Gas and Power in Peru

Peru restructured its electricity sector in the early 1990s. In a short period of time and despite the fact that privatization has been limited, the Peruvian electricity sector already started to benefit from higher efficiency as evidenced by lower marginal costs and electricity prices, increased reliability as evidenced by declining transmission losses and improved service quality. On the other hand, the government’s desire to develop the country’s natural gas reserves led to some regulations to promote gas-fired power at the expense of hydro and other thermal units. These regulations distorted the market and led to complaints by market participants. Resulting series of modifications in regulations and political gaming associated with the process damaged the attractiveness of the investment environment. Moreover, the government still has a significant share of the market.