How Peru Laid the Groundwork for an Oil Spill Disaster

LIMA, Peru—As the thick black slick of crude oil first swept up Peru’s coast, decimating wildlife, poisoning marine reserves, and destroying livelihoods, it seemed Repsol’s reputation in the country had hit rock bottom. Yet the Spanish energy company’s response to the spill—Peru’s worst environmental disaster in recent memory—has been more egregious than the original accident itself.

In the early hours of Jan. 15, thousands of barrels of oil gushed unnoticed from a leak at a loading buoy moored off Repsol’s La Pampilla refinery in Lima, Peru’s capital. As a tanker carrying crude from Brazil unloaded at the buoy, oil that should have been heading to the refinery was discharged directly into the Pacific Ocean for several hours.

Since then, the oil has ravaged around 100 miles of shoreline. Thousands of animals, from penguins to sea otters, have died, and just as many local fishermen have no idea when, if ever, they will be able to return to work. Despite a belated cleanup effort involving hundreds of volunteers and specialists, experts warn that the rich but fragile marine ecosystem may never fully recover.

The precise cause of the spill remains a subject of investigation. But Repsol’s response, which has varied from denialism to indifference, allowed an accident that should have been quickly contained to mushroom into a major ecological calamity. Yet the spill and Repsol’s handling of it have also highlighted a broader problem with Peru’s development model, which maintains the privileges of the country’s economic elite in the name of promoting investment and growth while ignoring serious environmental and social risks.

That scapegoating was complemented by Repsol launching its contingency plan for precisely this kind of spill at least 24 hours too late. Then, rather than immediately flying specialist environmental remediators into the country, Repsol, whose net income totaled around $2.2 billion (€1.9 billion) in the first nine months of 2021, sought to mobilize the same local fishermen who had lost their only source of income overnight to clean up the mess, without training or adequate protection including from the noxious fumes.

For days, the company insisted the spill was just 7 gallons—until it was forced to acknowledge it was actually 6,000 barrels of oil (or 252,000 gallons). Now, a month after the incident, Repsol is admitting that more than 10,000 barrels were spilled. Some independent experts believe it could be significantly more; the company has yet to hand over records to investigators that would reveal the true volume.

“It’s incredible that we still have not had the contrast between the figures from the [Italian] tanker and Repsol,” said Augusto Astorga, a lawyer who specializes in the energy sector at Lima-based firm CMS Grau and, unlike most Peruvians, is still inclined to give Repsol the benefit of the doubt. Astorga, who occasionally consults for the company, believes there needs to be an investigation into both the spill and the possibility that Repsol sought to cover it up.

“There are no clear rules. It is our reality, our order, our status quo.”

Compounding the scandal, it then emerged that Repsol representatives had held a secret meeting with advisors to Peruvian President Pedro Castillo at the Spanish Embassy on Jan. 24. Repsol subsequently issued a press release describing the meeting as “institutional,” but few Peruvians are buying that. “Our regulatory system is so lax that this is the way we resolve these problems, with a conversation,” said Hugo Ñopo, a development economist at Lima’s Group for the Analysis of Development think tank. “There are no clear rules. It is our reality, our order, our status quo.”

That system—and indeed Peru’s entire economic model—is rooted in what Harvard political scientist Steven Levitsky has called the “Lima consensus,” a widely accepted economic philosophy in Peruvian society, whose tenets include antiregulatory fundamentalism and viewing any state role in the economy as “socialism” or “communism.”

The Lima consensus has been validated by many Peruvians’ historic distrust of the left, borne out of former dictator Juan Velasco Alvarado’s controversial agrarian reform in the 1970s, the wanton violence of the Marxist subversives of the Shining Path and Túpac Amaru Revolutionary Movement in the 1980s and 1990s, and one of the world’s worst bouts of hyperinflation under then-President Alan García’s populist administration from 1985 to 1990.

Peru’s current economic blueprint was laid down in the 1990s by then-President Alberto Fujimori, a right-wing strongman now serving a 25-year prison sentence for directing death squads and other crimes. Shortly after being elected in 1990, Fujimori launched a brutal structural readjustment to tackle the economic meltdown left by García. Known as “Fujishock,” this ushered in economic stability at a huge cost, plunging millions of Peruvians back into poverty overnight. Key planks of this profound economic shake-up were deregulation and privatization, including selling the state-owned La Pampilla refinery to Repsol.

Since then, this economic model has only become more entrenched, particularly during García’s second presidency, when he infamously dismissed citizens, many of them Indigenous, who were opposed to mines and other megaprojects on their doorstep as being anti-development, comparing them to the “dog in the manger” (from the parable in which a dog jealously guards food that he neither eats nor lets others consume). Two years later, García’s government triggered the 2009 Bagua massacre, in which police and Indigenous protesters—whose visceral fears over opening up their Amazonian territories to private capital had been ignored by the state—clashed, leading to 33 deaths.

The consensus was further reinforced in 2020 by the Peruvian Congress’s refusal to ratify the Escazú Agreement, a groundbreaking regional treaty promoted by the United Nations to strengthen environmental rights, including those of environmental defenders facing death threats, whose signatories include nearly all of Peru’s neighbors. Members of Congress claimed the agreement would undermine Peru’s national sovereignty.

Advocates of the Lima consensus extol the benefits of Peru’s numerous free trade agreements and an economy that has consistently boomed like few others in Latin America over the past two decades. But they fail to acknowledge that much of Peru’s recent growth has come from high commodity prices and the informal entrepreneurism of ordinary Peruvians attempting to get ahead in life despite a frequently absent state.

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Peru’s deeply unequal and corrupt economy has often come with a revolving door between senior executives at the country’s biggest corporations and government positions, monopolies or duopolies in many sectors (La Pampilla, for instance, accounts for around 40 percent of Peru’s gas supply), and an entrenched lack of state oversight.

Lack of regulation is particularly harmful for one of the world’s most biodiverse nations, whose economy is dependent on extractive industries. Peru’s precious ecosystems range from the Amazon rainforest—which covers two-thirds of the nation’s territory and is home to significant illegal logging—to some of the world’s largest gold, copper, and silver mines in the Andes and its rich but often overexploited Pacific fisheries.

Peru’s environment ministry was only founded in 2008 at the insistence of the George W. Bush administration, itself under pressure from environmental groups in the United States during negotiations for a bilateral trade treaty. Now, along with Peru’s culture ministry, which is responsible for Indigenous rights, it is among the least powerful of Peru’s government departments.

A weak regulatory framework and permissive legal system have allowed for repeated corporate environmental scandals. The spill at La Pampilla has shocked Lima residents, but oil pollution has long been a routine part of life for many Indigenous communities in the Peruvian Amazon—on the other side of the Andes and largely ignored by decision-makers in the coastal capital—where there have been nearly 500 spills in the last 20 years. In the mountains, communities are routinely at loggerheads, occasionally violently so, with corporate mines over environmental issues, often involving water, while the state fails to intervene.

“The Peruvian state is incapable of making itself respected.”

Repsol is one of several foreign companies that, along with a handful of Peruvian families, have profited hugely from their dominance of a deeply unequal economy. Repsol executives—four of whom, along with one public official, have now been barred from leaving Peru pending investigations—could face jail time if they are found to have criminally cut corners in the refinery’s procedures. But the economic cost to the company could be limited.

Administrative fines for violating environmental or safety regulations are capped in Peru at roughly $35 million, though there could potentially be multiple fines for multiple breaches, Astorga said. Repsol may also be able to write off the costs of the cleanup against its Peruvian taxes thanks to repeated past rulings from the country’s tax tribunal regarding spills mainly in the Amazon.

Meanwhile, affected individuals, such as fishermen or owners of beach homes, will only be able to sue for property damage or lost revenue, with Peruvian law ruling out either punitive damage awards or compensation for environmental harm. Beyond the fact that most fishermen would be outgunned in court by Repsol’s team of corporate lawyers, their business is mainly informal, making it difficult to prove past income from fishing—a necessary step for judges to estimate their current losses.

Repsol’s operations in Peru, where the company has more than 500 gas stations, could still be undermined, above all, by consumer distrust. But the government has yet to indicate if it will act. Although it initially suspended operations at the refinery, the leftist Castillo government, plagued by infighting and a major ministerial reshuffle, quickly backtracked after realizing the suspension could harm the economy.

“This spill shows just how precarious the Peruvian state is, that it is completely unprepared to prevent these kinds of problems, never mind respond to them when they happen,” said José de Echave, a former environment undersecretary and founder of CooperAcción, a Lima-based sustainable development think tank. “The authorities just don’t have the capacity to oversee, regulate, enforce, or sanction. The Peruvian state is incapable of making itself respected.”

Ironically, since the spill, the Organisation for Economic Cooperation and Development has invited Peru to open talks about joining the exclusive club of upper- and middle-income nations whose core values—and membership requirements—include transparent governance, open markets, and strong environmental safeguards. Meanwhile, after a barrage of criticism for allegedly failing to contract a top international remediation company, Repsol now claims its commitment to the cleanup is “absolute” and it is using, among other tools, satellite technology and artificial intelligence to help.

The question now is whether the Repsol spill finally galvanizes the political will within Peru to enact stronger environmental safeguards and minimize the risks of future ecological calamities—or simply becomes yet another example of the continuing deficiencies of the Lima consensus.