., Ricardo Fernández, IBM del Perú S.A.C., Mariela García, Ferreyros S.A., María Jesús Hume, A.F.P. Integra, Dario Lareu, 3M Peru S.A., Luis Rivera, Glencore Perú S.A.C., Norberto Rossi, Grupo Ripley, Rafael Venegas, Rímac Seguros, Fernando Zavala, U.C.P Backus y Johnston S.A.A.

EX OFFICIO MEMBERS Theodore Gehr, USAID.,Mark Cullinane, United States Embassy Economic Counselor, Ricardo Pelaez, United States Embassy, Commercial Counselor, Diego De la Torre, Perú 2021.

EDITOR Rodrigo Acha COORDINATOR Francesca Camere SUBSCRIPTIONS AND PUBLICITY [email protected] DESIGN AND LAYOUT Melina Tirado, Antonio Revilla PRE - PRESS AND PRINTING Comunica 2, Los Negocios 219, Surquillo, T. (511) 610 4242 - F. (511) 610 4250

AMCHAM PERÚ stipulates that signed articles contained in this magazine are their author’s responsibility.

Legal Deposit Nº 2008-11949

Year 19Volume 4October – December 2014

Central Report – Business and EnvironmentVíctor Cisneros, Central Manager at Unacem

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Economic AnalysisImprovements and modifications pending on the Public-Private Alliance regulationJosé Luis Escaffi, APOYO Consultoría

Economic Analysis – AmCham StaffMonetary and Fiscal policies for 2015Rodrigo Acha, head of economic analysis

Economic Analysis – Business Projection SurveyNovember’s Business Projection Survey

Economic Analysis - FiguresEconomy and climate change

Legal AnalysisLegislative Semaphore

AmCham NewsInternal AgendaPrioritized subjects on the chamber’s activities

Special ReportSocial Responsibility

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Legal Analysis - Reviewing corporate emailsAndrés CalderónChief Associate on Competition, Muñiz, Ramírez, Pérez -Taiman & Olaya Abogados

MAGAZINE OF THE AMERICAN CHAMBER OF COMMERCE OF PERU

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ENVIRONMENTAL REGULATIONS MUST NOT HINDER THE ENTREPRENEURIAL ACTIVITY

OR NEGLECT SUSTAINABILITY.

GO GREEN (AND AHEAD WITH ENTREPRENEURSHIP)

Special report: Social Responsibility P. 28

14 WILL CARBON CREDITS BE REPLACED?New trends on green finance

INTERVIEW WITH PERU’S VICEMINISTER OF ENVIRONMENT Details of COP 20 and Peru’s participation

6 PERU’S ECONOMIC OVERVIEW FOR 2015What to expect for monetary and fiscal policies?

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NE WS SUMMARY

4Q14 was marked by two resounding stimulus packages which for the first time in many years set in place tax ad-justments designed to stimulate Peru’s economic activity and reduce infor-mal businesses. GDP growth projec-tions stabilized in the reporting quar-ter, following a 3Q plagued by a series of downward trending projections.

An overall improvement of the situ-ation is expected for 2015, with con-tinued significant investment in infra-structure, hydrocarbons and energy. The storm, however, has not blown over yet and the government’s stimu-lus programs set in place need to be put to the test. What is key, is to im-prove the way politics are handled in order to transmit a sense of stability and attract investment.

ECONOMIC ACTIVITY

GDP. At the beginning of October, the Ministry of Economy and Finance re-duced its estimated GDP growth for 2014 to 3%, just weeks after saying that this would grow by 3.5%. The fall in met-als prices was mainly responsible for pre-cluding higher growth projections.

Then, in mid-December Peru’s Central Reserve Bank (BCR for its acronym in Spanish) followed suit by also cutting back its growth expectations for 2014 and 2015. According to its projections, Peru’s economy was expected to grow between 2.6 % and 3% in 2014, and between 5.2 % and 5.5 % in 2015. The BCR’s previous estimates had been 3.1 % and 5.5 % for 2014 and 2015, respective-ly. The Central Bank also scaled down its growth estimate for private invest-ment to 4.5%.

In September, Peru’s GDP grew by 2.68% reflecting an accumulated growth of 2.8 % for 2014. In annualized terms, this implies a 3.9% growth compare to the same month in 2013. The financial sec-tor grew by 11.48% and construction by 6.93%, while fishing, mining and hydro-carbons experienced a contraction of 26.42%, 3.09% and 1.77% respectively.

DROP. According to ECLAC, Foreign Di-rect Investment (FDI) in Peru dropped by 18% in 1H14. In Latin America this fell by 23%. This is attributed to the ab-sence of sizable business acquisitions and scant investment in mining. In Chile, FDI dropped by 16%, but in Colombia this grew by 10%.

EFFECTS. The Minister of Production, Piero Ghezzi, stated that the impact of the fourth reactivating package (see Fiscal Policy) will begin to be felt in 1Q15, whereas that of the National Plan for Economic Diversification, should be-gin to be palpable in 18 months time.

ON THE ROAD TO RECOVERY. The min-ing and hydrocarbon production actu-ally grew in October, after six months of continued ebbing. This sector grew 3.75% inter annually in the tenth month of the year, representing a significant step forward after the 3.09% drop recorded in September, said the National Institute of Statistics and Informatics of Peru.

PRODUCTION. The government low-ered its copper production estimate for this year. This would now be 1.4 million tons and not 1.5 million, as estimated in September. This downward adjustment responds to Antamina’s lesser output (expected to drop by 27% this year, but thought to recover in 2015). Last year Peru produced 1.38 million tons of copper.

FISCAL POLICY

STIMULUS PACKAGES. In early November and following its initial presentation in July Congress approved the third stim-ulus package designed to reactivate economic growth. It was finally passed during the second week in November. However, the incorporation of private-ly-owned companies in State-owned electrical energy companies suffered a setback as a result of the congressional debate.

Also, in the second week of November, the Council of Ministers approved a fourth package of measures to revive economic growth, and submitted it to Congress for debate. This included a fis-cal boost to supplement the one passed in July, rules to unblock bureaucracy, lower input tariffs and a special regime to promote the employment of young people.

Two weeks later, the Executive sub-mitted the second part of the fourth stimulus package, which proposed reducing the income tax (IR for its ac-ronym in Spanish) applicable to third category taxpayers (corporate income taxation bracket) from 30% to 28% in 2015, to 27% in 2017 and to 26% in 2019. It also proposed reducing those taxes applicable to fourth and fifth cat-egory taxpayers (income generated by dependent and independent workers, respectively) from 15% to 8% for those generating a maximum annual income of 15 tax units (i.e. US$18,000 ) or less, and reducing their detractions and in-come tax payments. It also proposed lowering selective consumption taxes and fuel prices. This would translate into an injection of S/.4,500 million (US$1,550 million).

It happened in Peru...

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NE WS SUMMARY

It was also announced that the Min-istry of Economy and Finance will be allocating S/.7,500 million to public investment and issuing sovereign debt for up to S/.3,000 million over the next few years. As far as labor laws are concerned, Congress discussed the possibility of enabling collective dis-missal on grounds of financial difficul-ties, providing greater legal certainty during labor inspections and applying non-salaried pay bands.

Part of the package was approved at the end of November, including the income tax reduction and the amendment of tax stability agreements for the mining industry.

The following week Congress approved the new special labor regime for the young, the reduction of the amount of income tax withheld from indepen-dent workers from 10% to 8% and an increase in dividend distribution tax, but only in cases when dividends are distributed abroad. A week later, Con-gress also approved the reduction of the corporate income tax rate.

BONDS. The Ministry of Economy and Finance approved a issuing bonds for up to $1.123 million to finance next year’s public budget. It also gave the permission to go ahead with the repur-chasing or exchange of global or sover-eign debt for up to US$4,010 million.

DRAWBACK. The Ministry of Econo-my and Finance admitted that the drawback (rate of reimbursement of inputs tax) has not fulfilled its objec-tive in that it has only served to sub-sidize some exporting firms instead of functioning as a form of customs duties compensation, despite the fact that only a few weeks ago it reduced the number of items that would have 0% duties, in the wake of the criticism that this initia-tive to eliminate this mechanism cre-ated among the related unions. It then backtracked in the initiative of gradually reducing and ultimately eliminating this reimbursement.

MONETARY POLICY

LEGAL RESERVE. In the first week in December, the Central Reserve Bank lowered the legal reserve rate in local currency from 10% to 9.5 % and also de-creased the minimum deposit amount currently required in the banking sys-tems’ current accounts, from 3% to 2.5%. These two measures will inject the econ-omy with about S/.555 million. Since June 2013 more than S/.11,000 million (US$3,720 million) have already been injected into the economy as a result of reductions made to the reserve rate.

POLITICS

INTERPELLATIONS. Ministers Midori de Habich and Daniel Urresti, Health and Interior, respectively, were interpellated by Congress on November 21 and 23. De Habich, who ended up resigning two weeks later, defended the public-private partnerships made in the health sector, while Urresti, argued in favor of the coun-terdrug operations made by his office.

GREEN LIGHT. Congress approved ban-ning the immediate reelection of re-gional presidents and provincial and district mayors. The second round of voting required to officially approve this motion will take place in March 2015.

STALLED. President Ollanta Humala has a disapproval rate of 73%, according to CPI’s latest national urban survey. In Au-gust this pollster reported that his disap-proval rate was 71%.

MINORITY. Gana Perú (President Ollanta Humala’s party) is now the minority par-ty in Congress, following the resignation of congressman Roberto Angulo. Gana Perú currently has 35 members of con-gress, while Fuerza Popular (the party of former president Alberto Fujimori), has 36.

BEHIND BARS. The elected regional president of the Moquegua region, Jai-me Rodriguez, was sentenced to four years imprisonment for having diverted

more than S/.1 million (US$340,000 ) to the benefit of third parties. Rodriguez publicly acknowledged to have com-mitted large-scale theft, but tried to jus-tify his actions by explaining that it was shared with the people of Moquegua.

INADMISSIBLE. The Judiciary declared the revision of former president Alber-to Fujimori’s sentence to 25 years im-prisonment for the crimes committed in Barrios Altos and La Cantuta, to be inadmissible.

CORRUPTION. Peru ranks 85th (out of 175 countries) in the Corruption Per-ceptions Index. It is now behind Uru-guay, Chile and Brazil on this issue.

BUSINESS

PULLING OUT. Citibank announced that it is pulling out of the retail bank-ing business in Peru and another ten countries - six in Latin America. It will however continue to serve institutional customers in these markets. TENDERS. Graña y Montero, in part-nership with the Belgian company Al-cogroup, offered US$31 million for Maple Gas Corporation of Peru’s en-tire issued capital stock in mid Octo-ber, through its subsidiary Graña y Mon-tero Petrolera. This transaction would enable the subsidiary to purchase 30.4% of Maple Companies’ business.

Five weeks later, it withdrew its offer.

AQUISITION. Graña y Montero bought 13% of Stracon GyM. In this way the con-struction company upped its share partic-ipation in its subsidiary to 87.64 %. Stracon GyM provides services to the mining industry. Stracon GyM currently has op-erations in Constancia (Cusco), La Arena (La Libertad, El Brocal (Pasco), Toromocho (Junín), La Zanja (Cajamarca) and Panama.

PURCHASES. Parque Arauco announced the purchase of Ekimed, a Peruvian company that owns the El Quinde

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NE WS SUMMARY

Shopping Mall with operations in Caja-marca and Ica. The transaction is val-ued at US$100 million, and subject to the results of a due diligence process.

IMPROVED. Peru rose one position in the World Bank’s Doing Business 2015 ranking, and now ranks 35th. It was the second economy with the best business environment in the region, surpassed only by Colombia, which climbed 19 positions (to position 34). Chile fell back to rank 41 from the previously held position of 39.

UPPED AND LEFT. The Panamanian com-pany United Oilfield acquired InterOil’s operations in Peru. Among the assets ac-quired are oil lots III and IV; their exploita-tion contracts expire in April 2015. Subse-quently, Graña y Montero was left as the sole bidder and was awarded the bid for concession of these lots after that date.

ONCE AGAIN. For the seventh consec-utive year Peru finished atop the best environment for microfinance in the global ranking according to the Econ-omist Intelligence Unit. Colombia was ranked 7th; Chile 19th and Mexico 18th.

FOR SALE. The Ministry of Energy and Mines said that it will start selling Petroperú (the State-owned oil com-pany) shares in 2Q15. The operation contemplates selling up to 49% of Pet-roperú shares through the Lima Stock Exchange. The government is assessing exactly how many Petroperú shares it is going to put up for sale initially. With this, it seeks to finance the moderniza-tion of this state-owned company.

OECD. The minister of Economy and Finance, Alonso Segura, noted that the OECD unanimously adopted Pe-ru´s country plan in the first round of voting, which is unusual. Now Peru may participate in the OECD committees for public governance.

RAILROADS. Peru and China signed a memorandum to form a trilateral group to advance the interoceanic railroad between Peru’s Pacific coast and Brazil’s

Atlantic coast, a project that Peru al-ready has in place with Brazil. In July, the Chinese President and the Brazilian Pres-ident signed a cooperation agreement that allows Chinese companies to invest in Brazilian railroads. The railroad agree-ment forms part of seven agreements entered into by Peru and China.

A BOOST FOR FARMERS. The Olmos irri-gation project in Lambayeque was inau-gurated. This brings irrigation to 38,000 new hectares (93,900 acres) of farmland, and to 5,500 hectares (13,590 acres) cur-rently worked by small-scale farmers. This project required a total investment of US$580 million.

ENERGY. The Ministry of Energy and Mines presented the 2014-2025 Energy Plan, which envisages investments of up to US$50,000 million to be made mainly by the private sector in electricity, gas and oil. One of the aims is to develop a national network of pipelines and re-place diesel by natural gas.

RULED AGAINST. The WTO ruled against Peru in the agricultural tariffs case filed by Guatemala. Peru imposed additional tariffs on the import of various agricul-tural products, including rice and corn. The decision may be appealed.

COSTS. The most recent supply chain management study prepared by Sem-ana Económica reports that the cost of logistics in Peru is equal to 12.6 % of the country’s GDP, and not 32%.

EXPANSION. The Peruvian cement com-pany Unacem acquired a 98.57% share participation in Lafarge Cementos de Ecuador for the price of US$517 million, through a public tender.

FINES. The Executive proposed fining and dissolving all private companies involved in acts of corruption and providing pro-tection to the people who denounce these acts. It sent a bill to Congress.

LOANS. The Inter-American Develop-ment Bank (IADB) approved two loans

totaling US$750 million for Line 2 of the Lima and Callao Metro.

PURCHASE. Coney Park, a Peruvian company owning family entertain-ment centers, bought 70% of the Co-lombian Divetrónica Medellín and Div-er Happy companies. For this, it paid US$9.9 million. Coney Park belongs to El Comercio group, publisher of Peru’s leading newspaper.

WITHDRAWAL. Anglo American with-drew from the Michiquillay copper project in Cajamarca. It announced that it would continue developing its Quellaveco project, in the region of Mo-quegua, and that next year it will decide on putting it into operation.

NEW AIRLINE. Viva Colombia began op-erations in Peru. It will be offering three Bogotá-Lima flights a week.

REGULATORY FRAMEWORK

CONTRADICTION. The Judiciary de-clared the request of National Society of Mining, Petroleum and Energy to declare the payment required by the Agency for Environmental Evaluation and Con-trol (OEFA for its acronym in Spanish) as unconstitutional or illegal, to be un-founded. A week before, the Commis-sion on the Elimination of Bureaucratic Barriers of the National Institute for the Defense of Competition and Intellectual Property had declared it an illegal bu-reaucratic barrier, granted that there is no law that endorses this collection.

REGULATIONS. The government ap-proved the new environmental regula-tions applicable to the hydrocarbon and mining industries. The new regulation consolidates the Single Window initiative in the scope of the National Service for Environmental Certification (Servicio Na-cional de Certificación Ambiental- SEN-ACE). The National Society of Mining, Pe-troleum and Energy indicated that these new regulations should help to stream-line investment in these sectors.

INTER VIE W

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How much working time, budget and human resources has the organization of COP20 demanded?

We have been actively working since December 2012, when during COP18 in Doha, Qatar, we expressed our interest in organizing the Summit. The actual formal-ization of Peru as the host for COP20 was effectively achieved in June 2013 during the Intersessional Meeting in Bonn. There the promotional video was issued and it was told that Peru was ahead. This rep-resents a two-year effort behind.

In terms of budget, the COP is expen-sive. This budget is nearly US$90 million, somewhat similar to former COPs costs, as we have observed in international ex-perience. The difference stands that in our case we are including infrastructure building for delegates’ reception, as well as for lodging the organization, within those 90 million.

“The possibiliTy of counTing wiTh a sTrong agreemenT drafT Toward paris [cop 21] begins Taking shape”

GABRIEL QUIJANDRÍA, Vice-Minister of Strategic Development of Natural Resources, Republic of Peru

One of the protagonists of Peru’s presence in COP20 tells us details about its organization, Peruvian participation, and perspectives for fulfilling the environmental agenda.

We are raising sixty thousand m2 of tem-porary infrastructure. This is something that other countries organizing a COP did not have to do. Our budget has included these works, which have never happened before… there has never been a country making such an effort and still having the confidence from the rest of the countries for carrying on such an endeavor.

Besides, this will definitely be a landmark in terms of managing capacity from the Public Sector. This is a project that we have carried out in somewhat 8 months, and certainly it will be historic.

In terms of Human Resources, we had to increase the personnel in the Environment Ministry. There is a team of about sixty or seventy people specifically dedicated to the COP issues. We had to attract all logis-tic capacity as well as that of constructive project management, hence turning this into an interesting working alliance.

what we are pretending now is to achieve a significant

position in several relevant issues. we are aiming a strong

position in financing; undoubtedly, having received the task of being co-presidents of the green climate

fund during next year is a demonstration of confidence in peru´s

capacity.

INTER VIE W

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Furthermore, a substantial learning pro-cess will be generated while demonstrat-ing the Peruvian Government capacity for significant scale challenges assumption.

If you have to highlight the Peruvian party contributions in former summits, which would these be? And, which are the main proposals or requests in the delegation’s agenda this time?

In former summits Peru has been par-ticularly active in the forestry issue; we are one of the original promoters of the REDD mechanism. We were part of that countries’ group that initially formulated this idea; we also have promoted the programmatic approach for the Clean Development Mechanism.

This approach allows working a sort of intervention model from which several projects with the same nature hang on. For example, there is an Improved Stoves Pro-gram that allowed the approval of a Clean Development Mechanism profile and a type-profile, from which several concrete interventions of improved stoves with re-duced emission impact have hanged on.

What we are pretending now is to achieve a significant position in several relevant is-sues. We are aiming a strong position in fi-nancing; undoubtedly, having received the task of being co-Presidents of the Green Climate Fund during next year is a demon-stration of confidence in Peru´s capacity in boosting this issue or its discussion.

Likewise, in order to achieve this financ-ing in concrete interventions, we also aim a significant role in launching the discussion and decisions-making pro-cess linked to adaptation, an issue that requires an impulse.

Hopefully, next year’s summit will end upon consensus to sign a binding agree-ment between parties in 2020. Does this goal seem possible? Which is the status of the United Nations framework con-vention agenda on climatic change?

We perceive that there are positive signals regarding the signing of an agreement in Paris in 2015. This recent joint agreement

and announcement made by USA and China regarding emissions, the EU an-nouncement on reductions program and the Green Fund capitalization are signs that planets are aligning. This happened few days before the representatives’ arriv-al to Lima, and the possibility of counting with a strong and ambitious agreement draft that would be a fair working input toward Paris is beginning to take shape.

It seems that in Lima’s COP we will ob-tain good results, which would confirm the feeling we had when adopting the decision of hosting the COP. We be-lieved that Peru was in an excellent posi-tion when considered as an outstanding country in climate discussion for serving as a link among the most extreme ones.

I believe that this confidence in Peru contributes to the parties’ good willing on facilitating us the mediation task, or on facilitating this very complex discus-sion process to be held in Lima.

Which is the stage of progress in PlanCC’s (Climate Change Plan) agenda? Is its compliance assured? Which are the main challenges for achieving the goals?

The Plan has identified some of the most profitable measures in terms of emis-sions reduction. But it has also identified those that are so in economic terms, and that due to their nature can be boosted by the private sector through public-pri-vate alliances or by the private sector in case there is a potential. PlanCC is not a decision already taken, it is a document for generating a discussion and, further, a decision, not only from the State but also from the private sector.

What is its grade of advance? The infor-mation and the basic analysis with all 77 measures have been delivered, we are moving toward the discussion process of these measures, in the framework of the creation process of national contributions that must be ready for next year’s midterm.

There are concrete compromises that the country will take in terms of emissions re-duction. Once these objectives are identi-fied, PlanCC will allow us to see which are

the concrete projects and interventions from which we could achieve those com-promises that we may assume at midterm.

How would you describe formal en-trepreneurs’ attitudes regarding the compliance of environmental laws? To eradicate informality is also a solution in order to improve supervision on en-vironmental care?

Undoubtedly the informality issue is related in a significant way to the big greenhouse gas emissions originators in the country, this is unquestionable. The main source of greenhouse gas emis-sions in the country is deforestation, which is related to lack of development in a formal sector, and to the relationship with criminal economies associated to drug trafficking, illegal logging or mining.

In transports, service providers’ informal-ity and the fact of having units not com-plying with environmental criteria partly explain the substantial emission levels.

In the formal sector there is the capacity and possibility of a significant improve-ment, there are several opportunities re-lated to a transition toward an energetic matrix incorporating non-conventional renewable energies. Due to the invest-ment and capital ranges required, these energy sources are out of reach for the informal or small-scale sectors.

Here, the effort must come from the formal sector. What must be done is to materialize this potential shown by the country in all rankings; ranking that emerges for the Region, ranking in which Peru outstands in extremely high posi-tions. But that has not been translated into an effort, or neither on sufficient-ly-promoting regulatory framework.

The Energy and Mining Ministry has launched several tendering, but the en-ergetic matrix backed by renewable re-sources is less than 5%. We believe there are huge opportunities in energy effi-ciency, where the need to go forward to productive diversification, and efficiency and competitive improvements are also related.

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CENTRAL REPOR T - BUSINESS AND ENVIRONMENT

BY VICTOR CISNEROS, General

Manager, UnacemREduCTION IN CONSumpTION: A ChAllENgE fOR INduSTRY

With relation to the 20th session of the Conference of the Parties of the UN Framework Convention on Climate Change (COP20) and the 10th session of the Meeting of the Parties to the Kyoto Protocol (CMP10), programed to take place from December 1st to 12th 2014 (with an estimated attendance of 15,000 interest groups representatives from 194 countries, such as international organi-zations, civil society, private sector and several massive medias, as well as presi-dents and ministers worldwide), it is im-portant to learn about the following:

At global level, greenhouse effect gases (GHG) emission GHG produced by hu-man activities, are apparently the cause of global warming and in consequence of climate change. This could be gener-ating climate alteration with great con-sequences for our planet, for which at global level initiatives seeking for GHG emissions reduction have multiplied.

Peru is not indifferent to this goal, for it has been participating in international climat-ic negotiations since the UN Framework Convention was subscribed in 1992 and the Kioto Protocol in 1997. According to the Intergovernmental Panel on Climate Change (IPCC), Peru´s emissions have a participation not less than 0,4% of total emissions worldwide, and these are ba-sically related by demographic evolution and consumption patterns, among others.

Energy generation originates more CO2 emissions than industrial activities alone. Thus, reducing consumption is fundamental.

According to the Plan CC Project, in our country GHG emissions reached 134,570 Gg of CO

2eq in 2009 (thou-

sands of millions grams of carbon di-oxide equivalent). From these, 40% are a consequence of soil use and change, 20% due to agricultural activity, 18% to energy generation, 11% to automotive park, 8% to waste and 4% to industrial processes.

Cement Industry and Climate Change

Among all industries, cement industry is one of the most demanding in terms of energy consumption. Cement process-ing demands a big amount of energy, mainly due to high temperatures (above 1400°C) needed for obtaining clinker, an intermediate cement input. This energy is produced by fossil fuels and its com-bustion generates GHG emissions.

For this reason, cement enterprises are making great efforts in reducing fuel consumption through projects and ac-tions such as modernizing their facilities. This process has consisted in the appli-cation of eco-efficient technology, in fuel substitution or searching for alterna-tives such as waste co-processing. Also other type of cements that incorporate other materials rather than clinker are being produced, such as slag, fly ash, pozzolan, limestone filler and even lime-stone in the final cement grinding.

As a consequence, energy consumption and GHG emissions constitute import-ant variables to be considered for ce-ment production sustainability during the following years. For this reason, ce-ment industry needs to establish strate-gic guidelines in order to face these new challenges at medium and long term.

Consumption Reduction in Unacem

In Unacem we are conscious of our role in the country’s development, so we have considered climate change management within the environmental axis. For this reason, since several years ago we are exercising adaptation and mitigating measures for reducing GHG emissions, something quite important if we take into account that Peru is consid-ered one of the most vulnerable coun-tries to climate change effects.

Our goal is to reduce GHG emissions per ton of manufactured cement. For this achievement, within our enterprise management we consider the use of cleaner fuel and renewable energies, processes optimization and efficient transfer systems, and the manufacturing of more environment-friendly products, among others detailed as follows:

Among those actions already taken and framed within the Clean Development Mechanism (CDM), is the use of natural

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COVER STORY / I N F O R M E C E N T R A LCENTRAL REPOR T - BUSINESS AND ENVIRONMENT

gas replacing coal as the main energy source in our production process. In this sense, we have achieved the reduction of more than 116 MT of CO

2 as an annu-

al average in the last years, that is, 20% of our greenhouse effect gas emissions. With this we turned to be the first na-tional cement producer in emitting car-bon bonds and in being the leaders in greenhouse effect gas emissions reduc-tion in the country.

Likewise, we promote the use of renew-able energy and the efficient use of re-sources through the use of clean elec-tric energy in our processes. We have achieved this through our hydroelectric plants Carpapata I, II and III (in project), that provide energy to Condorcocha plant in Junin and to the nearby com-munities. Also, we are shareholders of El Platanal hydroelectric plant.

In order to produce eco-efficiently and for improving our energetic and envi-ronmental performance we modernized our industrial plant in Atocongo and im-plemented a new production line with the newest technology in Condorcocha. This allowed us to reduce in 17% average electric energy consumption, and above 10% thermic energy consumption for each metric ton of produced cement.

We also have a much safer and environ-mentally efficient transfer system of ma-terials: our 8.0 Km approx. underground Atocongo-Conchan tubular conveyor belt, with which we have reduced in 100% our gas emissions and safety risks during land transfer of inputs and products.

Likewise, we have also developed the above mentioned added cements, which are improved products com-plying with Peruvian and International technical regulations and which contain a lesser percentage of clinker in their composition. This allows having prod-ucts with 22% less GHG emissions with regard to traditional cement.

Actions to be taken as a country

Although our country has been pro-ac-tively participating for more than 20

years in contributing to reduce GHG emissions at global level, it has recently created the National Strategy for Climate Change (ENCC) this year, that will be a guiding tool which will set the bench-mark for the future and will contain the strategies, programs and mitigation goals, in addition to those adaptation actions to climate change.

The ENCC considers that the main chal-lenge related to climate change is the reduction of predicable risks and impacts through an integral management of those sectors for vulnerability decrease, seizing opportunities and building ca-pacities to confront it. On the other hand, the ENCC states that in order to set the bases for a low-carbon economy, our country has the potential for the capture and conservation of carbon reserves, and for the best controlling of GHG emissions.

It is noteworthy to consider import-ant within the ENCC energy recovery through waste co-processing. Cement industry could provide a great support with this viable alternative that will im-prove those strategies proposed by our authorities for facing climate change.

However, in case this type of technolo-gy is incorporated, it will be necessary to set up a strategy for an integral and sustainable waste management. This should be based on the recovery and re-cycling of materials as well as on energy

generation. Only those non-recyclable residues should be worked upon and turned into compost, while those other non-viable for any other treatments will be disposed of in landfills.

With these actions, landfills areas will be reduced. These are not enough in our country and a great percentage of res-idues are not properly disposed of and treated adequately, which implies meth-ane emission, a much more harmful GHG for the Planet. For this aim, it is imperative that our country provide legal certainty by issu-ing legal regulations on co-processing, due to investment in facilities and in waste treating systems in cement kilns. Cement sector contribution to residues integral managing through co-process-ing is a feasible and important option. Countries like Chile, Brazil and Ecuador, as well as Spain and Portugal in Europe, count with experiences and favorable results in its implementation.

Waste co-processing management will contribute to reach a satisfactory and sustainable development for our soci-ety, based on a low-carbon economy as established by the ENCC. Boosting to this type of initiatives can become a proof that it is possible to align the ob-jectives of industrial and extractive en-terprises with those on environmental issues from the Government.

200,000

175,000

150,000

125,000

100,00

75,000

50,000

25,000

0

2007 2008 2009 2010 2011 2012

Green BuildingUnacem's annual reduction of GHG (metric tonnes)

Source: Unacem

www.amcham.org.pe10


BY CARLOS ARANDA, Technical Manager, Southern

Peru Copper Corporation

KeepiNg AN eYe ON ReguLAtiONS

“Our legislation, although in its initial stage yet, is characterized for being abundant, disperse, controlling, punitive and for lacking incentives. Nowadays evolution toward a systematized and promoting environmental legislation of environmental prevention is a must.”

Lorenzo de la Puente Brunke,in Derecho Ambiental e Industria Minera

en el Peru, 2010

In 1991, when in Peru some were dis-turbingly watching how to implement the recently published Environmental and Natural Resources Code, a new viewpoint of developing country start-ed emerging. It was clear that the “mak-ing businesses as always” approach had its days counted off. Nevertheless, as a faithful reflex of human nature, the approaching change toward develop-ment with environmental responsibility has not been quickly or easy.

Twenty four years later, we have an abundant normative tree, disperse, controlling and mainly punitive, as de-scribed by Dr. De la Puente in his book: “Derecho Ambiental e Industria Min-era en el Peru”. But within this norma-tive production and evolution, we can state that there are good regulations

Environmental regulations based on punishment instead than in prevention are counterproductive and finally drives out investors. Processes used in their elaboration must be reviewed.

and others not so good, not only from a private business perspective but from a reasonability and common sense standpoint. We should recognize that the country had to start seeking devel-opment in accordance with worldwide

tendencies, especially during a time when the World was initiating its inte-gration as a whole.

However, searching for this new view-point of development in the future meant two options on how to handle this: either to hasten it for solving imme-diate problems, or to slow it down but orderly with the intention that regula-tions obey a risk analysis. The first option was accomplished.

Witch Hunting

In the public administration sector on environmental issues, during the last five years we have witnessed the birth of the Environmental Ministry (MINAM), the creation of the Organism for Envi-ronmental Evaluation and Oversight (OEFA), the creation of the Environmen-tal Certification National Service (SEN-ACE) and the creation of Water National Authority (ANA).

Of all these entities, only ANA emerg-es after an intense, extensive, technical and multi-sectorial analysis. The MINAM (and its organs OEFA and SENACE) are mostly the result of political, media and of some civil society organizations pressuring.

We have an abundant normative

tree, disperse, controlling and

mainly punitive (...)But within

this normative production and

evolution, we can state that there are

good regulations and others not so

good, not only from a private business

perspective.

www.amcham.org.pe 11


The problem is that the starting premise considers that any industrial or produc-tive activity is or should be suspicious of making some wrong environmen-tal practices, and hence should be ob-served and controlled with the greatest amount of instruments as possible. We are forgetting that regulations should be applied as an occurrence preventer and as behaviors corrector.

The intention is not to assume that these behaviors are a normal and even a deliberate practice. We are also forget-ting that human behavior is a learning process.

From an optimistic viewpoint, we must assume that environmental regulations currently ongoing in the country must contribute to the enrichment of future norms or consolidation processes of environmental regulations to be devel-oped. We are pointing this out because, besides those aspects that these regula-tions comprehend, several do not have adequate drafting processes.

During the 90’s, the former National Council of Environment (CONAM) es-tablished an innovative mechanism, reasonable and adequate for norms drafting. It summoned the represen-tatives of the pertinent ministries, in-dustrial associations, academic, profes-sional schools and non-governmental organizations so that in consensus will draft the norm.

Interchange was technical, legal and even with ad hoc experts in order to as-sure the issuing of proactive, reasonable and accomplishable regulations. Unfor-tunately, this mechanism is no longer used. What must be done for correcting the environmental regulations creation?

What can be replicated

By mid-last year the Chilean Govern-ment approved a regulation establish-ing the procedure on how to create its environmental laws. An important part of this norms drafting process is the mandate that, once initiated, scientific studies should be made backing the

Several of our norms have resulted from

copying other countries legislation,

without making a technical-scientific

analysis on its applicability or

accomplishment in the country (...)

other developed countries elaborate their environmental

regulations by taking into account the environmental,

technologic, economic, social

and even working conditions.

need and/or conditions that said norm must assume. Several of our norms have resulted from copying other countries legisla-tion, without making a technical-sci-entific analysis on its applicability or accomplishment in the country (what we should replicate is the Chilean mod-el for evaluating environmental norms creation). USA, Canada, Japan and oth-er developed countries elaborate their environmental regulations by taking into account the environmental, tech-nologic, economic, social and even working conditions before their prom-ulgation.

All these countries have developed methodologies for identifying environ-mental issues to be regulated, as well as

for drafting said norms. We do not count with this process in Peru.

All the above said is for remarking that, although our environmental regulations are necessary and many of them are reasonable, Peru is making a great effort to introduce itself in realms such as the Organization for Cooperation and Eco-nomic Development (OCDE). In order to compete in this realm we must count with regulations that reflect our environ-mental, social, economic, technological and working reality.

Copying the regulations of other places without a greater analysis is not a good methodology. Normally this is a sim-plistic practice that avoids the need to generate information of its own and to develop investigation for funding such environmental regulations.

If things continue this way, what are we to expect when applying these environ-mental policies?

Capability at Proof

As a country, today we are in the dilem-ma of finding out how are we going to face the exigencies from the 20th Confer-ence of the Parties of the UN Framework Convention on Climate Change (COP20). For sure these exigencies will result in new national environmental regulations, but for which we have not complied with our task. We continue with great gaps in national information, we have not includ-ed the specific risk analysis practice for each norm and we do not count with a clear methodology that will assure us rea-sonable and accomplishable regulations.

Twenty four years after the promulga-tion of the first environmental integral regulations in the country, we have ad-vanced much in quantity, variety and environmental norms exigencies. Now we need to work in its fundamentals and applicability through the mechanisms before mentioned. If not, our future en-vironmental regulations, like those that will be issued for facing climatic change, could be summed up to the lush but conflictive normative tree.

www.amcham.org.pe12


BY: TIFFANY BAYLY, Environmental, Health & Safety Manager at Moche Energy and

GIANCARLO GUARDIA, Legal Manager at Geopark Peru

INNOvATIONs IN OIL AND GAs ENvIRONmENTAL REGULATIONs

The new Environmental Regulations for Oil and Gas Activities announced for this year raised great expectations among the industry and the civil soci-ety. These regulations define many of the rules of the game regarding envi-ronmental protection, which are appli-cable to the development of Oil and Gas activities.

The main issues covered by the new reg-ulations include the rules applicable to the approval of environmental studies, the technical issues regarding oil and natural gas activities, and related aban-donment plans.

So, what are the changes introduced by the new regulations?

Appropriate classification

The main change introduced by the new regulations and the most analyzed issue in the public and private sector is the new categorization of Oil and Gas activities. It helped to establish the type of environmental study required for each type of Oil and Gas activity.

Thus, the new regulations maintain the three categories of environmental studies contained in the repealed reg-ulations: Environmental Impact State-ments, Semi-detailed Environmental

The new Environmental Regulations for Oil and Gas Activities maintain most of the obligations included in the previous regulations. However, certain provisions have been introduced that may favor investments in the Oil and Gas sector.

Impact Studies (sd-EIS), and Detailed Environmental Impact Studies (d-EIS). These categories are applicable to a project based on the slight, moderate or significant adverse impacts it may gen-erate, respectively.

This way, the new regulations have es-tablished that a d-EIS or a sd-EIS is re-quired for the seismic acquisition or drilling projects located in protected natural areas, fragile ecosystems, terri-torial reserves, areas with undisturbed habitats, and marine areas smaller than 5 km when drilling includes more than five wells or when the construction of access roads is required.

It will also be necessary to submit a d-EIS for any project involving the con-struction and operation of Oil and Gas production facilities, and the installation of Oil and Gas transportation pipeline systems and processing plants.

Finally, the seismic acquisition projects in the sea, coast or highlands that are outside the protected natural areas or fragile ecosystems will only require an Environmental Impact Statement (EIS), which may also be submitted in natu-ral gas pipeline distribution projects in urban areas, or for the installation of Oil and Gas retail establishments (gas stations).

Without prejudice to the foregoing, the regulations establish that upon request of the Project owner, the environmen-tal authority may assign the project a category different to that established in such regulations if the specific char-acteristics of the Project so justifies. This way, if a project generates lower adverse impacts than expected for this type of activity, the owner may request the en-vironmental authority to assign the proj-ect a lower category than that set forth beforehand in the regulations.

This new classification would appear to be appropriate as it would not only protect the sensitive areas from an envi-ronmental view through more detailed studies, but would also promote the performance of exploration activities in less environmentally fragile areas through simplified environmental certi-fication processes.

Thus, the new classification of environ-mental studies should promote the exploratory activity due to the shorter waiting times to obtain government permits.

Expedited Processes

In addition, the regulations have includ-ed provisions on amendments to or ex-pansions of activities that already had an



approved environmental study. In this regard, in line with the provisions estab-lished in Supreme Decree N°054-2013-PCM, the text provides that for those amendments or expansions that will not generate significant environmental impacts, or that involve improved tech-nology, the environmental study will not need to be modified. In these cases, only a Supporting Technical Report (STR) ap-proved by the authority in a maximum term of 15 days, shall be submitted.

Said provision is of utmost importance for the development of Oil and Gas proj-ects because it provides environmental instruments with the required flexibility to cover the operational needs of that kind of projects.

Moreover, the regulations have includ-ed diverse provisions aimed at speed-ing up the approval process of envi-ronmental studies. These provisions establish deadlines to request other government entities participating in the approval process to issue their opinions, to notify non-conformances and to close them out, and to the issu-ance of the environmental authority’s final pronouncement.

Without prejudice to the fact that most of those provisions were already includ-ed in Supreme Decree N°060-2013-PCM, it is very important that they have been included in the Regulations. This shows the government’s commitment to ex-pedite the environmental study assess-ment processes.

The regulations have also introduced additional provisions on the use of the baseline of environmental studies al-ready approved by the authority, they have eased the deadline to use it, and allow covering projects carried out in surrounding areas. These provisions may be extremely useful to expedite the im-plementation of projects as they would prevent duplicated efforts for the oil companies working in a same area, thus, speeding up approval thereof.

Another important issue that has been clarified in the regulations is the level of

detail required for the environmental studies. Thus, just like in the previous regulations, the new regulations pro-vide that the projects subject to assess-ment should contain information at a feasibility level. The new regulations clarify that such concept means that the required level is basic engineering. This definition favors the environmen-tal study preparation process as much greater predictability is provided on the scope of the study.

Other Issues

The regulations include diverse pro-visions aimed at protecting the flora, fauna and ecosystems that may be im-pacted by the project. These provisions include the prohibition of deforestation activities in nesting, salt lick, seed tree and threatened species areas.

The new regulations provide that the fa-vorable technical opinion of the Nation-al Service for Natural Protected Areas (SERNANP) will be required to carry out Oil and Gas activities inside protected natural areas. Furthermore, they provide that the activities inside such areas shall be aligned with the management plan and master plans thereof.

Same as in the previous regulations, the new regulations provide that for the personnel and cargo transport activ-ities, priority is given to river and aerial transport for the activities carried out in the Amazon, and in case of using land transport, priority should be given to the existing access roads.

However, the regulations establish that the construction of new access roads may be authorized provided that an analysis on alternatives is conducted to show convenience and suitable control and mitigation measures are taken.

Regarding prevention activities, risk studies and contingency plans, the reg-ulations provide that these shall be in-cluded in the environmental study and shall have a technical opinion from the Supervising Agency for Investment in Energy and Mining (Osinergmin).

The new regulations have specific pro-visions for each stage of Oil and Gas ac-tivities development. Thus, measures are provided for the geophysical (seismic) information gathering, which include opening of trails, use of explosives, recla-mation of areas and seismic exploration in the sea.

This last issue includes new provisions as compared with the repealed reg-ulations, which specify the gradual start-up activities of the operations, the implementation of monitoring, and sea mammal protection around air chambers.

Measures for drilling of both exploration and development wells are also includ-ed, as well as measures for the transport of Oil and Gas.

Finally, the regulations have increased from 30% to 75% the rate to calculate the amount of the guarantee for the bond letter that guarantees that the abandonment of an activity, area or facility related to Oil and Gas activities will comply with the appropriate pro-cedures.

Right Step, Challenges yet to Face

In conclusion, without prejudice to the fact that the new environmental regu-lations include the main issues that had already been covered in the repealed regulations, the new regulations have introduced diverse specifications that have helped clarify the environmental obligations associated to the oil and gas activities, and the approval process of environmental studies. This includes the enforcement of good practices that have already been implemented in the industry.

There are still many challenges to face regarding the issues addressed in the new regulations, specifically, regarding the approval process of environmental studies. However, we understand that these regulations are a step forward in the process to expedite such process-es and provide predictability to the system.

www.amcham.org.pe14


BY PILAR DOMÍNGUEZ

ESPINOZA, director of A2G –

Pacific PIR Group

FROM CARBON MARkEtS tO RESPONSIBLE CAPItAL MARkEtS

For most entrepreneurs in emerging econ-omies, the Clean Development Mecha-nism (CDM) has been the single point of contact between climate change and their commercial and productive activities. This mechanism defined by the Kyoto Protocol of the United Nations Framework Conven-tion on Climate Change (UNFCCC) allows that greenhouse gas (GHG) emissions re-ductions in developing countries may be certified and then transferred to a third party with obligations or interests in the fulfillment of commitments under Kyoto.

From 2003 to 2012, business opportunities related to emissions reduction were widely spread among the entrepreneurial circles of Latin America and Asia under the CDM.

Stuck

Today, the CDM-based carbon market, also known as compliance market, is stuck due to the low price paid to GHG emis-sions reductions. This results from a com-bination of factors, prominent among which is the over-allocation of emission permits in the European Union, which lowered the demand of reductions from the CDM. This fact warned the CDM Proj-ect developers and companies, which to a greater or lesser extent suspended the development of projects under the CDM.

The above does not mean that the efforts regarding GHG emissions reduction have

No longer using Clean Development Mechanisms does not hinder ecological financing, but is rather the foundation for creating new alternatives.

ceased, as evidenced in the increasing par-ticipation of renewable energies in nations’ energy matrices. Although many of these projects are not being developed as CDM, for impact evaluation and quantification purposes, many of the initiatives are based on the wide range of analytical tools left by the CDM, such as baseline methodologies, monitoring protocols, etc.

The aim today is that the impact generat-ed by the CDM climbs up to an industry or national level. For this purpose, the UNFC-CC has coined the acronym NAMA, which stands for Nationally Appropriate Mitiga-tion Actions. Implementation of NAMAs will depend ultimately on countries’ ability to mobilize resources for climate change mitigation. In order for this to happen, these resources should have trust mandate, risk appetite and expectations that enable their active participation in climate change mitigation. They would provide with tech-nical assistance, development capital, debt, construction capital, bonds, guarantees and a wide range of instruments.

New initiative

One of those instruments was created by the UNFCCC and is known as the Green Climate Fund (GCF), which aims to mobilize one hundred billion dollars a year as of 2020 for climate change mitigation and adapta-tion. It must be pointed out that besides serving as COP20 Chair, Peru has also been

elected as GCF Co-Chair. These develop-ments put Peru in a position to lead climate financing on a worldwide scale. The Peru-vian private sector should adequately cap-italize on this opportunity to gain strength.

Parallel to these developments, the global financial system has developed in coop-eration with the United Nations, the Prin-ciples for Responsible Investment (UN PRI) and has endowed more than US$8 billion in assets for these principles. It is in this context that the Program for Responsible Investment (PRI) was born.

The PRI is an initiative that seeks to bring together and empower stakeholders to promote responsible internal and external investment practices, and climate financ-ing in the Pacific Alliance.

The program brings together investors, regulatory bodies and companies in order to improve transparency and performance in ESG (environmental, social and gover-nance) terms. It also builds skills in the de-sign and implementation of financial prod-ucts and capital markets containing ESG or climate financing variables, and promotes investment in specific areas such as renew-able energies, energy efficiency and the fi-nancing of activities to face climate change.

The Project was programmed to be launched on December 9 at the Lima Stock Exchange, under COP20.


COVER STORY / I N F O R M E C E N T R A LECONOMIC ANALYSIS

BY: JOSÉ LUIS ESCAFFI, Partner of

APOYO Consultoría

CO-FInAnCEd PrIvAtE InItIAtIvES: AmEndmEntS tO rEgULAtIOnS And POSSIBLE ImPrOvEmEntS

The new regulations of the PPP Frame-work Act (Supreme Decree N°127-2014-EF) introduce several PPP regulatory changes, prominent among which are those related to Co-financed Private Ini-tiatives (CPI).

Even though these changes are signif-icant, they are not aimed at promoting the use of CPI and therefore, closing gaps. In this regard, there are still chances to improve the legal and procedural frame-work, so that approval processes are ex-pedited, and greater predictability is gen-erated for public and private entities.

Regarding speeding-up of approval pro-cesses, it is recommended to:

Provide training at every level: there is an ignorance inside the Government agencies about the procedures and/or the normative framework of the PPP that hinders the use of this investment scheme. We recommend that Proin-versión (the Government Agency for In-vestment Promotion) should give train-ing and technical assistance.

define the technical and financial criteria used to assess the bidders submitting a CPI: it is important to (a) pre-publish the draft guidelines for the assessment criteria, and review them; (b) avoid ratios that restrict competition;

Although Peru has good regulations for the implementation of Public-Private Partnerships (PPP) and is willing to improve its investment climate, it still needs to make some adjustments.

and (c) consider applying them only in the public tender stage.

Approve clear guidelines to consid-er a PPP as co-financed or self-sus-taining: The Ministry of Economy and Finance (MEF) has recently informed that the PPPs that receive transfers from the National Government to cover their administrative expenses are not consid-ered self-sustaining.

Protocolize the priority process of the CPIs submitted at the beginning of the year: It is recommended to (a) regulate a selection procedure with transparent and objective assessment criteria and; (b) set up assessment com-mittees made up of representatives of the MEF, industry and awarding entity for each process according to their sphere of competence; and (c) have a regulated space so each bidder can put forth their CPI before the awarding entities.

deactivate the Public Investment Projects (PIP) that interfere partially or completely with the PI submitted once it has been declared relevant and priority: The awarding entity shall be asked if these PIPs will be implement-ed through public works.

Regarding the generation of greater pre-dictability, the following is recommended:

Further clarity regarding the bud-get established by the State to be committed for PPP: It is recommend-ed to (a) make of public knowledge the funding limits of the Government for the CPI; (b) specify resource availability at industry level; and (c) consider the replacement factor among resources committed for PPP projects and those that, therefore, would not be used through public works.

greater clarity and predictability on industry priorities: It is important to minimize the probability of rejec-tion of CPI. For this reason, it is recom-mended that (a) the industries specify their priorities for PPP; (b) ProInversión prepares together with each industry a flexible list of all public services subject to the application of PPPs; and (c) the equipment is considered part of infra-structure.

Finally, consideration must be given to eventual obstacles once there are signed contracts for the CPI. A proj-ect awarded in Peru takes, on average, between 18 and 24 months from the contract award to the start of the con-struction stage, mainly due to delays in the approval of permits for the start of works, land expropriation, and because of interferences with optical fiber and transmission lines.

www.amcham.org.pe16

ECONOMIC ANALYSIS

BY: RODRiGO ACHA, head of economic analysis at AmCham Peru

POliCies fOR 2015

2014 will be remembered as the year when the Peruvian economy showed its weaknesses. The effects of price re-ductions of gold and copper, plus lower demand in Europe and the USA did not seem to have a significant impact on the Peruvian economy, which continued to grow fueled by investments.

However, one day investments stopped growing, resulting in a cooling off of the economy: keeping everything else con-stant, for every five-point drop in private investment, GDP drops by one point, given that private investment accounts for 22% of GDP.

At the beginning of this year, the slow-down of domestic demand was seen as a risk rather than a fact. It was only be-tween May and June that expectations began to fall significantly as a result of a drop in investments. The govern-ment’s response was prompt and be-tween June and November of this year, it launched five stimulus packages that show its ability to implement counter-cyclical policies without impacting the Peruvian State’s solvency.

Adjustments were also made in mone-tary policy. Reserve ratios were reduced several times and benchmark interest rate decreased after remaining un-changed for eight months. At the same time, and unfortunately for the Central Reserve Bank of Perú (BCR), the appreci-ation of the dollar has limited the imple-mentation of expansionary policies.

What can we expect from monetary and fiscal policies for 2015? AmCham Peru seeks consensus and disagreements among the opinions of leading economists from the most important Peruvian financial institutions.

In any case, economic indicators from the central government and BCR are quite robust and everything suggests that mitigating measures applied will have an effect in the short-term. Never-theless, the pressure to stimulate con-sumption and investment will continue and it is expected that the government will continue with countercyclical fiscal policies and expansionary monetary policies. What can we expect from the Ministry of Economy and Finance (MEF) and the BCR for the rest of 2014 and throughout 2015?

Monetary Policy: Interest Rate

The most intriguing instrument is the benchmark interest rate, currently at 3.5%. The Peruvian economy clearly needs a boost, but there is a variable hindering the implementation of expan-sionary monetary policies: the exchange rate.

The withdrawal of the stimulus pack-ages from the US Federal Reserve has led to an appreciation of the dollar. The BCR is trying to prevent the exchange rate from rising in order to avoid ad-verse impacts on consumption and on the profitability of companies that depend on the import of inputs and capital goods. The question here is to what extent the BCR is willing to stop the rise in the exchange rate at the ex-pense of losing international reserves or failing to give an additional boost to the economy.

Hugo Perea, manager of economic studies at BBVA Banco Continental, did not rule out a decrease in the bench-mark interest rate will be agreed at the BCR monetary policy meeting in December. “We believe that the BCR will seek opportunities such as low-er-than-expected GDP growth data”, he stated.

However, in the view of Guillermo Arbe, Manager of Economic Studies at Scotiabank Perú, under current con-ditions, the impact of a decrease in the benchmark interest rate is much weaker than thought. “It may have an impact on consumption and small enterprises, but the interest rate is al-ready low at the corporate level”, he explained.

Thus, Arbe does not believe the inter-est rate will drop below 3% in 2015 as it would move away from a neutral level, without having a significant effect. How-ever, he thinks there are enough reasons to take it to 3.25% within the next two months.

Luis Óscar Herrera, chief economist for the Andean region at BTG Pactual, ex-pects interest rates to remain steady, as the BCR faces the challenge to con-trol relative prices and the increase in the exchange rate. “Our monetary pol-icy call is that the rate remains at 3.5% and the BCR intervenes with reserve reductions and other instruments such as repos and reverse swaps. If



draw soles from it, such as selling dollars or issuing readjustable certificates of deposit.

The interviewees also made clear that the ability to reduce foreign currency reserves to face the rise in the exchange rate is weaker because the target is to de-dollar-ize the economy. The BCR may do this in a capital flight scenario, but today there is high foreign currency liquidity.

All in all, it is worth considering that it is the expectation of obtaining high-er profits on investments abroad that would accelerate the outflow of dollars from Peru. This is not of concern as inter-national reserves are twelve times high-er than short-term deposits in foreign currency. Both actions would provide a basis for the Pension Funds Associations (AFP) to claim for an increase of the in-vestment limits in foreign markets.

Such pressure will be higher as long as investments in the domestic markets are not recovered. What can we expect from fiscal policy to achieve this goal?

Fiscal Policy

After a series of stimulus packages aimed to make up for lost time in promoting investment and correcting structural defects, the focus is still on the supply side (despite some specific stimuli such as bonuses and advance severance pay (CTS) withdrawals. What has changed is that the last of these packages will have a more striking impact because after many years of rigidity, reductions in cor-porate taxes have been announced. Is there additional margin to make more adjustments in 2015? It is clear that the State’s low level of indebtedness and the reduced fiscal deficit are two solid arguments that can be made to contin-ue with expansionary policies and deal with a fiscal deficit of 2% or a few points higher, as expected for next year, with-out problems.

However, criticism is coming from the qualitative side. Guillermo Arbe points out that we are unable to be Keynesian

G R A P H I C 0 1

CAUTOIUS DOWNTURNBENCCHARK INTEREST RATE OF PERU'S CENTRAL BANK

Benchmark interest rate of Peru's Central Bank

may-080

4

8

apr-09 mar-10 feb-11 jan-12 dec-12 nov-13 oct-14

Source: BCRP

the economy is weaker next year, the exchange rate is adjusted, the current account deficit keeps growing and the US economy experiences a tighter ad-justment, the rate may decrease”, add-ed Alex Müller, Economist for Peru at the same bank.

Everything suggests that we cannot foresee when the rate will decrease, but it is clear that we should expect at least a quarter-point reduction. Carlos Prieto, Manager of Investment Strategy and Economic Studies at Banco de Crédito del Perú, said that the expectation is for a decrease in the benchmark interest rate, but we cannot guarantee this will happen in the next three months. In his opinion, a decrease in the interest rate is subject to a stabilization of the ex-change rate, and initially this drop will only be 0.25%.

In line with Arbe and Perea, but more categorically, Thorne & Associates pro-jected in November that the bench-mark interest rate would definitely de-crease to 3.25% in December and to 3% sometime in 2015. About the moment of 2015 in which the next interest rate drop would take place, Alfredo Thorne, senior director of the consulting firm, said we need to wait for the BCR’s of-ficial release after the monetary policy meeting, but we cannot be very asser-tive as the issuing entity is not quite transparent.

Other Monetary Policy Instruments

So, what can we expect for the other instruments? There is consensus re-garding room to continue with liquid-ity injections through the reduction of reserves. As stated by Perea, the in-crease in the availability of soles in the financial system may help compensate the rise of the benchmark interest rate, and as a consequence, the size of the reduction of reserves will depend on how systematic and ongoing the BCR interventions are.

In any case, it is clear that the current situation is far from being as critical as in the years 2008 and 2009, and is not expected that reserves would end up at 6% as it was then. An important goal is to keep credit growth in domestic currency within an acceptable range between 10% and 14%, in the view of Arbe.

The BCR has used every type of instru-ment and everything suggests that it will continue intervening in the same way. As explained by Renzo Rossini, BCR General Manager, at AmCham’s Eco-nomic Forum held in August, the bank would rather not renew certificates than sell dollars to deal with the rise of the ex-change rate. The most interesting mech-anism is the issuance of swaps, which allow to cover the financial system with-out the need to use options that with-

www.amcham.org.pe18

ECONOMIC ANALYSIS

in Peru. “We have been provided a large amount of resources, but actual expen-diture has been low, the Peruvian State’s structure is not friendly towards Keynes-ian policy. Resources are being directed towards savings, and only money from public sector wage increases is entering the economy, but is the smallest factor”, he stated.

For Hugo Perea, it would be good if the government can keep churning out packages of economic measures. “It is an opportunity to take interesting mea-sures. The best ones are the long-term measures with productivity improve-ments. I hope to see a package integrat-ed with the production diversification plan or with educational reform”, he said. Mr. Perea added that exceeding 1% of fiscal deficit (the fiscal rule for Peru) is not a problem.

Carlos Prieto also points out that there is room to increase expenditures because the State has good buffers to support higher pressure such as a debt lower than 20% of GDP, which in net terms reaches to only 5%, and high savings levels. “Strictly speaking, fiscal deficit no longer needs to be lower than 1%, but structural deficit should be no lower than that percentage”, he explained.

However, it is essential to maintain dis-cipline. “In order to keep countercyclical policies it is important to maintain con-fidence, and to do that it is necessary to be in line with the rule. As slowdown periods approach, it is more important to keep those policies; adjustments will be required if confidence is lost, and we end up being pro-cyclical”, emphasized Luis Óscar Herrera, of BTG Pactual. Alex Müler, of the same bank, highlighted that public investments were halted due to regional elections and that was the reason why current expenditures rose so people could boost their consumption. However, he foresees that in the future the way to increase consumption will be by executing infrastructure projects that are labor intensive.

But, the ability of the Ministry of Econ-omy and Finance to keep launching

G R A P H I C 0 2

A HAND FROM THE GOVERNMENTFISCAL IMPULSE (% OF GDP)

Sources: BCR, MEF

2007

0.9 0.9

-1.9

-0.4

0.7 0.6 0.71.0 1.0

0.5

2008 2009 2010 2011 2012 2013 2014 2015 2016

21.5

10.5

0-0.5

-1-1.5

-2-2.5

Central Reserve Bank of Peru (BCR)Ministry of Economy and Finances's forecast (MEF)

stimulus measures may end after the fifth package. Thorne considered that the effects of this year’s measures will become effective in 2015 (he estimat-ed that without stimulus the economy could grow only between 2% and 3% in 2015), but it will not be sustainable to maintain those policies in 2016.

Regarding taxes, it is yet to be seen if more announcements are under way. The historical reduction of the income tax requires a gradual implementation due to the impact on the national trea-sury (the tax adjustments of the fifth package involve an income reduction of S/.4,500), and it should be determined if it is possible to add more pressure.

A reduction of the sales tax seems to be difficult due to the low impact that a decrease of 2% would have on con-sumption, in contrast with the impact generated with a similar fall in the third category income tax due to the higher bases that companies’ profits imply (at the same time, this reduction will in-crease their productivity). Nevertheless, Arbe says that the reduction of income tax does not solve the real problem: a reduction of confidence.

Global Threat: Deflation

This is what we can expect for the mon-etary and fiscal policies. Everything sug-

gests that 2015 will be a more favorable year, boosted in part by the measures taken by the MEF.

However, it is essential to consider that nothing can be done against the in-fluence of certain external factors that cut across the entire economy. During AmCham Perú’s Monthly Economic Outlook Breakfast in November, Thorne highlighted that the BCR interventions do not have a significant influence on the exchange rate trends and that any changes in it will depend on the events in the USA.

Other aspects such as deflation would also be a problem. The difficulty to re-float the Japanese economy shows that there is no further experience in han-dling this problem. However, there is an advantage in being an observer and a non-leading economy that receives the impact of those that set the pace in the worldwide economic activity.

For this reason, we do not expect im-ported inflation despite the increase in the exchange rate. Reductions of oil prices would help in that respect. Thus, the main concern would be to maintain economic growth, and to achieve that, the most important reforms are, as we mentioned before, those related to ac-celerate the implementation of invest-ments and improve productivity.



Positive Reaction

Last month’s pessimism was reverted. The week prior to this survey, the Ex-ecutive approved the fourth stimulus package with the aim of reactivating economic growth through incentives for consumption and investment, and for labor market formalization.

However, despite the optimism in re-sults there are still concerns regarding the execution of investment projects, exchange rate rise and demand fall in some sectors. The first and the third of these issues were confronted by the an-nounced.

Partial Calm

The main concern among those sur-veyed is the delay on the execution of investment projects and the un-certainty on their management in some of the country’s regions: as was exposed in AmCham’s Monthly Eco-nomic Breakfast in October, elections results were not favorable for invest-ment in key regions such as Cajamarca and Apurimac. In addition there are concerns for the decrease in domestic

Entrepreneurial Overview Survey – November 2014

One week after the announcement of the fourth stimulus package, our members were more optimistic in their responses.

economic activity and for low mineral prices effect.

However, on the counterpart are those who trust these legislations advances will help hastening projects execution. These changes would be especially fa-vorable for those projects allotted by Public-Private Partnerships (PPP), scheme that allows the development great in-frastructure works, which are occupying the place that mining formerly had in

Better

oct-14 nov-14

EqualWorse

BUSINESS CLIMATE EXPECTATIONS THROUGH THE NEXT SIX MONTS

E P E - A m C h a m o c t - n o v

40%44%

15%

30% 30%

41%

External demand

oct-14 nov-14

Input costsInternal demand

FACTORS INFLUENCING BUSINESS CLIMATE EXPECTATIONS


8%10%

31%31%

Mineral prices

10%10%

4%4%

Legislation Sociopolitical climate

29%33%

Exchange rate

16% 10%

2%4%

boosting the country’s economy. These changes would not come only from the stimulus packages, but also from adjust-ments made to the PPP Law and to the Environmental Regulations for Hydrocar-bon Activities (DS N°039-2014-EM).

Details on the changes made to the APP regulations, as explained in Octo-ber during our Working Breakfast “Co-fi-nanced Public Private Associations”, are linked to the speeding procedures for

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ECONOMIC ANALYSIS

granting concessions to private co-fi-nanced activities (see Jose Luis Escaffi’s article in this publication). Environmen-tal regulations on hydrocarbons also fol-low the same path, (for deeper details, Giancarlo Guardia’s article can also be read in this publication).

Some of the surveyed that were opti-mistic also declared that they were con-fident in domestic demand improve-ment and in the political/social climate stabilization.

Part of pessimism increase at some sec-tors level is due to the anticipation of a somehow complicated political/social surrounding . The worsening of business expectations by the surveyed is also due to the awaiting of an increase in inputs costs, partly due to the Sol depreciation.

Among those optimistic regarding do-mestic demand, Christmas sales cam-paign and the greater demand of food from abroad was remarked. In educa-tional services, reference was made to customers increase in specialized seg-ments, alligned with the expectations of enterprise consultancies representatives in the former survey (demand for con-sultancy services increases when cir-cumstances get complicated).

Investment: meeting the growth

Regarding those who are expecting in-vestments level reduction, it has been stated that strong expenses have already been done during this year. Others point out that they will have fewer revenues or that risk level has increased. Those relat-ed with the fishing sector expect a lesser investment due to incomes reduction as a result of raw material scarcity, circum-stance that could be repeated in agri-culture if El Nino has effects on rains or stops the necessary thermic investment for crops growth. The need to reduce costs in order to achieve efficiency in operations was also mentioned.

Those who indicated that investment lev-els in their enterprises were to increase, stated as imperative to be ready for the arrival of new clients, for innovating and

diversifying services, and for implement-ing new projects already approved.

For the labor market, among the opti-mistic causes it was mentioned that tal-ent is always insufficient and scarce for plans development, as well as there is the need to cover new operations and the organic growth of enterprises.

Like in investment’s case, the need to reduce expenses due to lesser growth perspective was mentioned among pes-simistic reasons. The negative effect of ex-change rate rise was added to this . Besides demand reduction and costs rises, the oth-er two adverse issues mentioned were the political/social climate and legislation.

Will the way be paved?

Works must continue. In order for Peru to be able to reach the infrastructure level of de-

Better

oct-14 nov-14

EqualWorse

INVESTMENT EXPECTATIONS THROUGH THE NEXT SIX MONTS


30%

44%

10%21%

60%

35%

Better

oct-14 nov-14

EqualWorse

PAYROLL EXPECTATIONS THROUGHTHE NEXT SIX MONTS


40% 32%

17%18%

43%

50%

veloped countries in the next 10 years, an investment of over 7% of GDP is required, according to the 2013 CADE (Annual Exec-utives Conference)’s Infrastructure Group —that created the program Infrastructure for All, an initiative administered by Contribuy-entes por Respeto with APOYO Consultoria (in charge of the Infrastructure Observato-ry) and AmCham Peru (in charge of events and meetings supporting)—. Between November 2013 and this late October, con-cession processes for US$12,000 million have been allocated. This amount exceeds the 7% GDP of 2013 and complies with the US$10,000 million annual range that Ex Minister of Economy and Finances, Luis Miguel Castilla, announced as necessary for covering the infrastructure gap in the coun-try (US$80 billion for 2012-2021 periods).

We hope that the fifth stimulus package contributes to this aim and that expec-tations turn better.


STATISTICAL ANALYSIS

G R A P H I C 0 3

G R A P H I C 0 2

G R A P H I C 0 1

IMPACT OF SUSTAINABILITY ON COUNTRIES’ COMPETITIVINESS

PERU: SOCIAL CONFLICTS, BY TYPE,OCTOBER 2014

PERU: SOCIOENVIRONMENTAL CONFLICTS, BY ECONOMIC ACTIVITY, OCTOBER 2014

Argentina 3.79 3.75 3.36 3.55 -6.3%Bolivia 3.77 3.44 3.76 3.60 -4.5%Brazil 4.34 4.29 4.54 4.42 1.8%Chile 4.60 4.68 4.78 4.73 2.8%Colombia 4.23 3.8 4.17 3.98 -5.9%Mexico 4.27 4.20 3.98 4.09 -4.2%Panama 4.43 4.42 4.53 4.47 0.9%Peru 4.24 3.99 4.02 4.00 -5.7%Paraguay 3.59 3.31 3.42 3.37 -6.1%Uruguay 4.04 4.19 4.21 4.20 4.0%Venezuela 3.32 3.15 3.13 3.14 -5.4%

*Average of 1 and 2Source: World Economic Forum

GlobalCompetitiveness

Index (GCI)

GCI - adjusted by social

sustainability (1)

GCI - adjusted by environmental sustainability (2)

GCI - adjusted by sustainability*

E�ects of sustainability

on the GCI (%Var.)

SocioenvironmentalLocal government a�airsTerritorial delimitationElectoralComunalNational government a�airsOther issuesLabour relatedRegional government a�airs

MiningOilEnergyWaste and sanitationForestryAgroindustrialOther

62.21%10.14%

6.91%5.07%

4.15%4.15% 3.23% 2.30% 1.84%

69.63%14.07%

5.93%3.70%

2.96% 1.48% 2.22%

1. According to the Global Competitiveness Index adjusted by sustainability, Peru is one of the countries in the region that loses the most due to socio-environmental issues.

2. Two out of every three con�icts in Peru are originated by environmental or social issues. It’s of great importance to have the government’s support on investors in order to build good relationships with local communities.

3. The Mining, Oil and Energy sectors are the most a�ected by social con�icts. Nine out of ten con�icts originate around these economic activities. There’s an urgency to achieve the cooperation of the local communities, given that these sectors are the most relevant in terms of productivity for the Peruvian economy (and for its development).

4. In a Business as Usual scenario (BAU), not only more emissions are generated: the country’s GDP would also be lower than in a sustainable scenario, where certain measures suggested by PlanCC (Peru’s Ministry of Encironment’s plan for mitigating climate chage) are taken. In this way, according to the projections of the plan that counted with the collaboration of APOYO Consultoría (one of Peru’s most important business consultancies), by 2026 the annual growth rate of the GDP would be0.36% higher.

5. It is not a simple task to reduce greenhouse e�ect gases emissions. Maintaining everything else constant (BAU), the GDP could drop 6.38% by 2030, and 23% by 2050. PlanCC assessed other scenarios by the complexity of the application of their measures, among which the Scenario of Sustainable Mitigation (green line) was chosen by consensus by the National Climate Change Mitigation Prospective Team, given that even with the application of all the 77 measures suggested by PlanCC (the sustainable scenario just considered the application of 33), the greenhouse e�ect gases emission would only be 43% below the BAU scenario.

6. According to PlanCC, the sustainable scenario would increase the e�ciency of energy production and would also lower its cost. Under the BAU scenario, the intensity of energy needed to produce S/. 1 million would be of 0.93 terajoules, while under the sustainable scenario the same requirement could be met with only 0.77 terajoules.

Source: Defensoría del Pueblo - Con�ict monitoring system

Source: Defensoría del Pueblo - Con�ict monitoring system

www.amcham.org.pe22

STATISTICAL ANALYSIS

G R A P H I C 0 6

G R A P H I C 0 5

G R A P H I C 0 4

PROJECTED GDP UNDER BUSINESS AS USUAL (BAU) AND SUSTAINABLE SCENARIO

Source: PlanCC

BAUSustainable

BAUSavings / SavedSustainableFastRBS (Required by Science)

Natural GasPetroleum derivativesHydro energy and renewable energy sourcesCharcoal

Natural GasPetroleum derivativesHydro energy and renewable energy sources

350030002500200015001000

500

2007 2012 2017 2022 2027 2032 2037 2042 2047

SCENARIOS OF CO2 EMISSIONS CONSTRUCTED ON PLANCC

BAU SCENARIO

DISTRIBUTION OF THE ENERGETIC MATRIX BY SCENARIO

SUSTAINABLE SCENARIO

Source: PlanCC

Source: PlanCC

350300250200150100

50

2010 2015 2020 2025 2030 2035 2040 2045 2050

1. According to the Global Competitiveness Index adjusted by sustainability, Peru is one of the countries in the region that loses the most due to socio-environmental issues.

2. Two out of every three con�icts in Peru are originated by environmental or social issues. It’s of great importance to have the government’s support on investors in order to build good relationships with local communities.

3. The Mining, Oil and Energy sectors are the most a�ected by social con�icts. Nine out of ten con�icts originate around these economic activities. There’s an urgency to achieve the cooperation of the local communities, given that these sectors are the most relevant in terms of productivity for the Peruvian economy (and for its development).

4. In a Business as Usual scenario (BAU), not only more emissions are generated: the country’s GDP would also be lower than in a sustainable scenario, where certain measures suggested by PlanCC (Peru’s Ministry of Encironment’s plan for mitigating climate chage) are taken. In this way, according to the projections of the plan that counted with the collaboration of APOYO Consultoría (one of Peru’s most important business consultancies), by 2026 the annual growth rate of the GDP would be0.36% higher.

5. It is not a simple task to reduce greenhouse e�ect gases emissions. Maintaining everything else constant (BAU), the GDP could drop 6.38% by 2030, and 23% by 2050. PlanCC assessed other scenarios by the complexity of the application of their measures, among which the Scenario of Sustainable Mitigation (green line) was chosen by consensus by the National Climate Change Mitigation Prospective Team, given that even with the application of all the 77 measures suggested by PlanCC (the sustainable scenario just considered the application of 33), the greenhouse e�ect gases emission would only be 43% below the BAU scenario.

6. According to PlanCC, the sustainable scenario would increase the e�ciency of energy production and would also lower its cost. Under the BAU scenario, the intensity of energy needed to produce S/. 1 million would be of 0.93 terajoules, while under the sustainable scenario the same requirement could be met with only 0.77 terajoules.

31%

41%

26%

2%

27%37%

36%


COVER STORY / I N F O R M E C E N T R A LLEGAL ANALYSIS

BY ANDRÉS CALDERÓN,

Partner, Head of the Competition, Communication

and Personal Data Protection Division;

Muñiz, Ramirez, Perez-Taiman & Olaya

Abogados law firm1

CoRpoRAtE E-mAiL: ABSoLutE oR RELAtivE pRivACY?

Who is the owner of an employee’s e-mail, the employee or the employer? This has been is a much-asked question, especially over the last few weeks after the opinion of Congress’ Committee on Labor and Social Security supporting the adoption of draft laws 2604 and 3329/2013-CR, was made public.

The fundamental content of this opin-ion can be summarized as follows:

1. All IT resources in the workplace are the property of the employer.

2. These draft laws authorize employ-ers to establish limits (by means of usage policies made known to em-ployees) related to the use of these IT resources, and to monitor their use.

For a number of years now, companies have been implementing policies on employee usage of technological tools and communications, establishing the permitted /prohibited uses of corporate communication systems. These include the possibility of the employer accessing and monitoring these e-mail accounts, to the extent that it is understood that work-related email accounts are compa-ny-owned working tools.

This practice was admitted for the first time in 2012. In a vote emitted by Con-stitutional Court (CC) Judge Gerardo Eto

The key to understanding corporate e-mail monitoring practices is to avoid assuming extreme attitudes.

1 The author appreciates the valuable research collaboration of Diego Garavito. All views expressed here are solely those of the author.

Cross, he indicated that when an employ-er provides and forewarns his/her employ-ees that a certain e-mail address or other instant communication service are tools to be used exclusively in the performance of job-related functions, employees can-not expect secrecy or confidentiality.

This was a first step to leave aside that which the CC had pointed out in the no-torious Serpost (Peru’s State-owned Post-al Service) case, which rejected employer access to employee e-mails without a court order. The draft law then, echoes the position of Judge Eto Cross on this issue.

The CC’s original stance whereby it prohibited employers to access their employees’ e-mails, stems from an er-roneous concept: privacy as an abso-lute value. While it is true that privacy is a fundamental right and also includes the content of such communications, it is also true that the sphere of what is private is determined on a case by case basis and according to the context.

Two people having a conversation in a coffee shop can’t expect to have the same degree of privacy as they could have if they were in a private home. A person cannot expect the same degree of privacy over his/her voice when sing-ing in a concert with thousands of peo-ple, as when he/she sings in the shower.

The context determines any reasonable expectation of privacy.

Thus, if an employer forewarns employ-ees that corporate e-mail accounts are not private accounts and that their use is restricted to the performance of their job-related functions, employees have no grounds on which to reasonably ex-pect any sort of privacy. The draft law does not imply breach of a fundamental right, but rather the recognition of the relativity of privacy.

What do the rules and regulations say?

Apart from the above mentioned juris-prudence of the CC, Peru does not have any specific legislation regulating access to employee e-mails. The general legal framework is derived from the Political Constitution, which recognizes the right to secrecy and inviolability of communi-cations and private documents.

There are also laws that generally recog-nize the right to inviolability and secre-cy of telecommunications and private communications, such as the Telecom-munications Act, the Criminal Code and the Law on the Protection of Personal Data. Although the majority of these laws state that private communications may only be opened, seized, intercepted or intervened with a court order, it is also

www.amcham.org.pe24

LEGAL ANALYSIS

United States Yes With the prior consent of the employee, or if the employer is the IT supplier

United Kingdom Yes With the prior consent of the employee

European Union Yes When supervision is absolutely necessary and it is not secret

Mexico No

Portugal No

Italy Yes After consultation with trade union, for organizational or productive requirements or for work safety

Holland Yes Prior participation of trade unions or workers’ representatives

Spain Yes Workers should be informed and companies are required to establish specific guidelines for such supervision

France No

Chile No

Jurisdiction ConditionsAllows for email monitoring

vigiLANt EYESE-mAiL SupERviSioN iN othER JuRiSDiCtioNS

Source: Legislation and jurisprudence of the countries

generally understood that this is not ap-plicable when dealing with private com-munications, or when consent has been given by the owner thereof.

In other words, if an employer forewarns his/her employees that work-owned and related communication tools are not for private use, and better yet, alerts his/her employees about this by means of a clear policy, no breach of privacy can be deemed to exist.

Why monitor corporate e-mails?

There are several reasons that may justify this type of supervision. One of simplest is merely to verify that the employee is carrying out his/her work out as expect-ed. But there may be more serious rea-sons, such as suspicion of involvement in violations and unlawful acts.

In fact, an employee’s communications per se could create a situation of com-

pany liability. For example, if a worker exchanges communications with the competition to agree on prices, the Na-tional Institute for the Defense of the Competition and Protection of Intellec-tual Property could sanction the compa-ny with substantial fines.

On the other hand, some workers may have access to commercially or industri-ally sensitive information, the disclosure of which, or use of by any third party may favor the competition and serious-ly affect the employer. In these cases, one of the few means that an employ-er has to verify whether the company’s business secrets have been disclosed or breached, is to access the e-mail ac-counts of (former) employees.

Labor Big Brother?

Now, to have the authority to moni-tor employee email accounts does not mean that an employer should be con-

stantly reviewing their employees’ mes-sages and conversations. This would not be practicable and could generate resentment on part of the staff.

We recommend only limited supervi-sion. For this there are a number of tech-nological tools such as DLP (data loss prevention), which detect certain types of electronic communications that could suggest some sort of infringe-ment without the need to carry out a personal review. Additionally, one can implement protocols through which only a few people can have access to email content and only under excep-tional circumstances.

These types of measures are useful in that they help companies to achieve a balance between the need for super-vision while allowing for a degree of privacy, and at the same time helping to reduce the emergence of employer/employee conflicts and disputes.


LEGAL ANALYSIS

Potential effects

Potential effects

SD N° 312-2014-EF eliminated tariff’s on 1,870 items, arguing that this is a step that goes in line with the government’s economic policy which aims to boost econom-ic efficiency and competitiveness. Subsequently, and succumbing to pressure of certain economic sectors, it was deemed fit to back-track and reduce the number of benefitted items to allow draw back creditors to enjoy this benefit. This move reveals the impulsivemess with which the SD was promulgated, or the subsequent concession to continue with an export incentive. In whichever case, this type of fluctuating behaviour only sends mixed signals to the market.

Establishes lower income tax rates for the great majority of workers. Seeks to be-nefit lower -income workers while raising the income tax of higer-income workers and employees. As far as companies are concerned, the MInistry of Economy has proposed a change in Income Tax rates which seeks to encourage reinvestment. The idea is to reduce Income Tax from 30% to 28% while raising the Dividend Tax rate. Raising the Tax Distribution rate as from 2015 for transactions which are cu-rrently not subjet to this tax, will make this operation more onerous and implies making sectorial diversification more expensive.

leGislatiVe seMaPhore

suPreMe Decree n°314-2014-ef aMenDs scheDule i of suPreMe Decrees nº 312-2014-ef anD n°104-95-ef

oPinion Pl n°4007/2014-Pe fifth stiMulus PackaGe

The number of items with 0% tariffs established by SD N°312-2014-EF were reduced from 1,870 to 1.085. Addi-tionally the draw back rate was reduced from 5% to 4% effective as from January 1, 2015, and down to 3% as from January 1, 2016.

Contains tax measures de-signed to reduce 3rd,4th and 5th Category income tax (for enterprises, independent and dependent workers, respec-tively), as well as tax stability measures applicable to min-ing and anticipated reim-bursement of the VAT for cap-ital goods.

Negative effects on the economic climate

Ambiguous effects on the economic climate

Positive effects on the economic climate

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www.amcham.org.pe26

LEGAL ANALYSIS

Potential effects

Potential effects

Potential effects

The rationalization of the VAT Collection Regime is something that the business sector has asked for, to avoid this constituting a burden that is going to distract companies from their core businesses. Hopefully production gains will compensate for the lesser income collected by Treasury.

Productive diversification should be a supreme national objective and it is important that the government deals with this issue. However, it remains to be seen if the government can overcome the planning stage so that it can obtain material results.

It is a good sign that companies can adapt to adverse economic situations. Additionally, the bonus for productivity also introduces a fair tool for incentivating the workers’ commitment to their companies. The incorporation of the Ministry of Production representatives on the board and the Ministry of Economy into the board of the Superintendence of Labor Oversight brings together the vision of the rest of the communities’ productive sectors. However, it is important to note that it is still necessary to introduce many more measures to promote the formalization of workers in the small enterprises.

sD n°317-2014-ef excluDes GooDs unDer the iGV (Vat) collection

sD n°010-2014-ProDuce creates the national ProGraM for ProDuctiVe DiVersification

Pl n°4008-2014/Pe law DesiGneD to ProMote iMProVeD PerforMance of the MarketPlace

Excluded 29 items of the IGV Collection Regime and their amendments. It shall come into effect as from January 1, 2015 and indicates that only 12 items will be subject to this anticipated payment mechanism.

Seeks to promote and devel-op specific infrastructure to boost productive diversifica-tion. This Decree also deter-mines some of the program’s specific objectives, the target population, the components, management, ministry or of-fice, financing and effective term of the program.

Relaxes restrictions and ad-ministrative hassles in the negotiation of severance benefits, simplifies the ter-mination administration pro-cess and fosters consensus between ex- employers and severed employees. Incenti-vates the small enterprises to formalize labor relations.

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AMCHAM NE WS - AGENDA

1. U.S. Treasury Deputy Assistant Secretary for the Western Hemisphere, Michael Kaplan, and another two officials from the Treasury Department met in Lima with authorities of the Peruvian Government on September 24.

2. Meeting with State Department Under Secretary for Political Affairs, Mrs. Wendy R. Sherman, conducted on October 22.

3. Meeting with Under Secretary for Politicals Affairs, Mr. Stefan Selig, conducted on October 30.

4. Business participation in the Pack Expo 2014, conducted from November 2 to November 4 in Las Vegas, Nevada.

5. V Technology, Innovation and Entrepreneurship Mission to Silicon Valley, conducted between November and November 8 in San Francisco, Palo Alto and Mountain View, California.

6. III Customs Logistics Business Delegation, sent from November 9 to November 14 to the cities of Broward and Miami, Florida; and Panama.

7. “Infraestructura para Todos” (Infrastructure for All), program developed in cooperation with IPAE (Peruvian Institute for Entrepreneurial Action) and APOYO Consultoría, also with the participation of AFIN (Association for the Promotion of Nation Infrastructure) and IPE (Peruvian Institute of Economics).

PRIVATE INVESTMENT AND DEFENSE OF MEMBERS’ INTERESTS

1. Letter N° 036-2014-Sunat/6000000 in response to the query about software and Income Tax. The query referred to the payments done by local software distributors to un-domiciled suppliers

for the acquisition of a certain amount of software and its license constituted royalties. The tax regulator (Sunat) responded that these steps do not constitute royalties. Action taken by AmCham Perú: distribution of the document among the Tributary Affairs Committee.

2. Letter N° 036-2014-Sunat/6000000 in response to the query about the lease of ships, aircrafts and other means of transportation rented by un-domiciled individuals, but are being partially used inside the country. The Chamber asked if the legal presumption contained in the last paragraph of subparagraph b) of numeral 1 from article 2 on the Regulation of the General Tax Law on Sales and the Excise Duty admits proof on the contrary, so that taxpayers could demonstrate the provision of a percentage that is different than 60%. It was asked: if that was the case, which documents would be required in order to proof the percentage of the services provided on national territory. The tax regulator responded that it does not constitute for a legal presumption, but rather a legal fiction, and as such, it does not admit proof of the contrary.Action taken by AmCham Peru: distribute the document among the Tributary Affairs Committee.

3. Fourth and Fifth economic stimulus packages (DU N°004-2014, PL N°03942/2014-PE, PL N° 03941/2014-PE y PL N°4007/2014-PE). The fiscal stimulus was greater because it included measures to reduce the tax burden and to give extra bonuses to the employees of the public sector. In addition, it seeks to incentivize the formalization of businesses by promoting the recruitment of young workers in exchange for benefits. Their effects will be felt during 2015.

INTERNAL AGENDA

These are the topics that have been prioritized in AmCham Peru’s agenda:

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SPECIAL REPOR T - SOCIAL RESPONSIBIL IT Y

Round table: ImplementatIon and challenges of socIal

ResponsIbIlIty polIcIes

As part of the last session held by AmCham Perú’s Sustainable Development Committee, a round table was con-ducted with the purpose of setting out the main guidelines of its members’ social responsibility strategies as well as the main challenges they face to implement them. Among the main policies are those aimed at improving edu-cation quality and those aimed at promoting sustainable development.A prevailing opinion is that although companies should include social responsibility activities as part of their business operations, these have ended covering up the gaps in government responsibilities. On the other hand, bureaucracy often hinders the implementation of these programs.Lastly, it is interesting to note the consensus regarding the need to be socially responsible by conviction and not by obligation, which may also be a source of profit. What follows are the opinions of the committee members.

What are the main elements that de-fine your social responsibility strategy?

Arturo Field, General Manager at Centro de Idiomas Camelot (Camelot Language Center).

We have been training English teachers and corporate executives for 24 years.

Regarding social responsibility, we are jointly working with the US Embassy through Access Program projects, which provide training to low-income youth. We have worked in the district of Villa El Salvador, and now we are in El Agustino. Also, we are about to start working with young people in La Victoria. Furthermore, we have been working extensively with mining companies pro-viding support to engineers working at the camps, as well as to local schools by helping them improve English teaching. Although the latter initiative is subject to the Ministry of Education, we always try to take part in it.

Paúl Cateriano, Human Resources Man-ager at Cementos Pacasmayo.

Our social responsibility work falls into three areas: health, education and

sustainable development. We seek to build personal skills in these three seg-ments and help people develop sus-tainability.

That is all we do. Communities may ask for many things, but we seek to help them get focused: we provide them with health projects, and build education and sustainable development skills.

We award the best practices with the Luis Hochschild Plaut prize in Education. In addition, together with Tecsup institute, we provide financial support for edu-cation programs in order to help some students begin their technical studies, so when they start working, they will be able to pay their tuition fees.

We took part in “Matemática para Todos” (Math for Everyone), but since we have noticed that the Ministry of Education has funds available, we are moving on to other educational projects in order to avoid overlapping.

We are also involved in social programs. We try to identify what endemic diseases are affecting remote communities, and find what is causing them.

Carolina Rouillón, General Manager at Asociación Sodexo por el Desarrollo Sostenible (Sodexo Association for Sustain-able Development).

Our corporate policy is focused on four priorities: as employers, because we employ 428,000 people worldwide; in health and welfare; development of local communities; and environmental care.

“If there are political, economic or even

social changes in the area where we are

operating, the strategy needs to be redefined.

however, we have to be clear about

the management’s focuses”.

maría del pilar Ramírez, apoyo comunicación


COVER STORY / I N F O R M E C E N T R A LSPECIAL REPOR T - SOCIAL RESPONSIBIL IT Y

Our work in Peru is mainly focused on the extractive industry, which demands 87% of our activity. This is why we have focused on three strategies: the first is to promote employability in order to contribute to the development of the people surrounding our operations area, and then to hire skilled labor; the second is to address nutrition, health and wel-fare issues, precisely with good nutrition in local communities; and the third is to help in the development of local pro-ducers in order to integrate them to our supply chain.

Lizbeth Carrasco, Quality Expert at Tges-tiona.

Since we are a service company, we are mainly focused on seeking the employ-ability of our staff. We have also worked along with Fundación Telefónica to erad-icate child labor in vulnerable areas and in environmental care, specifically with the promotion of energy consumption reduction.

Ernesto Pye, Vice President of Pacific Latam.

We are an SME. Our work is carried out around two central points: the develop-ment of training programs for the staff, and environmental care.

Through our Pacific Academy program we have completed more than a thou-sand hours of training for 40 people. Re-garding the environment, we work on topics linked to everyday activities such as energy saving and recycling.

Mariella Ferrero, Head of Social Respon-sibility at Ferreycorp.

We develop different initiatives with all our stakeholders. If we focus on the com-munity, we address two big issues: tech-nical education for young people, both in values and soft skills; and boosting infrastructure works and basic services through mechanization, an area of our expertise.

María del Pilar Ramírez, leader of sus-tainability line at APOYO Comunicación. We are also focused on our staff and their impact on the environment. Many of our guidelines are for the entire Grupo APOYO, but we also have group-specific guidelines. For instance, the develop-ment of a career path and of a better or-ganizational culture.

Carlos Aranda, Technical Services Man-ager at Southern Perú Copper Corpora-tion.

These past years we have redoubled our efforts in three areas: health, social inclu-sion and education. We also took part in Matemática para Todos.

These past years we also got involved in science and culture. Southern Perú, together with Universidad Católica, has established a prize in the arts and anoth-er in science. Both are given every other year, each one in a different year.

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We have helped to improve the quality of life in our operations area. We work with alpaca farmers, with fish farms, with cat-tle farmers for pasture improvement, in crops improvement and water collection.

Claudia Cornejo, Tourism Industry Direc-tor at Deloitte.

Deloitte Foundation covers two main ar-eas: culture and education. We support educational and cultural institutions by providing services to help improve their managerial effectiveness.

Ana Sofía Hernández, Communications Manager at Procter & Gamble Perú.

In Peru our focus is tightly linked to the improvement of quality in education

“We manufacture the p&g water purifier, a

product built specifically for donations (...) We brought many

products [to care for the victims of the pisco

earthquake]but they got stuck at customs and got spoiled. We have been trying to

introduce them since then. I have met with all of the health and

environment ministers, with president ollanta

humala and his wife, but all paths lead to digesa (general directorate of environmental health)”.

ana sofía hernández, p&g

and to the growth of children on early childhood. This task is carried out jointly with United Way Perú. We are trying to fit this local strategy into our global social responsibility strategy, which is tightly linked to hygiene practices that have a close connection with our work.

Andrea Sorvellón, Corporate Responsi-bility Executive at Sura.

We support the education sector by provid-ing school infrastructure, training in values, library management and teaching high school students how to manage savings. We also work on environmental issues: we have practices aimed at reducing the carbon footprint. We address communi-ty issues when we work with the elderly, and have different volunteering initia-tives throughout the country. We are al-ways aligned with our parent company in Colombia.

Armando Casís, General Manager of Aso-ciación Unacem (Unacem Association).

The key elements are the outline and de-velopment of the company’s Social Re-sponsibility Policy, which incorporates the sustainability view. This includes the ex-pectations of all stakeholders, both inside or outside the organization. In this respect, Unacem considers that social responsibil-ity includes issues related to the business core, such as innovation, technology, new products, and environment, as well as per-manent sustainability strategies with its clients, suppliers and contractors, and with the community. For instance, socio-envi-ronmental issues are essential to our busi-ness; we carry out environmental impact studies and are aware of the OEFA (Agen-cy for Environmental Assessment and En-forcement) and Osinergmin’s (Supervising Agency for Investment in Energy and Min-ing) requirements. Furthermore, we pri-oritize social and environmental projects based on a private social investment strat-egy with two focuses: multi-sector strate-gic alliances at national and international level; and grassroots development.

Is there anything in the functioning of the government that hinders the

performance of your social responsi-bility activities?

Ana Sofía Hernández

Some people have already heard me talking about it. We manufacture the P&G water purifier, a product built specifically for donations.

With 4 grams of this powder you can pu-rify 10 liters of water in 10 minutes. Peru is the only one among the more than 80 countries where we operate in which we have neither been able to introduce the product, nor implement our clean water program for children. Ironically, it is one of the countries with more problems due to the shortage of drinking water.

The problem is that this is such an inno-vative and uncommon product that does not fit into the General Directorate of Environmental Health’s (Digesa) Unified Administrative Procedures Text (TUPA). Since it is not included within any of the categories, we cannot be provided with the Health Ministry permit.

Without such permit being granted, we have to be provided with a technical opinion, and for that we need to test the product in all water sources of the coun-try with our own resources.

The product is something we donate and has two uses: natural disasters and sus-tainability programs to supply water in areas without drinking water. We brought many products to care for the victims of the Pisco earthquake, but they got stuck at customs and got spoiled. We have been trying to introduce them since then.

During the four years I have been living in Peru I have met with all of the Health and Environment ministers, with President Ol-lanta Humala and his wife, but all paths lead to Digesa (General Directorate of En-vironmental Health).

Carlos Aranda

The government hampers our social re-sponsibility activities. We should now be clear that their main concern is to protect



COVER STORY / I N F O R M E C E N T R A L

citizens, but the big problem is that there is a difference between protecting citi-zens’ interests based on knowledge and doing so for fear. I think that the latter sit-uation is increasingly more frequent.

The lack of knowledge, ignorance, inca-pability and mediocrity are abundant. We hire broadly experienced staff to ensure good performance, but at the ministries we have to deal with officers that are re-cent college grads who dare to call our recommendations into question.

One of the first issues to consider is wheth-er this obstacle can be overcome; I think it passes through a series of topics. First, an organic problem: it cannot be possible that a second or third tier officer can block the negotiations that already had the consent of the President of the Republic or minis-ters. Second, there is work to be done re-garding capabilities. And third, there is a resource problem: for many years Peru had not had as much money as now; however, it doesn’t know how to manage it.

Carolina Rouillón

I would like to adhere to Carlos’s opinion. I had the chance to work for the gov-ernment and in an extractive industry, and I think one of the big problems we face as a country is that we do not have a public administration career that sus-tains and maintains the technicians who have been trained during different gov-ernments to remain in their posts. Unfor-tunately, all technicians and officers are changed when a new government takes office; that is the real reason.

The companies who are willing to col-laborate with private-public partnerships continuously face the lack of trained public officers; there is not infrastructure or capabilities to find a prompt solution to a specific problem. There are resources due to royalties, but these are spent inef-ficiently or not spent.

Armando Casís

The absence of functioning institutions in Peru is a serious problem, added to the bureaucracy of public management

“beneficiaries are increasingly more demanding, they

lose focus and then responsibility falls on us.

this is why (...)which I never wanted to use [the term corporate

social responsibility] because I’d rather say it is everyone’s

responsibility”.

southern perú copper corporation

and the absence of capable officers. The situation is not sustainable; the gov-ernment should take care of it. There is some progress, for instance, the Minister of Education, Jaime Saavedra, is making efforts, but it is being stopped by a tan-gled bureaucracy. On the other hand, there has been some progress regarding the initiative Obras por Impuestos (Works for Taxes, a system the allows to replace the tributary debt of the enterprises with projects that bring benefits to the society, such as those linked to education and infrastructure) where private enterprise contributes to efficiency; however, we encounter bureaucracy again and some-times corruption on the way.

Do social responsibility strategies have significant changes from one year to another?

María del Pilar Ramírez

We may have a strategy that is well grounded in basic foundations, but when we prepare sustainability strategies, we should not lose sight of macro variables, which may generate changes.

For instance, if there are political, econom-ic or even social changes in the area where

we are operating, the strategy needs to be redefined. However, we have to be clear about the management’s focuses and how they will be implemented.

Lizeth Carrasco

I think they also respond to trends. This year, the organization of COP20 has led many companies to get involved in the environmental aspect. Maybe the water footprint will be considered further on; it is something to be addressed in the future.

Then, the organizations need to think about these future trends, as they will have to comply with them as part of gov-ernment policies.

Carolina Rouillón

I would like to add something else: al-though the government is required to play certain roles, the current trend is that the public-private partnerships or private organizations are permanently taking them up. We now have Works for taxes, which at least brings this view together, but years ago it was the private initiative that unlocked a series of social and eco-nomic changes that allowed further and continuous development.

So, I believe that it is important to think that there are many organizations in Peru that are making great efforts; however, each of them acts separately and we should think about one single effort. Industries may work together in certain projects to add up efforts, in such a manner that we could be more sustainable over time.

Carlos Aranda

I also think the private sector is increas-ingly getting involved in matters that are not their business. I am not against the participation of the private sector, more-over I think it is ok, but I am afraid that covering the gaps of the government is detrimental.

Beneficiaries are increasingly more de-manding, they lose focus and then re-sponsibility falls on us. This is why in the mining-energetic sector we have been


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is a corporate policy. This policy includes establishing programs, actions and ob-jectives, aimed at benefiting both neigh-boring communities or populations and the company itself. For us, this is part of business, either for conviction or because the political and social circumstances lead us to that situation. I don’t think there is any mining or energetic project without a well-structured strategy to co-exist with those neighbors.

Companies undertake the implemen-tation of social responsibility as part of the best practices to operate. In order for them to be successful and reach a certain level of sustainability, measures from this policy should be and actually are prepared and planned together with neighbors; this makes it different from a philanthropic act. However, we should not underestimate the philanthropic side of this policy as there are situations generated by certain conditions that the company cannot ignore: for instance, accident victims who need to be evacu-ated by air, a crop plague that needs to be dealt with as soon as possible to avoid harvest loss, etc.

In essence, social responsibility should be structured but also flexible; it is no longer an obligation, it is part of doing business, because at the end it has an impact on the operation’s profitability due to the peace of mind it gives to be able to operate.

fighting against the use of two terms during the past two years: corporate so-cial responsibility, which I never wanted to use because I’d rather say it is every-one’s responsibility, and social license, which somehow is an authorization, but in a rule of law authorizations are clear and have a legal basis.

At Southern Perú we work with social consensus. The best example is what Anglo American did in the region of Mo-quegua, where the operate the Quella-veco project: if we review the 27 agree-ments reached with the population, there is not a single commitment on the part of the community, almost all com-mitments are on the part of the compa-ny, and if I remember rightly, two are on the part of the government. This provides us with an idea of the social license view, which is a risky topic because somehow we are going to end up carrying out the government’s tasks.

Armando Casís

In the last 10 years there have been ad-justments in corporate social responsi-bility strategies. However, this does not mean that they are in line with a social re-sponsibility agenda at the country level.

An important event as COP20 has been held in Peru. Are companies, civil society and NGOs planning to do something? Possibly, but without coordination. Private companies deal with critical issues given the absence of State institutions. We need to do something about it and think how to include these issues in the agenda.

Without prejudice to the aim of ben-efiting the community, can social re-sponsibility campaigns be a source of profit, become part of the busi-ness and not only an obligation or an act of philanthropy?

Carlos Aranda

It must be remarked that at this point in history we cannot consider social respon-sibility as a group of campaigns. Social re-sponsibility –at least that implemented by mining-energetic sector companies–

Andrea Servellon

I totally agree. Responsibility campaigns should be carried out by conviction. It is part of our action criteria for our business sustainability.

María del Pilar Ramírez

As mentioned before, social responsibil-ity, or rather sustainability, is aimed at a type of management that includes the analysis of the entire value chain. It is about generating strategies that respond to the risks and opportunities of the mac-ro and micro environment, and that gen-erate an impact on stakeholders and on the organization itself.

You may develop specific campaigns in order to implement social responsibility measures. For instance, companies are increasingly working with cause-related marketing campaigns and with social marketing campaigns, the latter being focused on behavioral change. Through the implementation of each of them, a benefit is sought for a target group (and for society), but also for the company. It is a win-win. Philanthropy is being gradual-ly set aside to make way to a much more strategic view that generates changes that are sustainable over time, empow-ering the target group (suppliers, clients, staff members, community, etc.) and generating profits for the company.

Carlos Aranda

We, the entrepreneurs, should participate in setting up the country’s position. We can enter into agreements with indige-nous populations, but how much GDP does it represent?

Armando Casís

Our reality makes us think about the role we play as private companies to reach sustainability. Can we achieve it in an envi-ronment that does not allow dealing with long-term issues? Private investment has fallen and the government has US$30 bil-lion on hand, the districts and provinces in Peru cannot carry out good projects, and the government does nothing.

“an important event as cop20 has been held in peru.

are companies, civil society and ngos planning

to do something? possibly, but without

coordination”.

armando casís, asociación unacem




As the World becomes more globalized and with more diverse audiences, the strategic relationship with stakeholders each time positions itself as a more at-tractive research field for public relations and communications academics and re-searchers.

Within this context, the confidence fac-tor appears as a key element with an in-creasing weight for research. Nowadays researchers identify confidence as a con-sequence of the relationship between the organization and its stakeholders, and as such, confidence turns into a construct that can be measured, quan-tified and analyzed.

Studies on confidence instauration are especially useful for sensible industries, such as the extraction of natural resourc-es, be it mining or oiling. In fact, these studies contribute with solutions to some problems affecting these indus-tries, such as the existing lack of con-fidence between the enterprises and their neighboring communities.

This lack of confidence is shown through several pressure mechanisms used by all parties in order to obtain concessions. These go from the use of violence up to media use or authorities participation in order to intercede for their causes.


BY MARIA DEL CARMEN DE LA

FLOR BELAUNDE, General Manager

and Executive Director of Public

Affairs, Porter Novelli Peru

A NEw PUBLIC RELAtIONs MODEL

A study made by Houston University determines that having a strategy is not enough: empathy and confidence are required to execute it.

Currently in Peru there are approximate-ly 200 latent social conflicts, of which only one third are at the dialogue stage, which appeared after violent acts hap-pened. Of these conflicts, the most fre-quent and of greater impact are those of social-environmental nature.

Importance of Confidence

Confidence is a basic ingredient in any type of relationship, be it at interperson-al, familiar, friendship, labor and organi-zational level. At simple sight, it seems that this component naturally and spon-taneously emerges and it is difficult to believe that it could be the object of so many analyses and studies.

However, in practice we see that when this element is not introduced since the beginning, it can lead to entrapment and even to the project‘s interruption. Concrete cases are Conga and Tia Maria mines; in both cases, the relationship between the organization and certain key stakeholders was characterized by lack of confidence since the beginning, and by a lack of credibility on those mes-sages about the project stated by both the enterprise and third parties.

The study “A Model of Intercultural Com-petence for the Strategic Management

of Public Relations in the Peruvian Con-text” was made in this research line. It was developed by a team from Houston University of which I took part, and pub-lished in the Journal of Public Relations Research in September 2013.

This study sought to proof and to demonstrate a model application of strategic relationship from an intercul-tural and multi-stakeholder approach for confidence building in an industry sen-sitive and vulnerable to social conflicts.

Research Results

It was found out that abilities, compe-tencies and/or qualities exhibited by those professionals in charge of man-aging strategic relationships with the stakeholders play a fundamental role in building confidence with the stakehold-ers groups. More precisely, the study demonstrated that certain qualities such as empathy, mental openness and flexibility influence on confidence and mutual agreement with the stakeholder groups.

The study also showed that there are two factors that act as catalyzers in con-fidence building. On one hand, there is anxiety and uncertainty management, and on the other hand, the public rela-

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tions and communication practices that administrators use with the public.

Another important finding is that cultural empathy contributes to reduce uncer-tainty and anxiety levels. In this way there is an increased tendency to use both the symmetric and the two-way approach in communication, thus turning communi-cations into a more effective process.

The study analyzed two communication practices that have been broadly recog-nized as good practices: symmetry in communications and two-way or bi-di-rectional communication.

In general terms, cultural empathy out-stands as a fundamental feature in this model. The study showed that at higher cultural empathy levels, anxiety and un-certainty levels decrease during interac-tion. This increases the use of symmetry as a communication practice and confi-dence perception toward stakeholders.

Based in this study, what can be recom-mended?

Recommendations

First, in order to successfully set up a confidence relationship between the or-

Source: Study An Intercultural Competence Model for the Strategic Management of Public Relations in Peruvian Context

RESULTS OF RELATIONSHIP MODEL FOR CONFIDENCE BUILDING APPLIED IN THE MINING CONTEXT IN PERU

The key for reaching the stakeholder’s con�dence is to carry out a public relations scheme that will break uncertainty and anxiety. Cultural empathy, mental openness and �exibility are fundamental.

CulturalEmpathy

Open-mindedness

Symmetricalcommunication

Two-waycommunication

Flexibility

Uncertainty

-.24*

-.20*

-.56*-.38**

.28*

.30*

-.46**

-.27*

η1

η2

η3

η5

η6

η4

-.41**

.21*

.30**

Anxiety

Control mutuality

Trust

ganizations and their stakeholders, they must train their in-house teams in order to strengthen certain personal key capa-bilities, such as cultural empathy, flexi-bility and mental openness. The study demonstrated that those teams having a greater perception of confidence with their stakeholders are those constituted by a staff with higher levels of empathy, flexibility and mental openness.

A second recommendation is that those teams in charge of managing relations with stakeholders (communitarian rela-tions) must focus their communications efforts to reduce uncertainty and anxi-ety levels that threaten the stakeholders. This is especially relevant for new proj-ects that could have an impact on the environment and on the social dynam-ics of that area, and this is achieved by having an empathic and understanding attitude toward the other party.

Finally, a third recommendation to be tak-en into account is that those messages spread out by the organizations among their stakeholders should keep the sym-metry principle. That is, an informative balance must be created, in which the viewpoints from both the stakeholders and the enterprise should be incorporat-ed. These messages must respond to the

expectations, queries and concerns of the stakeholders, only in this way credibility on the messages can be increased.

Successful Cases

Some enterprises that applied this mod-el in their operations have succeeded in the business goals they expected; they decreased the conflict and increased community support to the project. This work was achieved through much ca-pacitation and training of their commu-nity relations teams.

Moreover, some of these enterprises applying to this model had succeeded in reaching the so sought operation li-cense they needed in order to continue their operations. Although unfortunate-ly I cannot mention names, there is al-ready an enterprise in Peru (belonging to the Oil and Gas sector) that outdid a strong opposition from the community by applying this model. There are other concrete cases of applying this model with great success in other Latin Amer-ican countries, as Dominican Republic.

I hope that with its broader diffusion, those conflicts that are currently inhibit-ing the advance of extraction industries can be prevented and solved.



Many times we ask ourselves what social responsibility is and how its relation with our enterprise activities should be. These two questions are easier to answer when within the organization’s spirit and from its very roots, activities oriented toward society’s welfare are incorporated.

The concept or prevention must be kept clear. According to the World Health Or-ganization (WHO), this is a set of mea-sures destined not only for preventing illnesses appearing (such as risk factors reduction), but also for stopping its progress and for weakening its conse-quences once established.

What is essential to mention about health prevention is that we should not limit ourselves to direct actions. A positive and growing change in the population’s living habits must be achieved for the purpose of becoming this intrinsically and integral part of their activities. More-over, this viewpoint must not remain in the organizations staff, this spirit must be transmitted to the whole enterprise.

In second place, policies cannot be lim-ited to manuals. Prevention should be-come part of the culture of every collabo-rator and should make them participants.

And, in third place, there must be an optimal balance between private and State participation. This is the only way to achieve a real and sustainable trans-formation through time in the system,


It is not enough to leap from the last positions in health investment; without applying a prevention culture, those practices for reducing illnesses will not be efficient.

and to have a healthier population with a better life quality.

Nevertheless, this awareness raising and communication would be easier with a more active prevention culture.

A Wide Gap

When comparing our numbers with those of the region, we are aware that we have onward a long way to walk. There is still much space left to grow for those segments not counting with insurance coverage or an adequate pro-vision of health services.

According to the World Bank, total health expense in Peru is equivalent to 5.1% of GDP, while in Latin America it reaches 7.6% of GDP.

Furthermore, investment has not grown significantly although starting from a low base. Although annual average growth of public and private investment in health has been significant, this is not reflected in household expenses in this same item. Its variation has been a stable 5%.

Also, the country’s scale does not explain expenses difference in comparison with the rest of the region. According to the World Bank, in 2012 per capita health expenses in Peru was the second lowest in South America. This is reflected in the number of beds and physicians per in-habitant, also below the region’s average.

Next steps

What can be done to surpass this situa-tion? It is crucial to work with a clear strat-egy focused in future actions, especially in those regions with greater poverty, low educational level and high grade of illiteracy. It is in these areas where the greater amount of illnesses appears.

This menace is increasing and will finally cause difficulties in the country’s develop-ment. According to WHO, morbidity con-stitutes an underestimated poverty cause.

In order to confront this situation, it must be worked upon health improving and malnutrition reducing policies, as well as on illnesses control and overall on improving childhood and adolescence development. Likewise, the educational level of the pop-ulation must be urgently raised and health services should be extended to national level both in infrastructure and in services.

Private Contributions

From the private sector, we can do much for improving prevention policies. In the case of the institution I represent, and with the launching of the Clinica Delga-do, we remain committed since 25 years ago in raising awareness in the popula-tion on the importance of having an early preventive checkup. This is a fundamental tool for a healthier and better life quality. We will continue diffusing good practices in prevention and hopefully these could be replicated by other institutions.

BY ORIT POLLAK, Corporate Affairs

Manager, AunaHeALTH PRevenTIOn: THe BesT medIcIne

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Organizations depend on profession-al competencies as a superior way for describing and cataloguing talent and measurable abilities leading to success. The great globalization forc-es, economic changes, opportunities given by technology and ever grow-ing complex exigencies from different stakeholders, reveal that competencies models will not last forever, as they need to evolve.

Nowadays organizations demand com-petencies that will adjust to their cur-rent scarcities and future needs. Among these exigencies we perceive that social responsibility has acquired a particular relevance.

Social responsibility is understood as the awareness that everything done by the organization has consequences on the diverse stakeholders (commu-nity, clients, environment, Government, suppliers, shareholders and the own coworkers). Said responsibility leads to a compromise for acting consequently while aiming for win-win with each of these groups.

Fadi Ghandor, founder and CEO of Ar-amex International for 30 years, stated: “Businesses welfare is tangled to society

Social Responsibility policies requirements make imperative the professionals’ ability assessment for understanding different stakeholders’ interests.

The organization can decide on using competencies that

directly and explicitly emphasize the

need for making an effective and

ethical management of the different stakeholders. In

fact, this is a new competence to be

taken into account.

sustainable. Naturally, this understand-ing has implications on what is expect-ed from their collaborators.

How to evaluate the candidate?

The ways in which organizations com-municate and put into practice their acting expectancies in a socially respon-sible manner takes different forms. In many cases the company’s mission and values turns explicit this expectation while mentioning value generation for clients and shareholders, security in their operations, consideration and respect to environment and communities, con-tribution to their collaborators’ growth, among others.

The way of leading these practices to measurable behaviors is through com-petencies definition. Thus, the base for all talent management practices is pro-vided: selection, on-boarding, perfor-mance evaluation, leadership develop-ment and succession planning.

For a Vice-president, strategic acuteness could be considered as a critical compe-tence. When considering what does this means in terms of social responsibility need, we could believe that within its perspective extent and futuristic vision

by DANIEL RATTI, Talent and Leadership

Advisor, Korn Ferry International

PRofEssIoNAL ComPETENCIEs foR soCIAL REsPoNsIbILITIEs

welfare. Sustainable business practices both within the organization and to-ward society in general, are no longer an option; instead, these are a matter of survival, competitiveness and existing further beyond the short-term”.

Finally, many enterprises perceive that social responsibility is the key for being


COVER STORY / I N F O R M E C E N T R A LSPECIAL REPOR T - SOCIAL RESPONSIBIL IT Y

will show a clear understanding of all stakeholders. Therefore, could create proposals on how to better boost these relations in order to reach sustainable and profitable solutions.

For every employee the setting of pri-orities could be considered a significant competency. In this sense we would expect that they should learn how to make the most of their time and efforts, for the purpose of a clear identification and understanding of each stakehold-er’s relative significance, according to his role.

Stakeholders Balance

But the organization can decide on us-ing competencies that directly and ex-plicitly emphasize the need for making an effective and ethical management of the different stakeholders. In fact, this is a new competence to be taken into account, consisting not only in recog-

extent several interpersonal skills for a prudent communications manage-ment, for negotiating expectations, for creating confident relationships with persons and for facing conflicts con-structively.

These and other behaviors are repre-sented by a competence called Stake-holders’ Balancing, thus allowing a more deliberate management for po-tentiating this ability within the orga-nization.

Cultures to be transformed

In conclusion, an organization in order to assure more talent in those compe-tencies related to social responsibility must start by defining them in order to be measurable. These definitions are the raw material for designing hu-man resources systems that will help to select, develop, retain and to take corrective decisions toward these abil-ities.

Creating mechanisms that will motivate an advanced adoption of this type of behaviors is sufficiently significant as for eventually transforming the organiza-tional culture until social responsibility becomes one of its axes. An inspirational way could be developed for adopting these behaviors through those leaders’ vision and resolution management that transmit organizational philosophy and arouses intrinsic motivation to the em-ployees.

A transactional way could exist, such as creating management and performance indicators that affect payment. In this way, a paradigm change must signify policies and organizational practices consequent with social responsibility genuinely linked to the company´s val-ues and strategies.

Changes must not only be given in a visible manner with volunteers, clean energy initiatives or inclusion pro-grams. Changes must be the result of beliefs and behaviors of those actors who make possible business success, human capital.

nizing the stakeholders needs, but also understanding that their interests can be complemented, overcome or be in conflict. For this reason, a careful man-agement is required.

An example of interests’ complexity could be the case in which sharehold-ers want secure investments, employees need security, healthcare and motiva-tion, clients want maximum value for their money, and communities want the environment in which they live to be protected. Giving priority to a share-holder usually means grabbing a favor or benefit from someone else.

Nevertheless, there is no way of pleas-ing everybody since resources are limited, and decisions must be taken upon and some groups could remain not totally satisfied. Thus, having the criterion in taking complex decisions in face of those groups requires a strategic thought, but also to a great

Source: Korn Ferry International

Documents

CONTACT Magazine, October-December 2014