Bolivian Gas Conflict - Nationalization of Natural Gas Industry

Nationalization of Natural Gas Industry

As of May 1, 2006 president Evo Morales signed a decree stating that all gas reserves were to be nationalized: "the state recovers ownership, possession and total and absolute control" of hydrocarbons. He thus realized his electoral promises, declaring that "We are not a government of mere promises: we follow through on what we propose and what the people demand". The announcement was timed to coincide with Labor Day on May 1. Ordering the military and engineers of YPFB, the state firm, to occupy and secure energy installations, he gave foreign companies a six month "transition period" to re-negotiate contracts, or face expulsion. Nevertheless, president Morales stated that the nationalization would not take the form of expropriations or confiscations. Vice President Álvaro García said in La Paz's main plaza that the government's energy-related revenue will jump to $780 million next year, expanding nearly sixfold from 2002. Among the 53 installations affected by the measure are those of Brazil's Petrobras, one of Bolivia's largest investors, which controls 14% of the country's gas reserves. Brazil's Energy Minister, Silas Rondeau, reacted by considering the move as "unfriendly" and contrary to previous understandings between his country and Bolivia. Petrobras, Spain's Repsol YPF, UK gas and oil producer BG Group Plc and France's Total are the main gas companies present in the country. According to Reuters, "Bolivia's actions echo what Venezuelan President Hugo Chávez, a Morales ally, did in the world's fifth-largest oil exporter with forced contract migrations and retroactive tax hikes — conditions that oil majors largely agreed to accept." YPFB would pay foreign companies for their services, offering about 50 percent of the value of production, although the decree indicated that companies at the country's two largest gas fields would get just 18 percent.

Negotiations between the Bolivian government and the foreign companies intensified during the week leading up to the deadline of Saturday October 28, 2006. On Friday an agreement was reached with two of the companies (including Total) and by the deadline on Saturday the rest of the ten companies (including Petrobras and Repsol YPF) operating in Bolivia had also come to an agreement. Full details of the new contracts have not been released, but the objective of raising government share of revenues from the two major fields from 60 percent to 82 percent seems to have been achieved. Revenue share for the government from minor fields is set at 60 percent.

During the six month negotiation period especially talks with the Brazilian company Petrobras had proven difficult. Petrobras had refused raises or reduction to a mere service provider. As a result of stalled talks Bolivian energy minister Andres Soliz Rada resigned in October and was replaced by Carlos Villegas. "We are obligated to live with Brazil in a marriage without divorce, because we both need each other", said Evo Morales in the contract signing ceremony underlining the mutual dependency of Brazil on Bolivian gas and of Bolivia on Petrobras in gas production.