Supervisory Body of Private Investment in Energy and Mines (Peru)

Organismo Supervisor de la Inversión en Energía y Minería

Country

Location

Regulated area

Peru

Lima

Energy & natural resources

Useful pages on the regulator website

Key individuals

Following the resignation of the President of the Board of Directors, Daniel Schmerler, the Vice President of OSINERGMIN, Antonio Miguel Angulo Zambrano, is currently in charge.

The members of the Board of Directors are Richard Alberto Navarro Rodríguez, Aurelio Ochoa Alecastre and Cesar Antonio Sanchez Modena.

Regulatory oversight

Law No. 26734 created the Energy Investment Supervisory Agency Body, OSINERG, on 31 December 1996. The Law Transferring Powers of Supervision and Control of Mining Activities (No. 28964) extended the entity’s supervision to mining companies and changed its denomination to OSINERGMIN. In addition, Law No. 27699 created the Complementary Law on Institutional Strengthening of the Energy Investment Supervisory Agency Body.

Law No. 27332 established the Framework Law of the Regulatory Agencies for Private Investment in Public Services. This Law sets out guidelines and rules of general application that have been issued to all regulatory agencies.

Supreme Decree No. 054-2001-PCM approves the General Regulation of the Supervisory Body For Energy Investment (OSINERG). It refers to the following activities:

  • the normative function, which allows the issuing of general dispositions referred to the tariff or regulatory systems or mechanisms for their application, among other things;
  • the regulatory function, which enables the determination of the tariffs on the regulated market regarding bar rates, electricity distribution, guaranteed and complementary transmission systems rates, and the tariffs for transportation of hydrocarbons by ducts, distribution of natural gas through the pipeline network, and others that correspond in accordance with the provisions of the law dispositions;
  • the monitoring and sanctioning functions allow OSINERGMIN to impose sanctions on the entities that carry out activities subject to their competence for non-compliance of the legal, technical obligations and those derived from the concession agreements, and of the regulatory dispositions and norms dictated by OSINERGMIN;
  • the dispute resolution function authorises the competent bodies of OSINERGMIN to solve the conflicts and disputes that, within the scope of its competence, arise between energy companies, between non-regulated clients, and between energy companies and non-regulated clients. Also, OSINERGMIN has the facility to conciliate opposed interests on matters within its competence. For these purposes, OSINERGMIN has conflict resolution bodies. The collegiate body resolves any first instance administrative disputes of OSINERGMIN's competence, and is composed of three members appointed by the board of directors. The Court of Dispute Resolution is responsible for resolving, in the second and final instance, procedures issued between the energy companies, between free users, or between the energy companies and their free users. The Board of Appeals of User Claims admits and resolves, in the second and final administrative instance, the claims of public service users within the scope of OSINERGMIN. Finally, the Energy and Mining Sanctions Appeals Tribunal (TASTEM) resolves, in the second and final administrative instance, appeals lodged in administrative sanctioning procedures, and appeals lodged against coercive fines, corrective measures, precautionary measures and security measures;
  • the public service complaint resolution function allows OSINERGMIN to solve the claims of public service users within OSINERGMIN’s competence.

Reporting and disclosure obligations

The requirements for the presentation of reports and relevant information will change depending on the sectoral regulations (electricity, hydrocarbons and mining sub-sectors). In this regard, each company will present the corresponding information according to the specific sectoral requirements.

Monetary sanctions and recent behaviour

The audit and sanction function can be initiated by OSINERGMIN or on receipt of a complaint. The imposition of sanctions depends on the sub-sector involved, and will be applied by the electricity supervision manager, liquid hydrocarbons supervision manager, natural gas supervision manager, mining supervision manager or the head of the competent OSINERGMIN regional office.

In the event of failure to comply with the legal, technical obligations, or those derived from concession agreements, or the provisions dictated by OSINERGMIN, this authority will impose sanctions and fines. It falls to OSINERGMIN to determine prompt payment benefits and others that it considers. These sanctions could be appealed to the TASTEM.

Regarding its sanctions activities, OSINERGMIN has shown recently some changes in its interpretation of the electricity and hydrocarbons laws. For instance, OSINERGMIN has not established the quantity of fines according to the principles contained in the General Administrative Procedure Law (No. 27444). This could result in TASTEM revising decisions made by OSINERGMIN.

Non-monetary sanctioning powers and behaviour

Infringements will be administratively sanctioned with partial or total suspension of establishment, facilities and activities, in a definitive or temporary period of time. Regarding the complementary sanctions, OSINERGMIN has the faculty to impose the forfeiture of assets, the temporary internment of vehicles, the work stoppage, the removal of facilities or equipment, and to impose an admonition.

Recent and upcoming developments

On 23 January 2020, a leak of liquefied petroleum gas (LPG) in Villa El Salvador District was caused by a tanker truck operated by TransGas S.A., whose driver negligently left the internal valve open to provide the gas to the informal market. The resulting deflagration caused 32 deaths. According to OSINERGMIN Report No. 108-2020-OS/OR, except for the internal valve, the truck was in accordance with the requirements of technical standards, which indicates that there was no breach of technical safety standards.

Following this tragic event and given the failure in supervisory activities in respect of the LPG market, the government requested the resignation of the president of OSINERGMIN’s board of directors and the reorganisation of the institution, which was approved by Supreme Decree 023-2020-PCM. For this purpose, a Committee for the Reorganisation of OSINERGMIN was created, formally established by Ministerial Resolution No. 045-2020-PCM. The functions of this Committee include an evaluation of the regulations relating to the operational, technical and administrative methods used by OSINERGMIN to determine its procedures, and to propose amendments to the regulations to strengthen the procedures for fulfilling the quality standards.

This members of the Committee are Sara Maria Arobes Escobar, Public Management Secretariat of the Presidency of the Council of Ministers, who act as chair; Felipe Andres Paredes San Román, representing the Presidency of the Council of Ministers; Iris Marleni Cárdenas Pino, Head of the General Office of Social Management of the Ministry of Energy and Mines, representing that Ministry; Erick Gidelberth García Portugal, General Director of Hydrocarbons of the Ministry of Energy and Mines, representing that Ministry; and Leoncio Julio Salvador Jacome, Manager of Energy Supervision of OSINERGMIN, representing OSINERGMIN.

It is important to highlight that half of the annual transactions in the LPG market in Peru are informal, for the most part as a result of the misuse of the Fuel Price Stabilization Fund (the FEPC). When it was established in 2004, the FEPC viewed LPG in general within its scope. However, since 2012 (according to Urgency Decree 005-2012), bulk LPG has been excluded from the scope of the FEPC. Therefore, only bottled LPG was within the scope of FEPC, which meant that there should not be any significant variation in its price owing to the stability the fund provides. However, bulk LPG (which is the same product as bottled LPG but is sold to larger consumers) is priced differently. The situation arose that, when the price of bulk LPG increased, companies bought bottled LPG (at lower prices) then later sold it as bulk LPG (making a considerable profit). Nevertheless, these companies declared the sales in OSINERGMIN’s Online Control System as bottled LPG. This type of unlawful transaction was behind the deflagration that occurred in January 2020. For this reason, the Ministry of Energy and Mines, through Supreme Decree No. 007-2020-EM, approved the exclusion of LPG (both bulk and bottled) and diesel from the list of products that are subject to the FEPC as a measure to prevent, control and decrease the informal market in bulk LPG.

In the mining sector, OSINERGMIN is responsible for compliance with the safety regulations for infrastructure, installations and the safe management of operations. However, in recent years, even though OSINERGMIN does not have any powers in respect of labour issues, in some cases the agency imposes sanctions regarding occupational health and safety matters that are the responsibility of the National Superintendence of Labour Inspection, SUNAFIL. As a consequence, both agencies have initiated sanctioning procedures against the same company for the same failure.

Challenges

The most important task for OSINERGMIN in the short term is to follow the suggestions that the Reorganisation Committee puts forward, and to better perform its supervisory activities. The deadline for submission of a final report regarding the Reorganisation Committee’s findings was 14 September 2020 (which had been extended by Supreme Decree 131-2020-PCM); however, because of the covid-19 outbreak, the evaluation is likely to take more time.

The challenge for OSINERGMIN will be to improve its supervisory functions, as well as many institutional aspects that will assure the standards of quality and safety in the hydrocarbons sub-sector, without adding excessive measures that will eventually slow down hydrocarbon activity.

Interacting with the regulator

Depending on the matter, energy and mining companies can approach the regulator by writing to the corresponding directorate or section of OSINERGMIN, explaining the substance of its request.

Most of the procedures undertaken by OSINERGMIN are set out in a document titled ‘Single Text of Administrative Procedures’ (TUPA). TUPA states the competent authority that will respond to a given procedure, the length of time it will take, and the means of appeal. The time taken for a decision to be made will depend on the particular procedure. For example, TUPA establishes 30 business days for the approval of a technical report to obtain a concession for a natural gas distribution service by pipeline network. Further, OSINERGMIN must respond within 10 business days to any request for access to the authority’s public information. Regarding sanctioning administrative procedures, the sanctioning body has nine months from the beginning of the procedure to issue the resolution that sanctions or closes the procedure. The various procedures undertaken by OSINERGMIN are subject to positive or negative administrative silence, depending on what is stated in the TUPA.

Notes for foreign investors

Concerning power generation, the Ministry of Energy and Mines (MINEM) can grant definitive concessions, authorisation and concession agreements, depending on the resource it will use to generate electricity. For the construction and operation of transmission lines, and for electricity distribution, a company is granted a definitive concession to execute these activities.

In respect of the hydrocarbons sub-sector, specifically upstream activities, the state underwrites with investors, through Perupetro (which contracts oil and gas companies to work in Peru), licensing contracts to carry out exploration and production activities, and service contracts for the exploitation of hydrocarbons by order of Perupetro. In the case of transporting and distribution of natural gas, concessions are granted either by MINEM or through a public tender held by ProInversión (a private investment promotion agency).

The Geological, Mining and Metallurgical Institute of Peru grants concessions for the development of mining activities. For exploration, exploitations and other activities permitted by these concessions, it is also necessary to have, among other things, an approval of environmental certification and rights of surface lands.

It should be noted that in respect to property tenure, foreigners, whether natural or legal persons, are treated in the same way as Peruvians. However, within 50 kilometres of the borders, foreigners may not acquire or possess, by any means, mines, lands, forests, waters, fuel or energy sources, directly or indirectly, individually or in societies except with express authorisation (ie, a supreme decree by the Council of Ministers that declares it to be of public necessity).

Other regulators it works closely with

Ministerio de Energía y Minas
MINEM
Ministry of Energy and Mines (Peru)

Comité de Operación Económica del Sistema Interconectado Nacional
COES
Committee for the Economic Operation of the National Interconnected System (Peru)

Agencia de Promoción de la Inversión Privada
ProInversión
Private Investment Promotion Agency (Peru)

Servicio Nacional de Certificación Ambiental
SENACE
National Environmental Certification Service (Peru)

Superintendencia Nacional de Fiscalización Laboral
SUNAFIL
National Superintendence of Labour Inspections (Peru)

Organismo de Evaluación y Fiscalización Ambiental
OEFA
Agency for Environmental Assessment and Enforcement (Peru)

Get unlimited access to all Latin Lawyer content