May 23, 2018 / 3:01 PM / 5 months ago

UPDATE 3-Peru president cancels London-based Tullow's offshore oil contracts

(Adds Peruvian prime minister’s comment, context, paragraphs 8-10)

By Mitra Taj and Marco Aquino

LIMA, May 23 (Reuters) - The government of Peruvian President Martin Vizcarra canceled his predecessor’s decision to award five offshore oil contracts to London-based Tullow Oil PLC shortly before resigning, citing insufficient consultations with coastal residents.

The reversal, which was published in the official gazette on Wednesday, was a victory for fishermen and environmentalists who said that exploration and drilling would have put important fisheries and whale breeding grounds at risk.

It was another setback for efforts to shore up slumping energy investments in Peru, a relatively small oil producer where past bidding rounds have failed to draw offers.

Tullow, whose shares fell 5.2 percent in London on Wednesday, said it would consider “next steps.”

The contracts came under fire after Peruvians learned the disgraced former president, Pedro Pablo Kuczynski, had signed five decrees authorizing them just before stepping down in March over graft allegations.

Despite Kuczynski’s approval, the contracts themselves were never signed, state energy promoter Perupetro said.

Vizcarra’s government said Perupetro had negotiated the contracts directly with Tullow without giving communities along Peru’s northern coast enough time to weigh in.

“We want a country that develops investments with peace and tranquility, and that’s done with a good start to a project,” Prime Minister Cesar Villanueva told a press conference.

“With this repeal we are not even remotely opposed to private investment,” Villanueva added.

Since taking office, Vizcarra, Kuzynski’s former vice president, has distanced himself from his predecessor as he aims to strengthen ties with the opposition-controlled Congress and build grassroots support following Peru’s worst political crisis in nearly two decades.

The revocation of Kuczynski’s decrees “is deeply disappointing,” said George Cazenove, Tullow’s head of communications. “Tullow has complied with the process and procedures required under Peruvian law.”

Earlier this month, the comptroller’s office said it had found nothing illegal about the contracts, but that the process of granting oil concessions through direct talks should be more transparent and give other stakeholders more say.

Critics said a public auction should have been held and a higher royalty rate should have been set.

Tullow had planned an initial investment of $200 million in the five blocks, according to Perupetro.

The National Society of Mining, Petroleum and Energy business association said the government had only created more uncertainty for investors in Peru, where oil imports cost the country billions of dollars per year. (Reporting by Mitra Taj and Marco Aquino; Editing by Tom Brown and Grant McCool)

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