Bolivia nationalizes natural gas reserves

Bolivian President Evo Morales announced the nationalization of Bolivia's natural gas reserves on May 1, setting off a storm of controversy. Morales warned foreign oil companies that they have six months to sign new contracts granting Bolivia majority control over the entire chain of production. If they refuse to accept the new conditions, he said, "they cannot continue to operate in the country." The president said the oil companies that were not interested in investing under those conditions could leave, but that the companies that submitted to the will of the Bolivian people, and to Bolivia's laws and the nationalization decree, were welcome to stay. The announcement coincided with May Day workers' celebrations throughout the country. Morales, who had been under political pressure to announce the plan, said he plans to use increased state revenue from the takeover to fund social programs in a country where 67 percent of the population lives below the poverty line. "The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Morales said during a televised speech from a gas field near the country's southern border. "The looting by foreign companies has ended." The left-wing president, who came to power on a platform of re-nationalization, warned of similar action in other sectors. "We are beginning by nationalizing oil and gas. Tomorrow we will add mining, forestry and all natural resources–what our ancestors fought for," he said. After Morales spoke, a military officer unfurled a Bolivian flag on the top of the natural gas installation, the country's biggest, which had been under the control of the Brazilian company Petrobras. Army engineers and soldiers, meanwhile, took over the rest of the gas fields in the country as well as pipelines and gas stations run by foreign companies. Bolivia has the second largest reserves of natural gas in South America, after Venezuela, amounting to 53 trillion cubic feet and valued at approximately $100 billion. Under the nationalization decree, large gas fields that produced at least 100 million cubic feet of gas a day will pay the state 82 percent of the total production value, up from the less than 18 percent the companies first agreed to when they began developing the fields. Bolivia's cash-strapped state-owned oil company, Yacimientos Petroliferos Fiscales Bolivianos, will take a majority stake in three companies–Chaco, Andina and Transredes–that once were state-owned but are now run by multinational corporations. No mention has been made of the possibility of compensation for the foreign companies, which have invested around $3.5 billion in the country since Bolivia's oil and natural gas industry was privatized. Energy companies are considering international arbitration or court fights. Although the natural gas industry brought in $250 million in taxes for Bolivian government coffers last year, the Bolivian economy has a deficit of $400 million, which is covered by foreign credit and development aid. Vice-President Alvaro Garcia said nationalization would earn an extra $320 million, boosting state revenues from the sector to $780 million. During an emergency summit held on May 4 in Argentina, Morales met with the presidents of Argentina, Brazil and Venezuela to discuss the implications of the nationalization decree. According to the brief statement they signed, Morales, Argentine president Néstor Kirchner, Luiz Inácio Lula da Silva of Brazil and Hugo Chávez of Venezuela underlined that "energy integration is an essential aspect of regional integration." The leaders "agree on the need to preserve and guarantee the supply of natural gas while promoting balanced development among producer and consumer nations," and "stressed that discussions over the price of gas must take place in a rational and equitable framework," the statement said. The presidents opted for bilateral talks to address the impacts of Bolivia's decision and set new prices for gas, while ratifying their decision to continue moving ahead towards the construction of a mega-pipeline in South America. Chávez reaffirmed that the project to build the gas pipeline that will cut across most of South America from north to south will be forging ahead, and said the presidential summit was "a blow to the chin for those who try to create disunity" in the region. "There is no other way to pull our people out of underdevelopment than to stand together, united," he declared. In addition, Argentina, Brazil and Venezuela committed themselves to "fomenting joint investments in Bolivia," with the aim of "favoring the country's integral development." The conciliatory approach taken by the region's main powers at the summit marked a distinct change from the initial reaction to the nationalization decree. Following Morales's May Day announcement, a spokesman from Brazil's Ministry of Mines and Energy said the nationalization was "not a friendly gesture, one that could be understood as a rupture in our understandings with Bolivia." The Lula administration stated that it would defend the interests of Petrobras–Brazil's state-owned oil giant–"in all forums." Petrobras is the company most heavily affected by the sudden nationalization move, and faces the prospect of paying a much higher rate for Bolivian natural gas. The Brazilian company has invested $1.5 billion in Bolivia, and is the only firm that participates heavily in the entire oil and natural gas production chain, from drilling to refining, transport and sales. A Petrobras spokesman said that while the company would continue operating in Bolivia, it was seriously concerned about the decree, and he hinted that the company could take legal action to protect its investments. The European commission also expressed concern for European natural gas investments in Bolivia, saying that it "took note with concern the decree…. We had hoped there would be a process of discussion and consultation before it adopted such measures." A spokesman for the US-based ExxonMobil Corp., which maintains a smaller presence in the country, announced that the company was "monitoring the situation." He said that earlier concerns prompted ExxonMobil to submit a letter to an international arbitration board saying that the company was contemplating a request for arbitration. Morales's announcement was apparently expected by analysts familiar with the region, but his deployment of troops to gas fields is being seen as a strong statement in a region where governments are moving to block outside influence, particularly from the United States, and exert more control over the energy industry. Venezuela recently voided drilling contracts with private companies at 32 oil fields, demanding new contracts that give the state oil company a 60 percent stake. Ecuador is finalizing a law that could limit excessive profits by foreign crude producers. Larry Birns, of the Washington-based Council on Hemispheric Affairs, believes the nationalization decree might herald some sort of shift in the region. Morales's move towards nationalization suggests that "a lethal threat is being posed by the school of thought that says development is not merely a matter for the economists…. If Morales has a successful administration, it will bring up some very heavy questions for Washington. "It's going to be difficult for the Republicans to resist saying, 'What are we going to do now? The commies are running amok in Latin America.' But the truth now is that the US has run out of options. There's not much it can do, short of killing the leaders."