Plan for new Bolivian oil tax makes investors uneasy

US and European oil investments in Bolivia hang in the balance as President Carlos Mesa prepares to ask Congress to approve a law that aims to mitigate the demands for nationalization of the petroleum fields conceded to the transnationals by former president Gonzalo Sanchez de Lozada.
Government officials debate amidst quiet pressures from the foreign petroleum companies, and continue revising their draft of the Fossil Fuels Law, which they had promised to send to Congress. The bill includes a "complementary fossil fuel tax" (ICH) with sights on obtaining as much as a 32 % contribution from the country's oil production.

This tax, added to other fiscal obligations (royalties on exports) of 18 %, would push up to 50 % the total that the national coffers would receive of the income generated by the exploitation of Bolivian petroleum and natural gas.
"The change in tax policy for the oil companies is a fait accompli" and forces a waiting period for their investments, former energy minister Carlos Miranda, who served under the Sanchez de Lozada government (2002-2003), told.

The decline in oil investment from $ 680 mm in 1998 to 40 mm in 2003 reflects the collapse of the national energy industry, Carlos Alberto Lopez, an energy consultant and former deputy minister, told.
"From 1996 to 2003, Bolivia took in around $ 3.6 bn in foreign direct investment earmarked for developing its petroleum fields, particularly for natural gas, while the national annual budget for health, education and other public services has been approximately $ 500 mm in this impoverished country of 8.7 mm people."

But Lopez argues that the amount invested in the energy sector is insufficient. He reckons some $ 4.4 bn is needed to complete the preparation of the fields that hold an estimated 54 tcf of natural gas, the second largest reserves in South America, after Venezuela.
Last October, massive mobilization of peasant and labour organizations, led by protests in the western Bolivian city of El Alto, intensified their demands for changes in the country's energy policy. The widespread unrest, which entailed roadblocks on major roads, lasted several weeks and paralysed economic activity and cut off supplies. The protesters were against the export of Bolivian natural gas to North America, under a concession to the LNG Pacific consortium, via a pipeline that would be built to connect Bolivia to Chilean ports on the Atlantic.

Chile is an historic rival of Bolivia, since the 1879 War of the Pacific, in which Bolivia lost its outlet to the sea -- an issue that still weighs heavily on bilateral relations. The pipeline project forecast revenues of more than a billion dollars a year for the consortium, which comprises the transnationals British Gas, Repsol-YPF of Spain, and the US-based Pan American Energy.
Meanwhile, through taxes and royalties, the Bolivian state would receive just $ 70 mm to $ 80 mm a year, according to the original calculations. But the protests went beyond the pipeline issue. They also took aim at the government's economic policy and called for a constitutional reform that would take into account demands for autonomy and would expand citizens' rights in the electoral arena and create channels for direct democracy, such as referendums.

The weeks of protest and crackdown claimed more than 70 lives, according to human rights groups. Increasingly isolated, Sanchez de Lozada saw himself forced to resign, and fled to the United States. The groups involved in the nationwide unrest supported the constitutional succession of then-vice-president Mesa, on the condition that he would carry out the changes they demanded.
But today, those movements have withdrawn their support for Mesa. The secretary-general of the trade union Central Obrera Regional of El Alto, Roberto de la Cruz, reminds the government of the demand to "nationalise" the oil fields and to rebuild the practically defunct state petroleum enterprise Yacimientos Petroliferos Fiscales Bolivianos.
"The people of El Alto are not aware of the content of the draft of the new Fossil Fuels Law, and therefore the decision to approve would be authoritarian and unilateral," De la Cruz told.

On another front, Mesa's difficult balance between social pressures and strategic efforts to develop Bolivia's natural gas potential has come under fire from former deputy energy minister Lopez.
"There is political urgency that the government respond to the demagogical slogans," he said. The new proposals would mean Bolivia would impose taxes 10 % higher than those in Brazil and 12 % more than Argentina's, said Lopez.

Alvaro Rios, minister of fossil fuels, calculates that the proposed ICH tax would bring in $ 50 mm a year. The public sector deficit, meanwhile, is estimated at $ 700 mm. The National Electoral Court announced that the promised referendum on the natural gas export plan could take place in early June. The tribunal's president, Oscar Hassentaufel, said that Congress must first approve the referendum law.
The creation of the referendum mechanism was one of the commitments Mesa made in the wake of the unrest of last October. After the crisis and the ouster of Sanchez de Lozada, the Pacific LNG project was left pending.