LATIN AMERICA: Governments Woo Oil, Gas Companies

By Pratap Chatterjee Reprint | | Print |

Pratap Chatterjee

DALLAS, Feb 29 1996 (IPS) - Government officials from Europe, Japan, and the United States are courting oil and natural gas companies as never before, promising to provide the private sector with loads of money to drill for ‘black gold’ in Latin America.

“We have lots of cash, lots of flexibility, and no limits on how much we can give you,” Steven Howlett of the Export-Import (Ex-Im) Bank of the United States told oil executives gathered here. “Bring us a good project that we can sink our teeth into; give us 45 business days and we will tell you if you are up or down or if to get out of here.”

The oil executives and energy ministry officials from the Americas began a four-day meeting here Tuesday to discuss the furture of exploration a century after prospectors came to search for oil in the state of Texas.

It took Patillo Higgins, a one-armed mechanic and lumber merchant, seven years to convince drillers and bankers to dig for oil in the desert in the 1890s. Two years of prospecting led to a major oil find in 1901 at Beaumont, near the Gulf of Mexico.

Higgins might have had an easier time today if he wanted to drill for oil in countries like Argentina and Venezuela.

For his part, Ex-Im’s Howlett has come here to market a one- year-old “project finance” scheme to lend directly to private, U.S. companies. Ex-Im had previously lent only to foreign governments to buy products from U.S. companies.

The current scheme reflects the new environment for foreign investments in Latin America. In the past, governments did not allow foreign companies to explore for oil, gas and minerals unless they had a local partner.

Today, liberalisation of investment laws across the continent means that companies from any part of the world can dig for oil and gas in Latin America, sell the resources on world markets, and keep the lion’s share of the profits.

“This new scheme will double the amount of money we have,” said Howlett. “We could have as much as seven billion dollars a year for projects in Latin America.”

Last year, Ex-Im lent 477 million dollars to two U.S. companies, General Electric and Bechtel, to help build a power plant in Samalayuca, Mexico. Ex-Im also lent 162 million dollars to companies supplying turbines for a 750-megawatt steam power plant in Baranquilla, Colombia.

Mike McLean, a vice-president of the Export Development Corporation of Canada, says his institution has made 1.9 billion dollars in loans for energy in Latin America since 1970, while Yasashi Uno of the Japanese Export-Import Bank (JEXIM), says they lent 1.4 billion dollars for projects in Latin America in 1995.

Antonio Vives, the infrastructure and financial markets chief for the Washington-based Inter-American Development Bank (IDB), told the meeting that his bank had slashed funding for public- sector energy projects from an average level of 770 million dollars a year to a mere 54 million dollars a year.

On the other hand, “we have money for the private sector,” he said. “Last year, 80 percent of the money we lent to the private sector went for energy projects. We made four loans totalling 136 million dollars and we are able to go up to 350 million dollars a year.”

More multilateral money is available from the World Bank affiliate, the International Finance Corporation (IFC), according to IFC economist Clive Armstrong. He says the IFC had lent some 1.9 billion dollars for power projects in Latin America in the last three years.

As incentive, companies are offered insurance against such risks as civil war, terrorism, and difficulties in taking profits out of the country.

The oldest insurance scheme was set up 25 years ago by the Overseas Private Investment Corporation (OPIC), a U.S. government agency. OPIC provided more than 1.3 billion dollars in insurance for U.S. companies in Latin America in 1995 alone.

Lorin Weisenfeld, chief lawyer for the Multilateral Investment Guarantee Agency (MIGA), another World Bank affiliate, says MIGA has provided some two billion dollars in similar insurance for companies from around the world in the last six years.

Most recently, the World Bank set up a special scheme to insure companies against the failure of foreign governments to pay back outside investors. David Baughman of the World Bank says that during the first year of the new scheme in 1995, they sold 1.6 billion dollars’ worth of this insurance.

Steve Dodgson of the British Export Credit Guarantee Department estimates that all told, government export agencies have 75 billion dollars’ worth of loans and insurance available for companies to invest abroad. This does not include the private sector money from multilateral agencies like the IDB and the World Bank.

The bankers say that schemes they finance must meet rigorous environmental standards to ensure that they will not cause problems for people who live near these projects.

Environmentalists are sceptical.

Shannon Wright of the San Francisco-based Rainforest Action Network, argues that there is no oil and gas project in Latin America that has nïR,,].]YP[X¡KRûKWKWK++ûïWV|+^Vû)H¿H0RR*ïRûï RVD.îY\86oration is environmentally damaging by its very nature, because companies have to dig under the forests or the ocean, destroying the local ecosystems,” she said. “Companies say that they reforest the areas and employ local people. But what about the fact that most of these lands belong to indigenous peoples?”

“Private industry has always claimed to be environmentally friendly but they have a pretty miserable record,” Wright added. “Why would governments have to set standards if companies were as clean as they claim? For all these projects that the banks want to fund, will we have indedendent oversight?”

The IDB’s Vives told IPS that local people could appeal to the IDB’s newly created Environment Committee if they felt that an IDB project had caused environmental problems.

But most of the other bankers said they would not cancel insurance for environmental violations.

“We will not cancel a guarantee once it has been issued, but Canada will help countries strengthen their environmental standards so that problems do not occur,” says McLean.