BOLIVIA: New Law on Natural Gas Satisfies No One

By Franz Chávez Reprint | | Print |

Franz Chávez

LA PAZ, May 18 2005 (IPS) - Bolivian President Carlos Mesa’s refusal to sign into law or veto a bill creating new taxes on foreign oil companies was interpreted by local analysts as a sign of weakness.

After the president of Congress, Hormando Vaca Díez, signed the bill into law Tuesday, the legislature became the main target of indigenous and labour activists who continue to demand the outright nationalisation of Bolivia’s natural gas.

The new law leaves in place the 18 percent royalty currently paid by the oil companies exploiting Bolivia’s natural gas reserves – the second largest in South America, after Venezuela’s – while creating a separate 32 percent tax. It also forces the companies to sign new contracts.

But while the protests calling for even higher taxes or nationalisation of the industry raged on, the foreign oil firms continued to threaten legal action against any modification of the contracts under which they have been operating.

Caught between heavy pressure from the indigenous groups and labour unions on one side and the foreign oil companies on the other, the president refused to sign or veto the bill before a 10-day deadline expired, thus forcing the head of Congress to act in his place.

Mesa replaced Gonzalo Sánchez de Lozada (2002-2003) when the U.S.-educated former president was toppled in October 2003 by protests that also ended up blocking plans to export gas to the United States and Mexico, through Chilean ports. Around 70 demonstrators were killed when the army was called out to quell the unrest.

Mesa fears that the international lending institutions will lose confidence in Bolivia, and that foreign investment will be scared off by the new law.

The oil companies operating in Bolivia include Total from France, British Petroleum, British Gas, Petrobras from Brazil and Repsol from Spain.

In a nationally broadcast address Tuesday, the president assumed responsibility for making sure the law was enforced, but underlined that the new legislation was entirely the work of Congress.

The stance taken by the president "demonstrates indecision and a loss of protagonism and initiative, and we cannot rule out the possibility of an early end to his term," said Carlos Villegas, an economic analyst at the Centre for Labour Development.

Bolivia is South America’s poorest country, with 70 percent of the population of 9.2 million living in poverty. The country, which faces a fiscal deficit equivalent to six percent of Gross Domestic Product (GDP), receives 400 million dollars a year in foreign credit and donor aid.

On several occasions, Mesa has warned that changing the rules of the game for the oil companies operating in Bolivia would trigger international legal action that could cost the country up to eight billion dollars, similar to its entire GDP.

Amid applause, shouts from indigenous lawmakers and constant interruptions, Vaca Díez criticised Mesa for the 10-day delay caused by his refusal to sign or veto the bill, which he said gave civil society groups time to gear up for protests that have further shaken the country’s already fragile democratic stability.

"Nationalisation! Nationalisation!" shouted several indigenous legislators who had the support of hundreds of demonstrators out on the streets, ready to occupy public buildings, including Congress.

"This law will spark lawsuits from the oil companies, but under the current circumstances it is not in our best interests to maintain the previous legislation," said Vaca Díez in his speech to Congress.

Besides demanding the nationalisation of the industry, workers in La Paz and the neighbouring slum city of El Alto, grouped in regional trade union federations and the Central Obrera Boliviana (COB) central trade union, are now also calling for Mesa to step down.

The trade unionists say he betrayed the interests and demands of the social sectors that supported him when he became president in October 2003.

A march of 2,000 protesters organised by the Movement to Socialism (MAS) – the strongest opposition party – will reach La Paz Wednesday after starting out Monday on a 120-km trek demanding higher taxes for the foreign oil firms.

After the new law was enacted, MAS, which is led by indigenous lawmaker Evo Morales (the leader of the country’s coca farmers) introduced an alternative bill that would annul the 76 existing gas contracts.

MAS continues to demand a 50 percent royalty, as opposed to the current 18 percent. It also wants the state oil company to be strengthened, and is calling for a review of the privatisation of other public enterprises.

The president of the Bolivian Confederation of Private Business (CEPB), Roberto Mustafá, complained about the new law, which he said would create an environment that would discourage private investment.

The oil companies argue that a modification of the terms under which they have been operating amounts to a unilateral breach of contract that will make it necessary to begin legal action against the state to recuperate their investment and lost earnings, oil industry consultant Carlos Alberto López told IPS.

López said investment in the industry would drastically shrink, pointing to the plunge in foreign investment from 600 to 200 million dollars a year between 1998 and 2004.