16-09-02 A natural gas pipeline expected to run from Tarija in southern Bolivia to a port on the Pacific ocean is a source of dispute between Peru and Chile, of controversy in Bolivia, and of pressure from five European corporations. The southern Bolivian department of Tarija has natural gas reserves -- equivalent to an estimated 5 bn barrels of petroleum -- which Bolivia plans to export to the United States and Mexico.
But to do that, Bolivia needs a pipeline to carry the gas to a port city on the Pacific coast, from which it would be shipped northwards. Bolivia became a land-locked country after the Pacific War (1879-1884), when, allied with Peru, it was defeated by Chile, which annexed what was then Bolivia's Pacific shoreline.

The Peruvian government is offering a route to the sea through its southern port of Ilo, as part of a broader plan aimed at "territorial and economic integration." Lima has offered Bolivia a "preferential partnership" for cross-border integration, which would entail the creation of a special economic zone for 99 years, the right of free passage, and the concession of a 1,000-hectare area -- including a port -- that would be exclusively under Bolivian administration.
Chile, meanwhile, has invited Bolivia to run the pipeline to its northern port city of Mejillones, 260 km closer to Bolivia's gas fields than Ilo. According to Chilean estimates, the Mejillones option would be $ 600 mm cheaper. Peru, however, claims the difference in cost would be no more than $ 300 mm.

Bolivia's President Gonzalo Snchez de Lozada had indicated his preference for the Mejillones option. But the president has postponed reaching a decision due to the heated political debate surrounding the pipeline.
The New Republican Force (NFR), an opposition party, is opposed to the Chilean offer, on the basis of Bolivia's long-standing antagonism towards that country. The NFR pointed out to the new government that it lacks the two-thirds vote needed to push the project through the single-chamber Congress.
The leader of the NFR, former presidential candidate Manfred Reyes Villa, visited Lima to meet with Peruvian authorities and underline his party's support for the Ilo port option. Meanwhile, Evo Morales, the head of the Movement to Socialism (MAS) -- who finished second in Bolivia's presidential elections in May -- is staunchly opposed to the plans for a foreign consortium to export Bolivia's natural gas, which he says should be used domestically to help the impoverished South American nation.

In the southern Bolivian province of Tarija, where the gas fields are located, public opinion and local political leaders are in favour of the Chilean option, arguing that the cost of the pipeline would be lower. The Bolivian government will have to reach a decision soon on which route the pipeline will take, if it wants to comply with the timetable outlined for the plan to export gas to the United States.
The interests focusing on the pipeline project go beyond the borders of the Americas. British Energy Secretary Brian Wilson met in La Paz with President Snchez de Lozada, Foreign Minister Carlos Saavedra and Hydrocarbons Minister Fernando Illanes. The central focus of the meeting was the offer set forth by the Pacific LNG consortium -- made up of British Gas, British Petroleum and Spain's Repsol-YPF -- which is in favour of the Chilean route.
"London is closely following the question of Bolivia's gas, and there are representatives of French and Belgian companies" who are pushing for Pacific LNG to pull out of the game," said a former director of Peru's Minero bank, Francisco Urrunaga. While "the Spanish-British consortium is playing the Chilean card, the Belgian transnational Tractebel and France's TotalFinaElf are backing the Peruvian option," said Urrunaga.

Economic and geopolitical reasons and the question of regional integration underlie the dispute between Peru and Chile over the pipeline. Peru is pushing the Ilo port option in the context of transport, energy and trade integration projects already underway with Bolivia in the framework of the Andean Community trade block, of which both countries are members.
Chile, in the meantime, is seeking to strengthen the prospects for industrial development of its northern region, and is interested in purchasing part of Bolivia's natural gas for its own consumption, thus ensuring itself a source of low-cost energy. Peru has gas fields of its own in Camisea, located in the southern department of Cuzco, in its Amazon jungle region, where drilling and the construction of a pipeline have begun, to carry natural gas to the port of Pisco, near Lima. But that project is not an alternative to the Bolivian pipeline, because the gas to be piped from Camisea is to cover the needs of Lima, a city of 8 mm, Energy Ministry sources told.