Globe: Annette Hester - Playing the gas fields
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Globe, 04/05/06, Playing the gas fields, Nationalizing Bolivia's energy sector is a costly political ploy, Annette Hester
Bolivian President Evo Morales celebrated May Day -- that international workers holiday -- by nationalizing the country's oil and gas industry. The move was meant to fulfill a promise to keep more energy profits in the country, though it likely also was intended to revive his flagging popularity. Will it succeed in reducing the brutal poverty of most Bolivians? Will it pay off politically? Mr. Morales made his move with much fanfare as befits his roots as a coca growers union leader -- standing amidst workers and supporters, loudspeaker in hand, in one of Bolivia's largest gas fields, San Antonio. He then proceeded to send the army to all oil and gas installations to ensure no documents were destroyed or removed from the premises.
You might see this as just the latest Latin American populist leader rallying the troops in the name of national sovereignty against the evil empire of George W. Bush. There's just one problem with this scenario: Bolivia's largest integrated oil and gas company is Petrobras, controlled by the government of his "brother in arms," Brazilian President Luiz Inacio "Lula" da Silva. Moreover, the other major foreign companies operating in Bolivia are Spanish Repsol-YPF, French Total, Dutch Shell, Argentinean Pluspetrol, and the lonely American, Prisma. Clearly, traditional political assumptions are not helpful in understanding this situation.
Instead, thanks to globalization, citizens of poor countries have become aware of the benefits of development and are impatient to enjoy them. Leaders in Latin America are under notice -- deliver or you will be tossed out -- regardless of whether you are from the left or the right.
Bolivia is one of the poorest countries in South America. Its history is just as sad as huayno, its traditional music. The country's silver riches were pillaged by Spain, its access to the sea lost in battle, its national art treasures are now the property of the finest European museums, and the people suffered decades of government control by a string of dictators who cared nothing for them.
Ten years ago, during the first government of Gonzalo Sanchez de Lozada, the picture began to change. He implemented a series of economic reforms and modernized the country's energy sector. As well as implementing legislation that maintained the government's ownership of the resources (underground) but gave domestic and foreign operators the right to explore, produce, refine, and transport oil and gas, he reorganized the national oil company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB).
He also sold portions of YPFB to private interests and issued shares for the remainder. These shares, in turn, were issued to all Bolivian citizens and administered by a special pension fund. The idea was to create both an efficient market through privatization and to develop a stock market by instantly increasing private savings.
Unfortunately, the results were mixed. While the newly privatized industry took off -- from 1997 to 2005, proven oil reserves went from 116 million barrels to 440 million barrels, and proven natural gas reserves increased a staggering 600 per cent -- the stock market idea bombed. It was easy for governments to manipulate impoverished campesinos, and most, to this day are not even aware of their holdings. In spite of his talk of looking after his people, now Morales has reclaimed these stocks for YPFB, with no mention of compensation.
Ultimately, Bolivians continued to be as poor as ever -- in 2004, the country's GDP per capita of $2,600 (U.S.) was the lowest in South America.
Fast forward to today.
Mr. Morales won the election last December after having orchestrated popular uprisings that led to the fall of two previous governments. The main issue for both those previous governments was the administration of the gas sector. To him was left the implementation of a 2004 referendum that mandated an increase in the government's take and the nationalization of the oil and gas sectors.
And so Mr. Morales -- shaken by a recent drop in his popularity, facing increased opposition from gas-producing provinces that are threatening secession, and boosted by a new friendship with Fidel Castro and Venezuela's Hugo Chavez -- is gambling that he can force companies to hand over assets and pay exorbitant premiums without severe repercussions.
The gist of Decree 28701, the new nationalization law signed Monday is: The Bolivian state regains control of all aspects of the industry; the government's take increases to 82 per cent from 50 per cent for most gas fields; YPFB will control 51 per cent of all companies operating in the country; the government will name all senior management, and companies have 180 days to comply or they will be thrown out of Bolivia.
Mr. Morales knows he has a captive market in the short term. Brazil is dependent on Bolivian gas and consumes more than half of the 42 million cubic metres a day the country produces. That means Mr. Morales will add approximately US$300-million a year to his government's coffers (as well as a number of high-paying jobs to dole out to supporters). That is no small coin for a country the size of Bolivia and it should buy him some time. The repercussions, however, might prove to be disastrous. Many Brazilians are furious with their government for miscalculating in its dealings with Mr. Morales and, consequently, Brazil will actively pursue a gas policy that will allow for a variety of suppliers.
That Bolivians will end up owning all the gas is a given. And yes, Mr. Morales will save his skin, at least for now. What is uncertain is whether the nationalization will pay off, or whether, in the long run, the gas will stay in the ground leaving Bolivians just as poor as they are now.
Annette Hester is a senior associate at the Washington-based Center for Strategic and International Studies and a research fellow at the Centre for International Governance Innovation in Waterloo, Ont.
Bolivian President Evo Morales celebrated May Day -- that international workers holiday -- by nationalizing the country's oil and gas industry. The move was meant to fulfill a promise to keep more energy profits in the country, though it likely also was intended to revive his flagging popularity. Will it succeed in reducing the brutal poverty of most Bolivians? Will it pay off politically? Mr. Morales made his move with much fanfare as befits his roots as a coca growers union leader -- standing amidst workers and supporters, loudspeaker in hand, in one of Bolivia's largest gas fields, San Antonio. He then proceeded to send the army to all oil and gas installations to ensure no documents were destroyed or removed from the premises.
You might see this as just the latest Latin American populist leader rallying the troops in the name of national sovereignty against the evil empire of George W. Bush. There's just one problem with this scenario: Bolivia's largest integrated oil and gas company is Petrobras, controlled by the government of his "brother in arms," Brazilian President Luiz Inacio "Lula" da Silva. Moreover, the other major foreign companies operating in Bolivia are Spanish Repsol-YPF, French Total, Dutch Shell, Argentinean Pluspetrol, and the lonely American, Prisma. Clearly, traditional political assumptions are not helpful in understanding this situation.
Instead, thanks to globalization, citizens of poor countries have become aware of the benefits of development and are impatient to enjoy them. Leaders in Latin America are under notice -- deliver or you will be tossed out -- regardless of whether you are from the left or the right.
Bolivia is one of the poorest countries in South America. Its history is just as sad as huayno, its traditional music. The country's silver riches were pillaged by Spain, its access to the sea lost in battle, its national art treasures are now the property of the finest European museums, and the people suffered decades of government control by a string of dictators who cared nothing for them.
Ten years ago, during the first government of Gonzalo Sanchez de Lozada, the picture began to change. He implemented a series of economic reforms and modernized the country's energy sector. As well as implementing legislation that maintained the government's ownership of the resources (underground) but gave domestic and foreign operators the right to explore, produce, refine, and transport oil and gas, he reorganized the national oil company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB).
He also sold portions of YPFB to private interests and issued shares for the remainder. These shares, in turn, were issued to all Bolivian citizens and administered by a special pension fund. The idea was to create both an efficient market through privatization and to develop a stock market by instantly increasing private savings.
Unfortunately, the results were mixed. While the newly privatized industry took off -- from 1997 to 2005, proven oil reserves went from 116 million barrels to 440 million barrels, and proven natural gas reserves increased a staggering 600 per cent -- the stock market idea bombed. It was easy for governments to manipulate impoverished campesinos, and most, to this day are not even aware of their holdings. In spite of his talk of looking after his people, now Morales has reclaimed these stocks for YPFB, with no mention of compensation.
Ultimately, Bolivians continued to be as poor as ever -- in 2004, the country's GDP per capita of $2,600 (U.S.) was the lowest in South America.
Fast forward to today.
Mr. Morales won the election last December after having orchestrated popular uprisings that led to the fall of two previous governments. The main issue for both those previous governments was the administration of the gas sector. To him was left the implementation of a 2004 referendum that mandated an increase in the government's take and the nationalization of the oil and gas sectors.
And so Mr. Morales -- shaken by a recent drop in his popularity, facing increased opposition from gas-producing provinces that are threatening secession, and boosted by a new friendship with Fidel Castro and Venezuela's Hugo Chavez -- is gambling that he can force companies to hand over assets and pay exorbitant premiums without severe repercussions.
The gist of Decree 28701, the new nationalization law signed Monday is: The Bolivian state regains control of all aspects of the industry; the government's take increases to 82 per cent from 50 per cent for most gas fields; YPFB will control 51 per cent of all companies operating in the country; the government will name all senior management, and companies have 180 days to comply or they will be thrown out of Bolivia.
Mr. Morales knows he has a captive market in the short term. Brazil is dependent on Bolivian gas and consumes more than half of the 42 million cubic metres a day the country produces. That means Mr. Morales will add approximately US$300-million a year to his government's coffers (as well as a number of high-paying jobs to dole out to supporters). That is no small coin for a country the size of Bolivia and it should buy him some time. The repercussions, however, might prove to be disastrous. Many Brazilians are furious with their government for miscalculating in its dealings with Mr. Morales and, consequently, Brazil will actively pursue a gas policy that will allow for a variety of suppliers.
That Bolivians will end up owning all the gas is a given. And yes, Mr. Morales will save his skin, at least for now. What is uncertain is whether the nationalization will pay off, or whether, in the long run, the gas will stay in the ground leaving Bolivians just as poor as they are now.
Annette Hester is a senior associate at the Washington-based Center for Strategic and International Studies and a research fellow at the Centre for International Governance Innovation in Waterloo, Ont.
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