New Market Research Report: Peru Power Report Q1 2014

From: Fast Market Research, Inc.
Published: Wed Jan 08 2014

Peru's ambitious capacity expansion plans and robust macroeconomic trajectory continue to underpin our buoyant forecasts for growth across all segments of the country's power sector. Despite fears that a slowdown in China will have a deleterious impact on the country's commodity-derived export revenues, reservations that underpin our below-consensus macroeconomic outlook, we maintain that the country will retain its position as one of the most vibrant economies in Latin America. It will maintain this mantle based on its significant mineral wealth, a host of attractive investment opportunities across certain industries (including the power sector) and healthy growth in consumer demand.

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Key trends and developments in the Peruvian electricity market:

* While we expect Peru to remain one of the most dynamic economies in Latin America over our forecast period a slowdown in China is a threat to the country's export-oriented economy. As China rebalances its economy and moves from an investment-led growth model to one in which private consumption plays a more fundamental role, Peru could be affected quite dramatically as demand for its resources also cools -with trade and investment channels hit hard.
* Indeed, although economic growth is robust, we have seen this view start to play out. As a consequence, BMI's Country Risk team has downgraded its 2013 real GDP growth forecast from 5.4% to 5.1%, based on weak real GDP growth in H113, as well as further signs that the external weakness is weighing on the broader economy. In addition, following a substantial currency sell-off in recent months, we believe that a weaker sol is likely to weigh on consumers' purchasing power and dampen sentiment, leading to more moderate real private consumption growth.
* However, as growth slows we expect the government to come under greater pressure to spend to stimulate growth - creating some upside to our forecasts for the power sector. Notably, with President Ollanta Humala having come under fire for not sharing the proceeds of the country's mining boom, we forecast government expenditure will grow - and this will feed into support for new power infrastructure and capacity.
* To this end, President Humala continues to advance plans to establish a 1,000km, US$2.4bn natural gas pipeline known as the Peruvian Southern Pipeline project, which will reportedly be tendered in February 2014. The project is hugely ambitious in scale and will include US$4bn-worth of new power plants (known as the Nodo Energetica del Sur) and a US$3.5bn petrochemicals complex. It is hoped the project will boost economic development in the south of Peru.

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