ENERGY-BOLIVIA: Natural Gas Bill Caught Between Conflicting Pressures

By Franz Chávez Reprint | | Print |

Franz Chávez

LA PAZ, Nov 9 2004 (IPS) - Although voters in an earlier referendum in Bolivia, which has huge natural gas reserves, supported the modification of the country’s energy law, actually passing a new bill is proving difficult.

On one hand are the pressures and interests of the foreign oil companies and the gas-rich regions, while on the other are political parties and social organisations keen on strengthening state control of the country’s natural gas resources and increasing the royalties paid by the foreign firms operating in Bolivia.

Reserves of 53 trillion cubic feet of natural gas worth an estimated 100 billion dollars, which give Bolivia the second-largest gas reserves in Latin America after Venezuela, have dramatically changed the history of South America’s poorest country.

Massive protests against a controversial energy policy led to the toppling of President Carlos Mesa’s predecessor, Gonzalo Sánchez de Lozada, in October 2003.

Gas-producing regions are now threatening to pursue autonomy, under the close watch of the United States and Brazil, which have made it clear that they are prepared to defend the interests of their investors.

"In an economically dependent country with scarce human and technological resources, the only thing we can do is negotiate with the companies to obtain some benefit," sociologist Rolando Sánchez told IPS.

In October 2003, a popular uprising that has been dubbed the "gas war" led to the cancellation of plans to export natural gas to Mexico and the United States through a port in Chile, with which Bolivia has a longstanding feud, since it was left without a Pacific shoreline after a late 19th century war with that country.

When the army and police were called out to quash the protests, around 70 people were killed and 300 injured, according to the association of families of the victims.

Sánchez de Lozada was forced to step down, and was replaced by Mesa, his vice-president.

The trade unions and social organisations that staged the protests were not only opposed to the idea of exporting gas through Chile instead of Peru, but to the government’s energy policy itself, especially concessions granted to foreign oil companies to exploit Bolivia’s gas reserves.

The demonstrators also demanded that the country’s energy policy be submitted to a referendum.

The Mesa administration made good on its pledge to hold a referendum, and on Jul. 18 a majority of Bolivians voted in favour of modifying the country’s energy policy and increasing state control over production and exports of the country’s natural gas resources.

A majority of voters were also in favour of increasing the royalties paid by the foreign oil firms and reinstating the state-owned oil company.

The government then announced that it would review 78 contracts signed with foreign oil companies, although it ruled out the possibility of expropriation, a move that would cost the country five billion dollars in indemnification payments.

But while the draft energy bill proposed by the government would leave in place the 3.5 billion dollars in foreign investment made since 1996, a majority in parliament – which is dominated by the leftist Movement Towards Socialism (MAS) led by Evo Morales, the indigenous leader of the country’s coca farmers – want to increase the royalties that the foreign oil companies are charged, from 18 to 50 percent.

Under pressure from protest marches by organisations of small farmers and trade unions, a bill to raise royalties to 50 percent and to force the government to modify existing contracts with foreign oil firms, turning them into joint ventures with the Bolivian state, made it through the first hurdle in Congress on Oct. 20.

But the executive branch has threatened to veto the bill, saying it would endanger the investments of oil companies.

Instead, the government proposes adding a new tax, that would be gradually increased, on top of the current 18 percent royalty. It would also respect the shared risk contracts that the state has already signed with the oil firms.

The day after the new bill was approved, the U.S. State Department’s Andean envoy, Charles Shapiro, was sent to La Paz with the urgent mission of interceding on behalf of U.S. oil companies operating in the country.

If contracts are forcibly modified under a new law, things could get complicated, Shapiro told journalists, adding that "we have the obligation to protect U.S. investments," just as other countries have an obligation towards the investments of their citizens.

Marco Aurelio García, Brazilian President Luiz Inácio Lula da Silva’s foreign policy adviser, was also sent immediately to Bolivia, where he met with President Mesa and leaders of the parties represented in parliament.

García said his government respects the decisions of the Bolivian people and said he hoped Bolivia would develop an economic model that is "in keeping with the interests of the country."

But he also noted Brazil’s hope that the new law would provide Brazilian investors with legal security.

Movement of the Revolutionary Left (MIR) lawmaker Rafael Oviedo denounced that foreign oil companies were using their countries’ diplomatic corps to apply pressure for approval of the government-sponsored version of the new energy bill.

Oil giants Petrobras from Brazil, France’s Total, Maxus from the United States and the Spanish Repsol exploit 80 percent of Bolivia’s natural gas reserves.

In addition, the Chaco and Andina firms, which operate as subsidiaries of the U.S.-based Amoco, British Petroleum and Repsol, administer another 15 percent of the country’s reserves.

Meanwhile, a movement in the eastern gas-producing department (province) of Santa Cruz, led by prominent business leaders who are opposed to the version of the bill that was partially approved by Congress, is threatening to mount "civil resistance" and declare autonomy.

"International entities and the regions of Santa Cruz and Tarija are waging psychological warfare, with the aim of pressuring Bolivia to approve a law that would answer to the oil companies’ interests," economic analyst Carlos Villegas, at the Centre for Labour and Agrarian Development, told IPS.

It is unlikely that the bill approved by Congress will actually go into effect, due to the enormous energy potential involved, said Villegas.

But, he added, the parliamentarians must not yield to the pressure, and should enact a law that would guarantee the state abundant resources over the next 30 years.