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The Project That Transformed Peru’s Desert

The Olmos Project will be remembered in the history books not only for its huge success in allowing agricultural production in a place once considered impossible to grow crops, but also for the initial accusations of bribery and budget overruns that dogged a complex engineering scheme.

The company at the heart of the initiative was Olmos Trasvase Consortium, comprised of Odebrecht Peru Infrastructure Investments and Norberto Odebrecht Construction, both of which bear the name of an organization that became embroiled in one of the largest corruption cases documented in recent Latin American history.

But the scandal does not detract from what the impressive project has been able to achieve. Where there were once vast swaths of barren desert land, now there are tens of thousands of hectares of high-value crops such as blueberries, grapes, avocados and asparagus.

From the start, the fundamental challenge posed by the Olmos Project was considerable. It involved the construction of a large dam to contain water from the Huancabamba River on the eastern side of the Andes. Once collected, the water then crosses the mountains through a 20km (12 mile) tunnel, which transports it to the western side of the mountain range. There, the project takes advantage of the resulting waterfall to drive a hydroelectric power plant.

Following this, the water flows downriver until it reaches the Olmos desert land in the Lambayeque region, some 800km (500 miles) north of the capital Lima, and close to the line of the equator. Thanks to this considerable feat of engineering the region has been able to add 43,500 hectares (17,400 acres) of viable farmland. “

The area where Olmos has been developed has quite high temperatures all year round, but as a result of geographic and weather conditions — one is the Humboldt current and the other the Andes mountain range — this area, which should be tropical and receive heavy rainfall, is dry,” explains Alfonso Pinillos, managing director of project operators H2Olmos and the Olmos Trasvase Consortium.

“As a result, we have high temperatures and no water, so precisely what we need are hydraulic infrastructure projects for irrigation. This region is a natural greenhouse. We don’t have the extremes of low or high temperatures that you can find in other areas like Chile. This is quite favorable for the production of different crops,” he adds.

A Good Idea, But a Long Road

The initiative was a long time coming. Almost a century passed from the initial idea through to its eventual completion and the start of operations. Although the contract for Project Olmos was signed in 2010 and construction started in 2012, the idea for the initiative first appeared in 1920. In 1924, the then government hired U.S. engineer Charles Sutton to evaluate not only the region of Olmos, but also different potential projects in the north of Peru. After researching the region, Sutton discovered that it might be possible to bring water from the Huancabamba river — a natural tributary of the Amazon River which ends in the Atlantic Ocean — through the construction of a tunnel. In other words, they could move it from the Atlantic basin to the Pacific basin.

“The first designs were sketched out in those years, but afterward, for political reasons, the project remained on ice,” says Pinillos. “In the 1970s, the government hired Soviet engineering firms and more advances were made on the project. But once again, for political reasons under successive governments, while some work on Project Olmos would begin, it would subsequently be put on hold. As a result of being public works, each year a new budget had to be approved, but difficulties arose, and it would be assigned to another project and never moved forward.”

It was only in 2003 that the government of Alejandro Toledo decided to go ahead with the project, albeit under a different structure. This time, instead of being a Public-Private Partnership in which the government would invest financially, the project would be private. In this case, companies — which would also finance the costs of Olmos — would take part in a contest to win the franchise.

When construction work began, land around Olmos started to be auctioned off. “It’s like buying an apartment in advance, and you have to trust that the construction company is actually going to deliver,” says Pinillos. The constructor used the money from this advance sale to finance the project and the bank lent funds knowing they had a major presale.

In keeping with the structure of the Olmos Project, the irrigation infrastructure was divided in a similar fashion. “First, we sold the land to companies, and with that money financed part of the construction,” notes Pinillos.

“There was also a secondary income in the form of a monthly tariff. Construction started in 2012 and finished in 2014, and from that moment, the investment from the contractor was concluded and investments from agro-industrial companies began, which were also quite significant. The investment from the contractors was around US$500 million, but the collective investments from agricultural companies have been more than $2 billion.”

Complex and large-scale, the project was split into stages. The first phase — the diversion of the Huancabamba River — comprised the dam and the tunnel, the second was the hydroelectric plant, and the third phase was the irrigation work.

“The government awarded three different contracts. The first involved the bid for the river diversion, and there, our company — which was previously Odebrecht and is now known as Novonor — took part and won,” says Pinillos. “This contract consisted of building the dam and the tunnel and afterward operating and maintaining them for a 20-year period. Today, we regulate and store water in the dam and transport it through the tunnel so it can be used in the lands of Olmos.”

The second contract covered the development of a 50-megawatt hydroelectric plant. This was won by Sinersa, which was originally expected to commence operations in October 2020, but amid reported delays in the municipality granting the construction license, it asked for development to be delayed until July 2026.

The third component of the project was the irrigation itself, which was awarded to H2Olmos.

“There was a major difference between the awarding of the contract for the river diversion and the contract for the irrigation,” says Pinillos. “The river diversion was co-financed by the state. In the case of the irrigation where the contractor is H2Olmos, 100% of the investment was made by the contractor with the promise of monthly tariffs from the companies that had bought the land.”

In total, some 20 additional companies took part in the project by buying land. “If we look at the percentages in terms of the land, I would say 70% belongs to Peruvian companies, 10% Chilean, 10% American and 10% European,” says Pinillos. Starting from November 2014, the landowners began to receive water and started paying monthly fees to H2Olmos for the operation of the water service and the maintenance of the infrastructure, including the water intake, desander, roads, high-tension electrical system and underground pressure pipes.

Given that water belongs to the Peruvian state, H2Olmos is only able to charge for the service. In this case, the operator has permission to supply water to the agricultural companies, with each customer granted an individual license. From the moment that water supplies were in place, the agricultural companies started developing an area that was formerly desert by leveling the land and putting in place modern irrigation systems to make the best use of the water.

“We use a technology called SCADA,” explains Pinillos. “All the functions of the project are automated through this system and managed from an integrated control center. We know the amount of water that is being supplied to each customer, and the water pressure and we can open and close gates, so it gives us a very efficient means of controlling the water resources. The irrigation is also carried out through undersoil, pressurized pipes rather than canals. This enables the growers to utilize the pressure of our system for drip irrigation, meaning they don’t have to spend additional amounts on energy.”

Triumphing in the Desert

In the seven years of development that have taken place since 2015, some 24,000 hectares (9,600 acres) of crops have been planted in Olmos. “I think that with this kind of intensive crop production, the speed of the development has been astounding,” says Pinillos. “The most widely planted crop is sugar cane at around 12,000 hectares (4,800 acres), followed by avocados at 6,000 hectares (2,400 acres) and blueberries at approximately 3,000 hectares (1,200 acres). Following that are table grapes, asparagus and other products. The project has had quite a positive impact on the regional GDP and is making an important contribution.

“The companies have created around 25,000 permanent positions, which rises to 50,000 or 60,000 during harvesting. There has also been a reduction in extreme poverty in the region, while average salaries have nearly doubled over these past seven years due to an increased demand for workers, which has also brought people in from neighboring regions. All of these factors have made the Olmos Project a success.”

On the agricultural side, the companies that decided to establish production in the region have achieved very high levels of productivity, notes Pinillos. Production of citrus, asparagus, bell peppers and seasonal products such as onions are being developed in Olmos, as well as the evaluation, to a lesser degree, of exotic products like stevia.

The range of production areas and microclimates also allow production at different times of the year.
“Around Trujillo, there are some commercially-strong blueberry producers, but those in Olmos have the first fruit available in the season,” says Pinillos.

The Second Big Stage

While the Olmos project has significantly increased the amount of viable agricultural land in Peru, there are plans in the region to increase it even further through a second stage.

The regional government of Lambayeque intends to make a further 40,000 hectares (16,000 acres) of new land available, which requires the diversion of water from other rivers, given that all of the water taken from the Huancabamba River has already been allocated to the first stage of the Olmos Project.

“More water is needed for the second stage, so more tunnels will have to be dug,” says Pinillos. “This will be a complex engineering project which will require major investment, but we believe that the success achieved by the first stage will act as a clear incentive to move ahead with further stages.

“Olmos was initially complex because it was subject to so many questions: Whether a tunnel would be made or not was questioned – not what the outcome would be, whether they would sell the land, whether the crops would grow well, if there would be enough workers, and if experts would be available to guide cultivation.”

The success of the first stage has enabled the country to look towards the second with more certainty. The questions which surrounded the project are now in the past and form part of the history of an initiative that has brought life to this northern region of Peru, allowing land that could not be farmed to be transformed into an oasis of agricultural development. It has changed the face of the desert forever.

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