Bolivia: President Evo Morales Nationalizes Natural Gas Resources

NotiSur - South American Political and Economic Affairs, May 12, 2006 | Go to article overview

Bolivia: President Evo Morales Nationalizes Natural Gas Resources


The Bolivian government nationalized its large natural-gas reserves on May 1, fulfilling one of the key campaign promises of President Evo Morales and surprising international investors who had been anticipating a more moderate policy. In Brazil and Spain, where the principal companies invested in Bolivia's gas sector are headquartered, there was considerable alarm regarding Morales' move, but proponents of popular control of natural resources around the world celebrated it.

Morales ordered soldiers to immediately occupy Bolivia's natural-gas fields May 1, International Workers' Day, and threatened to evict foreign companies unless they signed new contracts within six months giving Bolivia majority control of the entire chain of production. He said soldiers and engineers with Bolivia's state-owned oil company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) would be sent to installations operated by foreign petroleum companies.

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Morales said in a speech from the San Alberto petroleum field in southern Bolivia to proclaim what he called a nationalization of the natural-gas industry. The field is operated by Brazil's Petroleo Brasileiro (Petrobras) in association with the Spanish-Argentine Repsol YPF and France's Total.

"The looting by the foreign companies has ended," Morales said. He wore a YPFB helmet as he gave his speech. Afterward, a soldier unfurled a Bolivian flag from atop the natural-gas installation.

Bolivia has South America's second-largest natural gas reserves after Venezuela. The estimated volume of 1,529 billion cubic meters of proven and probable gas reserves has a theoretical value of US$70 billion. Bolivia's GDP in 2005 was US$8.5 billion (US$940 per capita).

All production control to go to YPFB

Under the decree, all foreign companies must turn over most production control to the cash-strapped YPFB, Morales said.

Bolivia gave up control of its natural-gas resources under privatization schemes in the 1980s and 1990s. Before the privatization wave, the government brought in 60% of its budget from oil and gas production, according to reporter Tupac Mauricio Saavedra of the PBS program Frontline. After privatization, the total contribution to the national budget from the multinational companies that took over hydrocarbons production was only 12% of the federal budget.

A 2004 referendum during the term of President Carlos Mesa (2003-2005) supported increased state control of the natural-gas industry, although there were many protests that nationalization was not an option on the ballot (see NotiSur, 2004-07-30). Large-scale popular protests followed the passage by Congress of the new hydrocarbons law that the referendum had mandated, with demonstrators urging that more of the country's gas resources go to the Bolivian people (see NotiSur, 2005-05-27).

Many election observers questioned Morales' commitment to an authentic nationalization program, given that during the protests against the hydrocarbons law in May 2005--while he was serving as a senator--the Movimiento al Socialismo (MAS) leader supported increased taxation and royalty burdens on multinational companies rather than a full-on nationalization.

Supreme Decree 28701 put an apparent end to such questioning, when the chief executive declared that the state would take control of all gas fields. Companies would have six months to renegotiate contracts or be expelled. Details of new contracts are to be worked out on a case-by-case basis. Companies are obliged to sell at least 51% of their holdings to the Bolivian government while the two largest gas fields--San Alberto and San Antonio--must give 82% of production to the state, up from 50%. The state will take 60% of production from other fields.

The renegotiation process may not proceed as quickly as the decree calls for, however, since some auditing officials have expressed concern that auditing the companies may take longer than the time allowed. …

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