Sao Paulo, Brazil – Deep under the earth in Bolivia lies enough natural gas to supply South American consumers and industry for years, a windfall that could ease the astonishing poverty in one of the continent’s poorest countries.
That is, if these barely tapped subterranean riches ever make it out of the ground.
With the election of the coca-growing street activist Evo Morales as the Andean nation’s first Indian president, the prospect of Bolivia profiting from South America’s second largest natural gas reserves after Venezuela is more unclear than ever.
The problem: Morales is trumpeting a vague plan to “nationalize” a gas exploration and production industry dominated by foreign companies, but Bolivia doesn’t have the cash or expertise to take over the job, Latin American experts and oil analysts say.
Now everyone from petroleum company executives to countries like Brazil and Argentina that use huge quantities of Bolivian gas are analyzing every word Morales utters as he prepares for his inauguration in January.
They’re wondering just what nationalization will mean for a president-elect who admires Fidel Castro’s communist regime and blames unfettered capitalism for the deep poverty that Bolivia’s majority Indians have lived under for nearly two centuries since the nation gained liberty from Spain. The country’s Gross Domestic Product was $22.3 billion in 2004, about the same as Afghanistan and Angola.
Morales said this week that there will be no seizures of assets of the big oil companies who have invested $3.5 billion in Bolivia: Brazil’s Petroleo Brasileiro SA, Britain’s BG Group PLC, France’s Total SA and the Spanish-Argentine Repsol YPF SA. He also suggested this week that Bolivia will “strengthen our relations with state oil companies and welcome and value their proposals.” But he also says the nation’s gas reserves have been “looted,” and insists that current gas production contracts are illegal and must be re-negotiated.
“There’s a big feeling among Bolivians that these natural resources should be placed in the hands of the Bolivian state,” Morales told reporters.
Of the four major firms in the Bolivian gas business, only Petrobras is state-owned. And while Morales didn’t mention state-owned Petroleos de Venezuela SA by name, he is a big fan of Venezuela’s populist leader, Hugo Chavez – who promised to share the good news of Morales’ victory with Castro after reaching the president-elect by phone at his family home Sunday night.
Chavez has lavished petrodollars across South America, trading oil for cows with Argentina, pledging to help finance a $2.5 billion refinery in Brazil and promising to work with other nations on a pipeline linking Venezuela with Brazil, Argentina and possibly Bolivia.
But experts say Venezuela’s PDVSA lacks experience in natural gas extraction. And while Venezuela is rolling in cash as the world’s fifth-largest petroleum exporter, Chavez is also spending huge amounts at home to bankroll programs for the poor based on socialist ideals.
“Chavez hasn’t reached his financial limit, but he is nearing it,” said Patrick Esteruelas, a Latin America analyst at the Eurasia Group in New York City.
Morales clearly needs allies. Bolivia’s cash-strapped state-owned natural gas company – Yacimientos Petroliferos Fiscales Bolivianos – would need billions of dollars and technology to go solo as a legitimate explorer and producer of natural gas.
And Chavez isn’t the only influential leader trying to woo him.
Repsol chairman Antoni Brufau called to congratulate Morales on his victory, and said he wants to work with him for the good of both Bolivia and Repsol, the company said.
Morales’ apparent overture to state-owned companies like Petrobras could be seen as positive for Brazil, which uses two-thirds of Bolivia’s production for industry and cooking gas for its 182 million people.
But Bolivia’s next president also wants Petrobras to relinquish two refineries worth about $150 million. He didn’t say whether his government would try to buy the refineries, hinting only that some kind of asset swap might be a solution.
Brazil insists it won’t give away its investments and Petrobras officials clearly want to keep producing in Bolivia, where the company started operations in 1996 after Bolivia passed a law opening its gas fields to foreign exploration and production.
Bolivia has proven and potential natural gas reserves of 53.3 trillion cubic feet – enough to feed demand in South America and Central America for more than a decade. Some analysts predict the figure could climb with additional exploration.
But the foreign companies, which froze most investment and exploration in Bolivia last year because of political instability, acknowledge they have no idea what level of business they’ll be doing there in the future.
The biggest uncertainty is how Morales will enforce a new law passed last May that hiked oil and gas production taxes and royalties from about 38 percent to 50 percent, a move expected to boost Bolivia’s 2006 gas income to $600 million. The law also sought to force contract re-negotiations, but that element was never put into practice by Bolivia’s caretaker President Eduardo Rodriguez.
“We are committed to Bolivia,” said BG spokesman Neil Burrows.
“There are issues that are unresolved and that does have the potential for jeopardizing future commitment.” The outlook is expected to remain murky until Morales takes office Jan. 22. But analysts believe Morales will be forced to find a way to work with the foreign companies – and quickly, if he wants to reap more natural gas revenue and pass it on to the poor.
Bolivia’s recent political instability looms large over its problems harnessing the gas. Just two years ago, President Gonzalo Sanchez de Lozada was ousted in an uprising that killed 60 people over a government plan to export the gas via Chile, and from there to California and northern Mexico.
Morales was one of the rebellion’s leaders, backed by millions of poor Bolivian Indians still seething over a 19th century war with Chile that left Bolivia landlocked.
This kind of volatility makes investors cringe in fear that potentially huge returns could evaporate at any moment.
“You don’t want to put money into a place if it’s going to be gobbled up by change in the regime or change in the laws,” said William Edwards, a Houston, Texas-based oil industry consultant with experience in South America. “If Morales wants any chance for foreign investment, he has to change his tune.”
Associated Press Writer Fiona Smith contributed to this story from La Paz, Bolivia.
