Economy & Trade, Headlines, Latin America & the Caribbean

ENERGY-BOLIVIA: Brazil Willing to Negotiate, After Nationalisation

Mario Osava

RIO DE JANEIRO, May 3 2006 (IPS) - The Brazilian government recognised Bolivia’s “sovereign right” to nationalise its energy resources, and announced that the leaders of both countries would meet with the presidents of Argentina and Venezuela Thursday to discuss the Bolivian government’s decision to reassert state control over the country’s gas fields.

Nevertheless, the administration of President Luiz Inácio Lula da Silva stated late Tuesday that it would defend the interests of Petrobras – Brazil’s state-owned oil giant – “in all forums.”

The statement, released after President Lula held emergency meetings with his cabinet, also noted that Brazil exercises “full control” over its own underground resources, and said the government would seek to negotiate with Bolivia “a balanced and mutually beneficial arrangement.”

On Monday, Bolivian President Evo Morales announced the nationalisation of the energy industry, and troops were deployed to the natural gas fields, refineries and petrol stations controlled by Petrobras, the foreign oil company with the biggest investments in Bolivia.

After the nationalisation process was launched, Morales assured Lula by phone that Bolivia’s supplies of natural gas to Brazil would be guaranteed, although the price would be subject to new negotiations.

The two presidents will meet Thursday with their counterparts Néstor Kirchner of Argentina and Hugo Chávez of Venezuela. The four left-leaning leaders will discuss energy security in South America.

Industrialists and natural gas distributors in Brazil are concerned, nevertheless, about a possible shortfall in supplies, since half of the natural gas consumed in Brazil comes from Bolivia.

The contract between the two countries, which Morales said would be guaranteed, provides for imports of 24 to 30 million cubic metres of gas a day from Bolivia until 2019.

The nationalisation of Petrobras assets in Bolivia – including the country’s two biggest gas fields and its only two refineries, as well as dozens of petrol stations – sharply highlighted Brazil’s heavy dependence on Bolivian natural gas, just 10 days after Lula celebrated his country’s self-sufficiency in oil.

When Bolivia reasserted government control over the country’s energy resources on Monday, it gave foreign oil companies six months to renegotiate their contracts with the country’s newly strengthened state-owned oil company, YPFB (Yacimientos Petrolíferos Fiscales Bolivianos).

“It’s incredible that the government said it was surprised” by such a long-expected measure, Giuseppe Bacóccoli, a researcher on energy issues at the Federal University of Rio de Janeiro, told IPS.

He also criticised the government for failing to explore and develop Brazil’s own natural gas reserves.

Brazil’s newfound self-sufficiency in oil supplies was achieved after a “long process involving creativity, persistence and technological advances,” said the expert, who noted that at the same time, the country lacks a regulatory framework to promote the prospecting and production of natural gas.

It is “inexplicable” that Petrobras has invested 1.5 billion dollars in Bolivia, rather than in Brazil itself, “such a large country with so many natural resources,” said Bacóccoli.

That would be justified if the domestic potential had already been tapped, he added, pointing to the large natural gas reserves discovered by Petrobras in Brazil after the company expanded to Bolivia.

Regional energy integration “is attractive due to political and strategic reasons, but it poses major risks” as well, according to the analyst.

The first consequence, he predicted, will be a hike in the price of natural gas imports from Bolivia, which he said is inevitable given the announced rise in taxes from 50 to 82 percent on the gas produced by the fields discovered by Petrobras in Bolivia.

If other costs remain stable, like the cost of transporting gas through pipelines and the cost of distribution, the final price could rise by 10 to 15 percent, which would mean it would still be cost-effective to use natural gas as fuel for vehicles, although the increase would be difficult for industry – the biggest consumer of natural gas – to absorb, said Bacóccoli.

At any rate, he added, the most likely scenario is an arrangement that is acceptable to both Bolivia – which needs the revenues from its only highly profitable export product – and Petrobras – which will continue to depend on gas supplies from Bolivia, at least for the next few years.

Other probable effects would be higher priority placed by Brazil on domestic gas supplies and on imports of liquefied natural gas, an alternative that reduces dependency and is becoming competitive, and a scaling down of the dream of South American energy integration, said Bacóccoli.

Sydney Reis, legal affairs director at the Association of Petrobras Engineers (AEPET), which has more than 4,000 members, said Bolivia’s decision “came as no surprise, because the measure had been anticipated long ago, and responded to a (2004) referendum” in which Bolivian voters approved the restoration of state control over the country’s natural gas industry.

The decision to nationalise Bolivia’s natural gas – the second-largest reserves in South America – is also based on “the sovereign right of each country to choose how to exploit its own natural resources,” he told IPS.

“It is strange that a president who lives up to his campaign promises is seen as radical,” Reis remarked. “I would like to see that in Brazil.”

But, he added, it is still early to judge the effects of the measure, before the negotiations between the countries have taken place, in which the price of natural gas will undoubtedly be “adjusted” to bring it into line with the current reality of high international prices, in such a way that the Bolivian people will benefit from a higher share of the revenues.

The outcome of the negotiations may even encourage South American energy integration, the analyst added. “I believe an agreement will be reached for Petrobras to continue operating in that country,” because Bolivia’s state-owned oil company YPFB does not have the skilled personnel and experts that it would need to go it alone, he predicted.

Besides, Bolivia has no domestic market for its gas, which it has to export, and Brazil is a huge market, he observed.

The reactions in Brazil, with different sectors demanding “a tough response” by the government, and describing the nationalisation move as an “expropriation” of Petrobras holdings, have been “emotional,” according to Reis. And the argument that Bolivia does not have the funds to compensate the Brazilian oil firm ignores the fact that it could do so with gas exports, he maintained.

AEPET, whose leaders defend national control over energy resources for any country, does not support the acquisition by Petrobras of assets in other countries, like Bolivia’s gas fields, “by taking advantage of favourable circumstances,” he explained.

The association was also opposed to the construction of the Bolivia-Brazil gas pipeline, in the mid-1990s, when there was no domestic demand for natural gas. The imports were forced on Brazil, said Reis, in order to promote thermal power plants, which he described as an “irrational” policy that blocked the construction of hydroelectric plants and led to the blackouts and energy crisis that triggered a recession in 2001.

But today, the pipeline and the need for natural gas supplies from Bolivia are a “fait accompli”, and “horizontal” negotiations are necessary, he added.