Reform was the fiery charger that carried Architect Fernando Belaúnde Terry into the presidency of Peru last June, and now he cannot dismount. Belaúnde promised to redistribute land, conjured up visions of public housing to replace the slums of Lima, talked of a vast road system to open up the rich lowlands beyond the Andes. But the most emotional pledge of all—and one echoed by all his opponents—was a promise to do something drastic about International Petroleum Co., the Standard Oil of New Jersey affiliate that owns one of Peru's richest oilfields: the La Brea y Fariñas basin, 600 miles northwest of Lima on the Pacific Coast.
Last week, at the end of the 90 days Belaúnde had promised himself to renegotiate the oil contract, Peru's Congress unanimously—right, left and center—shouted through a law canceling I.P.C.'s concession. "This," cried one conservative Congressman, "is an act of national liberation." Still in Congress is a second bill setting the terms for I.P.C. to remain in Peru. Along with other taxes, the bill calls for a 60% income tax without a depletion allowance. Although no specific sum is mentioned in the bill, the company may also have to pay a $50 million settlement. Altogether, claims the company, the government's maneuver could force I.P.C. to fork over 102% of its profits each year. The alternative: transferal of the concession to the government for a "fair" price after unpaid "debts" are deducted.
Spreading Asphalt. I.P.C. is not the original villain in the piece. The U.S. company simply controls a piece of land under terms that have infuriated Peruvians for generations. In the early 1800s, the La Brea area was known only for its tar pits, which were leased by the government to private contractors for limited periods. In 1826 the tar pits, with 100 surrounding acres, were sold to private investors—and there the trouble began.
Over the years, the tar property became an oil property, and the original 100 acres grew to cover 416,140 acres of the La Brea basin. By World War I, the area was a major oil producer. A British company, the London & Pacific Petroleum Co., was now the owner, pumping millions of dollars worth of oil, but only paying taxes on 100 acres of land.
Peruvians demanded a new deal. As the argument raged on, the Peruvians finally agreed to put the matter to international arbitration before a Swiss judge. But the case never got to court. In 1922, after considerable pressure from Britain, the Peruvian government agreed that London & Pacific actually owned both surface and subsoil rights to the entire 416,140 acres; in return Peru got a company promise to pay at least nominal taxes. Crying duress, Peru's outraged Congress refused to ratify the agreement.