Page last updated at 12:08 GMT, Tuesday, 2 May 2006 13:08 UK

Bolivia takeover alarms powerful allies

By Robert Plummer
BBC News business reporter

President Evo Morales addresses the Bolivian people on 1 May 2006 at the presidential palace in La Paz
President Morales' decree has upset his neighbours in Brazil

Anyone who seriously believed that Latin America's various left-leaning leaders all thought alike will have been puzzled by the fallout from Bolivia's nationalisation of its vast natural gas fields.

For the most anguished reaction to President Evo Morales' move has come from a country that might have been considered one of his staunch natural allies - Brazil.

Less than four months ago, in the run-up to Mr Morales' inauguration, he and Brazil's President Luis Inacio Lula da Silva were seen smiling for the cameras after discussing co-operation in the energy sector.

Mr Morales came to Brasilia with a track record of activism as a former coca-growers' union leader, as well as a commitment to economic reforms that would benefit Bolivia's impoverished indigenous majority.

Volume: 1,529bn cubic metres (54 trillion cubic feet) of proven and probable gas reserves
Theoretical value: $70bn
Second-largest reserves in Latin America (after Venezuela)
Bolivian GDP in 2005: $8.5bn ($940 per capita)

But at the same time, he needed to reassure Brazilian investors - especially Brazil's state-owned oil and gas giant, Petrobras - that he would take a business-friendly approach.

Petrobras, which has invested more than $1bn in Bolivia and controls 45% of its gas production, was duly placated. The company's boss, Jose Sergio Gabrielli, said he expected an excellent business climate under Mr Morales.


Now the mood in Brazil is one of betrayal and humiliation.

Mr Gabrielli has described the decree as "unfriendly" and declared that Petrobras will review its activity in Bolivia.

Lula promptly called an emergency cabinet meeting to examine the move.

Evo Morales with Brazil's President Luiz Inacio Lula da Silva in January 2006
Evo Morales and Lula are not getting on so well now

And an unnamed close adviser to Lula was quoted in the Brazilian press as saying that the government had been "caught with its pants down" over the military's seizure of facilities including Petrobras' refinery in the eastern city of Santa Cruz.

Brazil is not alone in its dismay. The Spanish foreign ministry has expressed "deep concern" about the implications for Spanish energy group Repsol-YPF, which controls 25.7% of Bolivia's gas production.

In all, about 20 foreign companies are affected, including BP, British Gas, ExxonMobil and Total.

Punitive terms?

Under the terms of the nationalisation, they are required to agree new contracts with the state-run firm, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), within 180 days.

In the meantime, Bolivia will keep up to 82% of their revenues, allowing them just the remaining 18%.

Unsurprisingly, many of these firms are now wondering whether it is worth continuing to invest in Bolivia at all - and other foreign firms may also be deterred.

If the move marks a clear break between Mr Morales and Lula, it also draws him closer to the more radical approach of President Hugo Chavez in Venezuela, where oil firms are being pressed to change their operations into joint ventures with the state firm PDVSA.

Just days before the Bolivian decree was issued, Mr Morales and Mr Chavez visited Havana to sign a three-way trade pact with Cuban President Fidel Castro.

Blessing or curse?

Mr Morales announced the nationalisation as an end to what he called "the pillage of our natural resources by foreign companies".

In this, he was reflecting the traditional view of Latin American economic nationalists that a country must retain control over its natural assets at all costs.

A soldier holds the Bolivian flag aloft at the Carapari gas plant in Tarija, southern Bolivia, next to a banner reading: Nationalised - property of the Bolivians
Bolivian soldiers have seized control of foreign energy assets

That perception is particularly acute in Bolivia, where the indigenous majority feel that the economy is run for the benefit of a wealthy elite who have allowed foreigners to exploit their silver, tin, oil and gas reserves.

The move is the latest chapter in the increasingly tortured saga of Bolivia's huge gas reserves - bigger than those of any other Latin American country except Venezuela.

What should have been an economic blessing to one of the poorest nations in the region has, instead, turned into something of a curse.

Plans to export the gas to the US and Mexico sparked fury among indigenous protesters and led to the downfall of President Gonzalo Sanchez de Lozada's government in 2003.

Adding to their anger, the scheme would have involved shipping the gas via a Chilean port - an outlet that used to be part of Bolivian territory until Chile seized Bolivia's coastline in their 1879-83 war.

With no pipeline to the Pacific Ocean in place, landlocked Bolivia has been selling gas to neighbouring Brazil and Argentina instead.

This makes Brazil not only Bolivia's biggest investor, but also its biggest customer - and therefore a country that it might be unwise to alienate.

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