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Bolivia losing gas

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Evo should have taken a different route instead of creating a hostile business environment.







Bolivia losing gas customers

President Evo Morales' policies have endangered foreign investment, and the country is now viewed as an unreliable supplier.


Posted on Sat, Sep. 15, 2007





LA PAZ -- Bolivian President Evo Morales ''nationalized'' the country's crucial natural gas industry last year by forcing the foreign companies that control gas production and reserves to accept new contracts and pay sharply higher taxes.


The companies responded by curtailing investment plans.


Now Morales is demanding the companies reverse themselves or face possible expulsion.


Bolivia desperately needs more production. The country had to reduce exports to Argentina and Brazil two weeks ago to meet the demand for more gas from another Brazil contract that took precedence.


Bolivia has the second-biggest gas reserves in Latin America, and Morales has begun using revenue from higher gas taxes to build new roads, schools and health clinics in a country that, with about $900 in per capita income, is the poorest in South America.


Several years ago, when the foreign gas companies were investing heavily to drill new wells, it appeared Bolivia could meet the energy needs of Brazil, Argentina, Chile, Uruguay and Paraguay.


But, concluding that Bolivia has become an unreliable source, Brazil and Chile are now spending hundreds of millions of dollars to build re-gasification terminals that would allow them to import natural gas from Nigeria, Indonesia, Malaysia, Trinidad and elsewhere.


''The policies in Bolivia are starting to backfire,'' said Sophie Aldebert, a Brazil-based analyst with Cambridge Energy Research Associates. ``Bolivia is losing potential markets.''


Bolivia's production problems have also imperiled a $2.5 billion project to quadruple exports to northern Argentina by 2010. Argentina is now considering building a re-gasification terminal near Buenos Aires with Venezuela's help that might replace the pipeline project.


Bolivia turned to private investors to find natural gas in the 1990s. By 2002, the foreign companies had had so much success that gas became a political football.


President Gonzalo Sánchez de Lozada wanted to build a pipeline to send gas to Chile, but street protests -- Bolivians still nurse grievances over an 1879 war to Chile that cost them their access to the sea -- forced Sánchez de Lozada to resign in 2003 and shelve the plans.


Morales took office in 2006 as Bolivia's first elected indigenous president. Tapping into long-held suspicion of foreign companies, Morales said he would ''nationalize'' their holdings. He didn't actually take over the companies.


Instead, he forced them to accept new contracts and an increase in taxes from 50 percent to 82 percent.


The government is expected to collect $1.5 billion in gas taxes and royalties in 2007, more than double 2005.


But while Morales may have won the battle, he seems to be losing the war.


Petroleo Brasileiro SA, a private-public partnership better known as Petrobras, scrapped plans to invest more than $5 billion in the gas sector, including a $1.3 billion petrochemical plant in Bolivia that would have required a significant amount of natural gas.


Overall, investment by the gas companies is expected to hit a new low in 2007, dropping to perhaps $150 million, said Carlos Miranda, a former Bolivian energy secretary who now consults for private companies.


''The companies are doing the bare minimum needed not to lose the contracts,'' Miranda said. ``The government is in a bind.''


Morales demanded the companies submit investment plans by Aug. 20 or face possible reprisals.


On Monday, Energy Minister Carlos Villegas announced investment plans in the next year by each of the 12 companies, a total of $254 million in new production and $333 million in administrative costs and expenses.


Independent analysts believe the $254 million figure is exaggerated. The companies have yet to confirm Villegas' numbers.


The companies appear headed for a stand-off with the government.


Vice President Alvaro García said the companies have to put up more money or face the possible loss of their contracts.


''They want to earn extraordinary profits,'' García said.


``That won't happen anymore in Bolivia. If they don't want to invest, we need to know. Other companies want to invest.''


Gazprom, Russia's state energy company, has been sniffing around Bolivia. But the major player waiting in the wings is Petróleos de Venezuela SA, the state energy company better known as PDVSA.


Venezuelan President Hugo Chávez, a close ally of Morales, has said PDVSA will invest heavily in Bolivia to increase production, but nothing has happened so far.

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