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Last Updated: Thursday, 17 August 2006, 23:11 GMT 00:11 UK
Bolivia's nationalisation plans in trouble
By Jane Monahan
La Paz, Bolivia

Three months after Bolivia's president, Evo Morales, nationalised the country's oil and natural-gas industry - which has the second largest gas reserves in Latin America - the political motives for the nationalisation are unchanged.

La Paz woman wearing a traditional hat
President Morales wants Bolivia's poor to gain from gas riches

The government remains eager to make sure the country's poor benefit from the nation's natural resources.

But the government has also admitted setbacks.

Bolivia's energy ministry has acknowledged that because of a lack of money, Yacimientos Petroliferos Fiscales Bolivianos, (YPBF) the state energy company, has been unable to increase its shareholdings to 51% of the industry's principal upstream (exploration/production) units.

In other words, the state energy company has failed to gain control of these crucial units, which remain in the hands of the Brazilian state oil company Petrobras, the biggest investor in the sector, and Spain's Repsol YPF.

YPBF has also failed to acquire control of facilities like the industry's refineries, distribution and pipelines.

Foreign investors, which include energy giants Total and BG Group, have continued to control these operations.

YPBF has also missed a 1 July deadline to restructure into an integrated company, as it had been supposed to do under to the nationalisation plan.

Moreover, following its failures, the state energy company has asked the central bank for $180m to help it accomplish the takeovers.

Still popular

YPBF, which was almost entirely privatised in 1996/1997, was re-nationalised in 2004.

La Paz street sellers
The gap between rich and poor remains large in Bolivia

Many of the developments associated with the nationalisation have been beneficial for the government, notwithstanding the latest setbacks.

Gonzalo Chavez, a political analyst at Bolivia's Catholic University in La Paz, says the nationalisation move continues to be very popular, and insists it is seen as a unifying measure.

According to Professor Chavez, the government also went ahead with the nationalisation "to make a break" with the liberal economic measures and privatisation programmes of the 1980s and 1990s, "which failed to fulfil Bolivians' expectations at least in terms of reducing poverty and unemployment in the country".

"The country is very fragmented regionally, socially and even linguistically," he says.

"But independent surveys conducted after the nationalisation showed 80% to 85% of Bolivians supported it."

This is down from 2004, when 95% of Bolivians approved nationalisation in a referendum, yet the percentage remains high.

Chavez support

The principal political reason why the Morales government moved to take control of the hydrocarbons sector, which generates the country's largest revenues, became clear on 16 June, when Carlos Villegas, Bolivia's minister of planning and development, announced a five-year plan.

La Paz presidential office
Mr Morales was elected in December last year on a campaign pledge to increase the state's share of the proceeds from Bolivia's lucrative natural gas industry

Mr Villegas said the plan would start "a process to eradicate poverty in Bolivia and in particular among the majority, which consists of farming communities and indigenous groups".

The process would be started, he said at the time, with several measures to generate 90,000 jobs a year; health, education, nutrition and literacy programmes; and with the creation of an environment that would encourage the development of national industries.

In Villegas' view, a principal reason why Bolivia is still South America's poorest country and has only a very small middle class, is because Bolivia's private sector "has also been excluded during the last 22 years of de-regulation and liberal economic policies".

"With the exception of a very small group of businessmen that were in a condition to participate in a global economy, the majority of Bolivian businesses - large, medium-sized and small - were in a situation of complete stagnation.

"[But] what we're doing now is to invite Bolivian businesses to participate in services and processes related to the industrialisation of natural gas, to the business of installing natural gas in households and to the business of the installation of natural gas in economic centres, schools and hospitals.

"Bolivian businesses will also have ample guarantees and opportunities for widespread participation in mining, manufacturing, construction, agriculture and housing.

"Public investments in the entire plan will amount to $6.9bn over the next five years, and there will be a lot of foreign direct investments in oil and gas, mining, electricity, petrochemicals, gas-to-liquids, iron and steel."

So whereas Petrobras and Repsol have both cut their investments following the nationalisation, other investors have been stepping up to the plate.

PDVSA, Venezuela's state oil company, controlled by President Hugo Chavez - the Bolivian president's main South American ally - has pledged $1bn to develop petrochemical companies with YPBF.

PDVSA has also agreed to train up to 300 YPBF staff in petrochemical production and other hydrocarbon industry skills, according to Jorge Alvarado, YPBF's president.

Global partners

Franklin Mining, a US mining group, signed a memorandum of understanding with YPBF just weeks after the nationalisation.

It plans to set up a joint venture to construct and operate a 10,000 barrels per day gas-to-liquids processing plant that should help Bolivia industrialise its gas and reduce the need for imported diesel fuels.

The plant capacity might be expanded later.

And Russia's Gazprom announced in June that it was considering investing up to $2bn in Bolivia's gas sector and is looking at building gas separation plants and pipelines to export LNG, or liquified natural gas.

On top of that, Mr Villegas is confident that most existing oil and gas investors will accept new contracts after negotiations with YPBF.

"There's nothing that's a supposition about this. It's a reality. With the exception of Petrobras, all the other oil and gas companies have accepted the nationalisation and are negotiating new contracts.

All these companies will fulfil the 180-day deadline for the negotiations [31 October] and I believe many of them will sign new contracts."

Eduardo Peinado, president of Bolivia's National Chamber of Industries, also thinks most companies will agree to comply with Bolivia's new production-splitting contracts.

Investment in new facilities might be scarce, though.

"The majority will stay," says Mr Peinado. "But the concern is they may only invest in installations that already exist and not put anymore money into exploration."

YPBF's boss rejects this assertion and says the government is insisting that companies seeking new contracts must invest more in exploration.

"Bolivia's reserves of natural gas are 26.5 trillion cubic feet and probable reserves are 22 trillion cubic feet, "says Mr Alvarado.

"Sixty to 70% of the hydrocarbon area in Bolivia hasn't been explored yet."

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