Bolivian Gas in State and Corporate Hands

Bolivian President Evo Morales announced that the oil and gas will be nationalized and put into the hands of the state-run oil and gas company, Yacimientos Petrolíferos Fiscales Bolivianos, (YPFB). Though what this nationalization plan truly entails may not be known for weeks, the move begs the question – will state control of resources be more beneficial to the Bolivian people than corporate control?

"Property of the Bolivian People"

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of its natural resources," Morales said in a speech from the San Alberto petroleum field, wearing a white helmet from YPFB. Nearby a banner hung that said, "Nationalized: Property of the Bolivian people." The day the announcement was made thousands converged to celebrate the nationalization in La Paz's central Plaza Murillo.

The decree bumps up Bolivia's share of profits coming from two major gas fields, San Alberto and San Antonio, from roughly 50% to 82%. These fields, which represent 70% of Bolivia's natural gas, are currently owned and operated by Brazil's Petrobras, Spain and Argentina's Repsol and France's Total.  Smaller fields will continue with the same tax arrangement which allots 50% to the government. Within 60 days, YPFB is to control oil and gas production, exploration, and distribution. Within 180 days, foreign companies are obliged to sign renegotiated contracts which give more control to the state. If they refuse to renegotiate, they have to leave the country. The new decree does not call for the total expropriation of foreign assets.  It does involve a mandatory sale of most assets in the oil and gas industry to the government. The state will seize the assets of those companies which refuse to renegotiate contracts.  Bolivian Vice President Alvaro Garcia Linera said that by 2007, these changes will increase the government's annual income by $320 million.

In order to establish the new terms of operations and tax rates, the decree includes an audit of all oil and gas companies working in Bolivia. The state will recover 51% of shares from five companies which were carved out of the privatization of YPFB in 1996, when many of the current contracts were drawn up. Bolivian officials contend that these contracts are unconstitutional because they were not ratified by congress, which is required by Bolivian law. In this light, the nationalization is a return to constitutionality.

From September to October in 2003 massive protests took place against a plan to export Bolivia's gas to the US for a meager price. Government repression against the mobilizations resulted in an estimated 80 deaths and hundreds of injuries. In the end, the protests forced Gonzalo Sanchez de Lozada to resign. The current nationalization plan is in part a response to pressure from this grassroots movement.

"We are moved because the nationalization of hydrocarbons has been one of the fundamental demands of the mobilizations of October 2003 and May and June 2005.  For us, it's homage to the fallen of October," Edgar Patana, the executive secretary of the Regional Workers' Central of El Alto told ZNet journalist Jeffrey Webber. "It's an historic act that, hopefully, in the following months, will bring the country more revenue, to relieve unemployment, and make more jobs available…."

Morales, along with other newly elected left-leaning leaders in Latin America, came to power on platforms which promised a change from the structural adjustments pushed by the International Monetary Fund and free market economic policies which favored the interests of foreign corporations over the welfare of the people. Instead of bringing about the promised development and progress, thirty years of such policies has plunged the region into the worst economic crisis since the Great Depression.  By following an unconventional path, Venezuela and Argentina have become the fastest growing economies in the region in recent years. Morales' nationalization may produce similar results.  As Bolivians know, business as usual has had a devastating effect on their country, which is the poorest in South America. [1]

The Case for Nationalization of Oil and Gas in Bolivia

History illustrates that an oil and gas industry run by YPFB is a feasible and lucrative option. In 1937, during the government of David Toro the state-run company was created. From then until 1940, YPFB produced 882,000 barrels of oil which was more than Standard Oil had produced in 15 years of operations in Bolivia. In 1953, the company produced enough to take care of the national consumption of oil. [2] For over 60 years, YPFB generated enormous funding for the government. It explored, exploited, built ducts, refining plants. [3] From 1985-1995, YPFB was the main source of economic support for the state. The highest amount YPFB exported was 55.7% of total exportation in 1985. [4] Through YPFB, the technology and expertise was developed to sustain an infrastructure which is still intact to this day. The success and experience of the company contributed to the population's recurring demands for nationalization of oil and gas.

"People have the hope that after all of this history of misery, exploitation of the natural resources, the gas could be the basis for a modernization of the economy. Not just to be utilized as energy, but also a basis for a future of industrialization," Carlos Arze of Bolivia's Center for Labor and Agricultural Development (CEDLA) explained in an interview in his office in La Paz, where large windows looked over the city.  The key element to this industrialization is the rising cost of oil and gas. [5]

As the amount of global gas reserves decrease, the demand will increase, putting Bolivia in a good position to financially gain from the business if the state takes advantage of its position as a major gas producer. According to Gregorio Iriarte in his book "El Gas: Exportar o Industrializar?" in 2020, the US will demand 50% more gas than it uses currently. Meanwhile, the gas reserves in Argentina will end in 17 years and Chile depends primarily on Argentina for their gas. Brazil is hugely dependent on Bolivian gas. Over time, there will be more interest in Bolivia as a gas producer. Studies have shown that in 1997 the amount of gas in Bolivia was estimated to be 5.7 trillion cubic feet. In 2003, that figure rose to 54.9 trillion. It's likely that more gas will be discovered in the coming years. [6]

There is a general feeling in Bolivia that to sell most of the gas to the exterior is a poor use of the resource. The gas and its derivatives could be better used by the impoverished Bolivian population. Before it is processed, gas has methane, propane, ethane, butane and other gases in it. It can also be used to produce fertilizers, explosives, plastics, heat and electricity. The resource could be used in industries, kitchen and energy plants. Even if all of the houses, kitchens in Bolivia had access to gas, it wouldn't use even 1.5% of the reserves. [7]

For decades, gold, rubber, tin and other raw materials from Bolivia were sold for a low price while foreign companies profited from the industrialization of these raw materials and sold them abroad for a much higher price, while Bolivia remained impoverished. This took place, Iriarte explained, under the argument that "Bolivia requires investments and work" and that "those who oppose the sell of the gas, oppose development."…In practice, the biggest benefits of the sale are the transnational companies that transport, liquidize and commercialize the gas." He argues that the gas needs to be industrialized in order to use it in Bolivia and to export it for a higher price. He suggests the price of gas to companies needs to be raised so it can stimulate the Bolivian economy. [8]

Arze explained that there were various demands in the gas conflicts of 2003, all of which revolved around the slogan, "recuperate the gas to industrialize it." People wanted to improve their own access to the resource.

Whereas there are 6-7 barrels of oil [used] per capita in Argentina, Chile – in Bolivia we have around 2, and we have a large reserve of energy. Natural gas, which is the most important hydrocarbon in our reserves, only arrives to 1.5-2% of the population, of the families of Bolivia. There is not a network of consumption. More than 90% of the gas is exported. And of the 10% that is left, a very small amount enters the network of domestic use. Most of this goes to the thermo-electric plants, where they generate electricity with this. The electricity is also in private hands, in Spanish hands. And the electricity is very expensive. It doesn't arrive at to most of the population, especially to rural areas. In rural areas there is very small amount of people who have access to electricity, and even less to gas. They are still living as if in medieval times…so the people are far from the benefits of this use of energy [that we have]. People want access to the gas in order to improve their standard of living.

People also want cheaper access to gas-related products, such as diesel for tractors and agriculture. In Bolivia, more than half of the diesel used is imported from abroad. Diesel could be produced from natural gas in Bolivia, and offer a lower price to farmers.

State vs. Corporate Ownership

In Morales' nationalization plan, the management of the oil and gas goes to YPFB. This leaves the question – how will the industry operate without foreign investments? Arze explained that foreign corporate investment is not needed to expand the gas industry in Bolivia. In fact, he argues, corporate control and investment of the resources has so far had the opposite effect. As far as transportation, foreign companies have mainly created gas ducts to other countries for exportation, and there are no new gas ducts for international users. For example, the biggest gas duct to Brazil is 40 times bigger than the one that goes to La Paz, which is Bolivia's largest duct. The older ducts created by YPFB are in disrepair and cause regular environmental problems. When the Brazilian oil and gas company, Petrobras bought three of the state refineries, they didn't invest anything into them.

Foreign investors have placed more emphasis on making money by selling to external markets, than developing the infrastructure in Bolivia for national use and industrialization. The technology needed for industrialization has not been provided, and what infrastructure that does exist is in poor condition. The result is that the country with one of the largest gas reserves in the region has some of the worst distribution and industrialization methods for its own citizens.

"Therefore, this foreign and new investment – what new things has it brought to Bolivia?" Arze asked. "The exploration, they say it is very high, there is probably a lot of inversion in this. But the areas with the most reserves…were discovered by YPFB more than 15 years ago." However, at the time, YPFB lacked enough funding from the government to utilize the discovery, and it went into the hands of foreign corporations. "The state created an infrastructure that up to today continues and created many technical experts that are currently working for private companies. The state did this with a small amount of financial resources." This business was given up to foreign companies, and the government, in a sense, turned its back on the highest priced market in the world.

Now we develop something like 20 times more gas than before. Is it possible to find [financial] resources? Is it possible to improve the terms of our negotiation with other companies and countries? I think so. Right now the world market is good for us because of the high price of oil; the gas market is becoming more important. There is also an energy crisis in the region. Chile, Brazil, Uruguay, Paraguay and Argentina need gas. And who has the gas? Bolivia. So Bolivia could negotiate for better conditions. Now, the state, in the immediate moment, probably doesn't have sufficient capital [for industrialization]. But if the business of gas and oil is the best in the world, something which has caused invasions, could one find better negotiations for the country? I think so.

He explained that by renegotiating with companies, raising the taxes and royalties which companies pay, the Bolivian government could significantly increase the money it makes from the oil and gas industry. It could then use that funding to recuperate YPFB, which had operated well years earlier which a much smaller budget.

The new nationalization plan could, as Morales has promised, end up being the "solution to the economic and social problems of the country." However, much still depends on how the corporations and the Bolivian people respond once the dust settles.