Bolivia approves natural gas law

Dec 20, 2004 01:00 AM

by Tyler Bridges

How to profit from the country's huge natural gas reserves has convulsed Bolivia over the past two years.
It toppled the president in October 2003, forced successor Carlos Mesa to hold a nationwide referendum in July to gain public support for his proposal and now Congress' current plan is on a collision course with Mesa, Bolivia's foreign lenders and the foreign petroleum companies that found and currently control the gas reserves.

In the meantime, during the often tumultuous and sometimes bloody debate, the biggest potential consumers of Bolivian gas -- California, Chile and Mexico -- have dropped out, leaving the secondary markets of Brazil and Argentina.
"We've lost all of our [major] markets," said Juan Cariaga, a former finance minister. "We're left in the worst of circumstances."

Natural gas has been such an explosive issue because it has been seen as the economic saviour for a country with a turbulent history that is also South America's poorest and that depends on foreign lenders to pay its bills. Adding fire to the incendiary mix is Bolivia's powerful anti-foreign sentiment.
The latest imbroglio threatens the political survival of President Mesa, who "is now being perceived as weak," said a foreign diplomat. "The momentum of July [when the referendum was held] is gone."

Foreign concerns
After Bolivians approved Mesa's five-question referendum, he asked the Congress to rewrite the natural gas law to allow the foreign petroleum companies to retain control of their reserves while having to pay higher taxes. In November, however, the House gave preliminary approval to a Socialist measure that would have the state unilaterally seize control of the natural gas reserves and impose an immediate and much higher tax than Mesa proposed.
"The gas reserves belong to the Bolivian people," Evo Morales, head of the Movement Toward Socialism party, a member of Congress and a leading contender for president in 2007, said. "The gas shouldn't be in private hands. The petroleum companies can be partners, just not owners."

Morales' constituents -- and perhaps most Bolivians -- doubt whether the foreign-controlled gas will put money in their pockets given the long history of foreign companies exploiting the country's natural resources with little benefit for average Bolivians. Morales predicted that the full Congress will approve the measure early next year.
The country's more moderate political parties -- who still hold most of the seats in Congress even after a disastrous showing in municipal elections earlier -- have supported Morales thus far to spite Mesa, a political novice and independent. But they are playing a risky game. Foreign companies and their allies in the international community have said the law would amount to the forced nationalization of the reserves.

Aid reduction
This would prompt lawsuits by the foreign companies and would likely prompt a reduction in aid by the United States, the World Bank, the International Monetary Fund and the Inter-American Development Bank, sources in the international community said.
The Brazilian government has also pointedly warned leaders of Congress against passing the bill since the Brazilian petroleum company, Petrobras, is the largest investor in Bolivia.

"The bill would leave Bolivia on the brink of committing suicide," said Carlos Alberto Lopez, a consultant to the Bolivian Chamber of Hydrocarbons and a former secretary of Energy.
Countered Morales: "If the World Bank, Spain, the United States and the IMF want to fight against poverty, they should be with us because under our plan we'll have more money to fight poverty." Besides, he added, "the private companies have to think about the poor, not just making money."

Mesa's big mess
Analysts blame Mesa in part for the troubles because one of his questions approved by voters called for "nationalizing" the gas reserves. Mesa said it really meant giving the state greater control over the reserves while keeping them under foreign control. But with polls showing that most voters thought it did actually mean nationalization, Movement Toward Socialism and the more moderate and conservative political parties used that to rewrite Mesa's proposal.
The president and his top aides hope that the moderates and conservatives will have a change of heart and produce a bill acceptable to the foreign community. If not, Mesa would probably veto the measure and Congress might well override him. At that point, "it would be difficult for Mesa to stay on," a Latin American ambassador said. Then Bolivia would once again have new presidential elections.

Meanwhile, Mexico, the latest market touted by Mesa for Bolivia's gas, has evaporated.
The Mexican electricity company, Comision Federal de Electricidad, the main potential buyer, is expected to announce early next year what industry analysts in La Paz are saying privately now: company officials no longer regard Bolivia as a viable option for their natural gas needs because of the political and economic uncertainty.

Chilean boycott
Mesa has already ruled out the simplest and most profitable option of all: sending the gas through an existing pipeline to Chile, which has a need for the gas. Mesa was responding to popular opinion. Bolivians have hated their southern neighbour since Chile grabbed Bolivia's coast following the 1879-1883 War of the Pacific.
When former President Gonzalo Sanchez de Lozada said he wanted to send the gas to Chile, Bolivians rioted. Government troops killed 70 people, inflaming the situation and forcing Sanchez de Lozada to resign in October 2003.

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