Gas partnership with Bolivia needs to remain profitable

President Carlos Mesa needs to pass a new energy law through Congress this year or risk loosing Bolivia's export markets and billions of dollars in investments, according to leading industry analysts. Government and foreign diplomatic officials fear domestic opposition to any new legislation that does not increase taxes or royalties on gas companies could lead Brazil and Argentina to turn their backs on Bolivian gas supplies. Popular support for state intervention with gas firms is high.
"These are the only markets Bolivia now has," said Roberto Ruiz, civic committee president in the gas-producing province of Tarija.

He participated in a meeting between Mesa and Argentine President Nestor Kirchner, who agreed to finance a new liquefied-gas refinery in Tarija. But Kirchner warned that any such commitment has to be conditioned on uninterrupted supplies at competitive rates.
Brazil's ambassador to Bolivia, Antonio Mena Goncalves, likewise issued a blunt warning that any new taxes or royalties could seriously jeopardize the Brazilian market.
"If there is any idea of increasing royalties to 50 %, there is no more business," he said. "If the partnership with Bolivia stops being profitable, we will have to exploit our own gas reserves," Mena added.

Brazil buys 20 mm cm (26 mm cubic yards) of gas a day from Bolivia and there are plans to increase purchases to 30 mm (39 mm cubic yards). Argentina buys 4 mm cm (5 mm cubic yards) a day with a projected increase of 6.5 mm cm (8.5 mm cubic yards) agreed in recent talks. Both neighbours have told Mesa that they need the export agreements to be backed by legislation within the next few months. Mesa now faces the challenge of convincing Bolivians -- who supported measures toward nationalizing Bolivia's energy industry in a referendum held in July -- to accept market necessities that may fall far short of popular expectations.
The left is interpreting an overwhelming victory of proposals to repeal existing privatisation laws, transfer private shares to state enterprises, and "recover gas reserves at the well head" as a mandate for vastly increased taxes and nationalizations.

Bolivia's president, on the other hand, is promoting the referendum's results as a vindication of his own authority. While he previously backed raising taxes and royalties to 50 % over a period of years, he is now talking about an increase of 10 %.
In a clear show of support for the government, US Assistant Secretary of State for the Western Hemisphere, Roger Noriega, arrived in La Paz to hold talks with Mesa. Accompanied by US Ambassador David Greenlee, Noriega toured the Aymara community of El Alto which is the focus of American aid projects aimed at reducing unemployment and social unrest.

Bolivia's president called on Congress to approve a new hydrocarbons law "as soon as possible." He otherwise revealed few details about the legislation which is set to go before Parliament and is expected to run into stiff opposition from the Movement Towards Socialism, known as MAS, and other parliamentary groups.
"The projected law is meant to guarantee the presence of the multinationals in our country and does not conform to the mandate of the Bolivian people," said MAS leader Evo Morales. "MAS rejects and repudiates the project, and we are going to prepare mass mobilizations across the country," staid Bolivia's main leftist leader.

Morales considers the new law being prepared by Mesa as a "continuity" of deposed President Gonzalo Sanchez de Lozada's policies. Mesa's predecessor was overthrown in a violent revolt triggered by export policies that were opposed by leftist and indigenous organizations.
MAS objects to increasing gas sales to Argentina because it can be re-exported to Chile. Bolivia has been trying to blockade gas supplies to Chile as a way of pressuring for the return of Pacific sea ports annexed in the 1879 war. Chile's pro-US free-market policies are also strongly resented by the Bolivian left

Two questions on exports were the only points in the last referendum to receive a substantial negative vote mobilized by MAS which also urged followers to vote yes on other points. No to exports was supported by a third of the vote throughout the country, scoring a majority in the heavily unionised provinces of Oruro and Potosi.
Mesa has been promoting the idea of exporting through ports in Peru favoured by the indigenous syndicates that control Bolivia's high plain. He is scheduled to meet with his Peruvian counterpart, Alejandro Toledo, and exchange letters of intent for a project to move gas through the Peruvian ports of Ilo and Camisea. But energy industry sources insist that such a scheme in unviable.
"Peru will never be an option to transport Bolivian gas," said the chief spokesman for Bolivia's Chamber of Hydrocarbons, Carlos Lopez. The executive president of Spain's Repsol, Alfonso Cortina, agrees that such an option would only be possible if gas prices were raised to "improbably high levels."

A Bechtel costs-benefits analysis calculates that the additional investment and operating costs required in the construction and maintenance of infrastructure necessary for a Peruvian outlet would be triple any possible benefits.
"We need to bear in mind that Bolivia's royalties are already three times higher than what Peru fixes on its own gas," said Lopez.
"We have to forget about the Pacific and look to the Atlantic, concentrating on our only functioning markets in Argentina and Brazil," said Ruiz whose native Tarija forms part of an eastern block of provinces threatening to break away from Bolivia's central government if Mesa proves incapable of devising an export policy favoured by business.

In a clear sign that trouble is anticipated during the months ahead, the United States delivered new anti-riot gear to Bolivia's security services, including two armoured vehicles equipped with water cannon and crowd-control equipment.
Security officials further fear groups that feel betrayed by Mesa may resort to armed tactics.