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http://news.ft.com/cms/s/5f1b72aa-c053-11d...00779e2340.html

 

Petrobas halts Bolivia investment plans after breakdown in gas talks

By Hal Weitzman in Lima

Published: March 31 2006 03:00 | Last updated: March 31 2006 03:00

 

Petrobras, the largest international company operating in Bolivia, has suspended plans to invest up to $5bn in the country's gas sector after it said negotiations with the government of Evo Morales had broken down.

 

 

"We're not putting down a dime until the entire situation is well defined," said José Sérgio Gabrielli, chief executive of Brazil's state-owned oil company. "There is a set of investments that need to be made and whose decision-making process depends on what happens in Bolivia. If we don't have a process of negotiation on track, we will have to delay our decisions."

 

The announcement signals a deterioration in relations between the Morales administration and the gas sector. "Within the sector there is complete disappointment and lack of enthusiasm," said an industry insider. "I've never seen anything like it."

 

The Brazilian company has invested about $1.5bn in Bolivia in the past decade. It accounts for 20 per cent of the country's direct investment and 18 per cent of its gross domestic product.

 

Petrobras had said last month it planned to invest $5bn in Bolivia's gas sector in joint ventures with YPFB, the state energy company. But as negotiations have dragged on, the atmosphere appears to have soured. Petrobras's change of heart appeared to have come in response to a series of aggressive statements from Andrés Soliz Rada, Bolivia's hydrocarbons minister.

 

In recent days, Mr Soliz has threatened to raise tax rates on some gas fields from 50 per cent to 70 per cent, refused to negotiate with oil companies that are threatening to go to international arbitration. He has also accused Brazil of hardening its attitude in talks and of viewing Bolivia "as some kind of semi-colony".

 

Aides to Mr Morales had previously indicated they would give preferential treatment to state-controlled companies over private investors. Mr Morales's good personal relations with Luiz Inácio Lula da Silva, the Brazilian president, also led to expectations that Petrobras would come up with the investment needed to revitalise Bolivia's gas sector.

 

"Petrobras was supposed to have a political edge over the other companies because of its size, because it's state-controlled and because of Evo's good relationship with Lula," said Roberto Laserna, a political analyst in Cochabamba. "If relations aren't good with Petrobras, you can only imagine what they're like with the other companies."

 

The industry source said the knock-on effects of Petrobras's announcement could be extremely serious. "If Petrobras is saying that, it makes it more likely that the whole sector will just stagnate," he said.

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