Natural gas from Camisea, 720 miles (1,200 km) southeast of Lima, is due to start flowing to the capital by August 2004.

Camisea - which will require an initial investment of around $1.96 billion and a total of $4.5 billion to export the gas to the United States and Mexico - will boost Peru's economic growth by 0.8 percentage points a year during its 40-year contract, the government says.

With proven reserves of 13 trillion cubic feet (368 billion cubic meters) of gas, and some light crude and naptha, it could also help reverse a deficit in hydrocarbons trade.

The promise of major investment, sustained growth and jobs cannot be taken lightly in this Andean nation, where more than half the population of 27 million lives on $1.25 a day with many scraping by on subsistence farming.

"The issue is how to minimize the project's impact, not to halt the project," said Luis Ortigas, head of a Camisea board at the Energy and Mines Ministry.

But environmentalists and critics say the real cost to Peru would be catastrophic, far outweighing any economic benefits. They say that from day one, Camisea has trampled over the rights of peoples who live in the affected area and damaged the ecosystem.

ACTIVISTS LOBBY LENDERS

"This spells disaster for the Peruvian Amazon and all of its residents," said Aaron Goldzimer, a social scientist at Washington-based advocacy group Environmental Defense.

Activists are lobbying the Inter-American Development Bank (IADB), the U.S. Export-Import Bank and other lenders to deny Camisea at least $900 million in funding it has requested.

Robert Montgomery, head of the IADB's private-sector environmental and social unit, said the lender was aware of Camisea's potential impact.

"The IADB won't participate in the project unless we believe the environmental, social, health and safety aspects have been dealt with appropriately," he said, adding the IADB was now in the due diligence phase.

"The numbers are very, very impressive in terms of what it can do for local and national (development)," IADB's Montgomery said, adding the IADB is mulling a loan of up to $75 million for pipeline construction, as well as helping arrange a syndicated loan to meet other costs.

The companies involved and the Peruvian government are confident they will get the funding needed to proceed.

Argentina's Techint is leading the building of a 430 mile (720 km) pipeline that will bring Camisea's gas across the wind-swept Andes to a plant on the Pacific coast and to Lima.

The extraction group, led by Pluspetrol, will spend $150 million on a separation plant for liquid fuels just 2 miles (3 km) from the edge of the coastal Paracas reserve, one of South America's richest sites for marine wildlife and a major tourist draw. That plant will turn out up to 70,000 barrels of liquid fuel a day.

Belgium's Tractebel, a unit of French utility Suez Lyonnaise des Eaux, will distribute the gas across Lima, where it will be used to make electricity, supplied to industry and consumed in private homes.

SHAPE OF THINGS TO COME?

But local activists have pointed to Camisea as an example of the powerful influence of the U.S. energy sector and its close ties to the government of President George W. Bush.

"These agencies are bound to not harm the environment in their investments ... However, given the political clout of American oil companies and ties to Bush administration ... (the banks') environmental safeguards and policies are taking a backseat," said Atossa Soltani, executive director of Amazon Watch.

She said some of the so-called "Block 88," a giant swathe of jungle awarded to the Pluspetrol group in an auction in 2000, includes a reserve for semi-nomadic ethnic groups, like the Nahua or Kugapakori, who have little or no contact with the outside world.

"This project is driving people out of these areas ... and will result in a massive change in their lives," Soltani said, adding they were at risk from epidemics like influenza, or could face starvation with thinner hunting and fishing resources.

Both the government and Pluspetrol have issued scathing responses to activist criticism, saying no such formal reserve exists. They also say environmentalists are rabble-rousers who ignore Camisea's positive relationship with local communities.

"We believe our activities are perfectly compatible with respect for the environment. We are not clearing virgin forest or killing people," Pluspetrol's Managing Director in Peru, Norberto Benito, told Reuters.

He said the extraction group would pay at least $1 million in compensation to indigenous peoples during construction, and would make annual payments afterward. The amount of the payments was not immediately available.

According to Ortigas, Camisea could be just the first major natural gas deal for cash-starved Peru - a prospect that makes activists cringe. "We think there is about 25 trillion cubic feet (of natural gas reserves) in the area," Ortigas said.

Peru is racing against land-locked neighbor Bolivia, whose gas reserves Ortigas said will soon total 72 trillion cubic feet, to get its gas to U.S. markets first.

"We are never going to be Bolivia because they have much bigger reserves. But our chief advantage is time - we already have a project in the works," he said.