Bolivia Nationalizes Gas Industry and Plans to Construct a 'Gasoduct'

President Evo Morales has moved forward on one of his campaign promises: to nationalize the gas industry. Bolivia is one of the poorest countries in Latin America, but rich in natural resources and crippled by underdevelopment. This will affect Britain's BG Group PLC and BP PLC, Brazil's Petroleo Brasileiro SA, Spanish-Argentine Repsol YPF SA, France's Total SA and Texas-based Exxon Mobil Corp.

The nations of Argentina, Brazil, Cuba and Venezuela have announced support. At the same time, the Bolivian government announced discussed plans with the heads of state of Argentina (Kirchner), Brazil (Lula) and Venezuela (Chavez) in building a major pipeline.

Not Just the Gas, but Mines and Land

On May 1st, the International Holiday celebrating Working Men and Women, Morales announced that foreign corporations whom function in that country have received a 180-day notice to sign new contracts. The new contracts include that the state gas firm would receive 82 percent of the revenues, with the oil companies getting the remaining 18 percent.

Morales also said the gas decree "was just the beginning, because tomorrow it will be the mines, the forest resources and the land."

The next day, Vice President Alvaro Garcia Linera said mining companies could face higher taxes and royalty payments and the government will enforce existing laws to break up underdeveloped land holdings, apparently to turn them over to the poor.

70 per cent of Bolivia’s population is classified living under the poverty level. The majority indigenous population led mass demonstrations during the last 5 years that brought down presidents and shook up the mine and gas industry with demands of nationalization.

Full nationalization of the gas industry, or moves in the petroleum, cannot be complete because Bolivia lacks the ability to tap all its natural gas and petro on its own. Morales told Brazil's Valor Economico newspaper that Bolivia would have to "set up a new battalion, a new army of oil and gas specialists to exert the property right" for a complete state takeover of petroleum production.

The presidents of Argentina, Brazil, Venezuela and Bolivia met last week in the Argentine city Puerto Iguazu to discuss details on the new decree and the effects it will have with Argentina and Brazil. Seperate negotiations continued with the advisors of Bolivia and Brazil and an agreement was made.

Gasoducto del Sur
As a signer of the treaty Bolivarian Alternative of the Americas (ALBA), Bolivia has joined with Venezuela and Cuba to strive for further cooperation and solidarity with in the nations of Latin America. This treaty seeks to strengthen the South American nations by combining its resources, being natural (gas, petroleum, etc.) or human (doctors, teachers, etc.). In November of 2005 President Chavez of Venezuela and President Uribe of Colombia signed a deal that included building a petroleum pipeline between the two countries.

Venezuela has the fifth largest oil reserve in the world, and first in the Americas. Venezuela also has the largest natural gas reserve in the Americas, followed by Bolivia. This is why discussion soon took place with the newly elected Bolivian government on the plan to build a natural gas pipeline that will connect the nations of the southern cone. The heads of state of Argentina and Brazil expressed agreement in building a Gasoduct of the South (Gasoducto del Sur). It is planned to be 8 thousand kilometers long with extensions of 12 thousand kilometers at a cost of an estimated $20 billion.

This will possibly include Peru, Paraguay and Uruguay, but only criticism has been expressed by the government of Bachelet in Chile, who also expressed agreement in signing a free trade agreement with the U.S.

Wave of Nationalism
Bolivia is not the first country in Our America to make this move. Historically it has been done by every nation in South America, reversed by military dictatorships or by the wave of privatizations in the late 1980s and early 1990s that proved disastrous for their economies, Argentina being a prime example.

Last summer, Venezuela, who's oil industry was already nationalized, made moves to take further control and raise royalties on foreign investors. As part of this wave of nationalism is to seek to diversify investors and not relay on solely U.S. contracts. Venezuela has signed contracts with China as part of this move. Bolivia also wants to keep its contracts diverse and is also pursuing deals with China, since the state of California is seeking a large investment in that nation's natural gas industry.

The Ecuadorian Congress last month ratified a hydrocarbons reform law designed to cut into windfall profits of foreign crude producers, among them U.S.-based Occidental Petroleum Corp. The law would give the government 50 percent of oil company profits whenever the international oil market exceeds the prices established in existing contracts. Most of those deals were pegged to 1990s oil prices when crude was worth a fraction of today's market.

The Ecuadorian law sparked sharp reaction from Washington. A U.S. Embassy spokeswoman said recently that the law appeared to violate a bilateral investment treaty between the two nations. But with mass demonstrations led by the indigenous population along with trade unions and students, left the country paralyzed during the month of March. These demonstrations opposed Ecuador signing a free trade agreement with the U.S. and demands for further control of their natural resources. Ecuador's indigenous people have brought down 4 presidents in the last 5 years, so pressure was felt into signing the royalty law and not signing the trade agreement.

The country that has sparked discussion recently is Peru. Ollanta Humala, the nationalist presidential candidate is headed to a runoff election and is receiving large support. Humala, an indigenous, has come out opposing the FTAA and support of the moves that the Bolivian government has made. He said he too would force foreign mining and gas companies to renegotiate new contracts. But his vice presidential running-mate, Gonzalo Garcia, said they would take a less confrontational stance than Morales.

But right now what can be said is: We'll see. There has been a lot of hope with Michelle Bachelet in Chile, but no action or words of support to its neighboring Andean nation.

In the end, the only thing that counts is action, not words.