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Bolivia Moves to Nationalize Oil and Gas Industries

May 2, 2006 at 6:20 PM EDT
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RAY SUAREZ: It was a dramatic gesture by South America’s newest populist leader. Late yesterday, Bolivia’s president, Evo Morales, sent soldiers into his country’s natural gas fields and declared that he was nationalizing the gas and oil industries.

PRESIDENT EVO MORALES, Bolivia (through translator): The property of this oil and natural gas passes from this moment into the hands of the state of Bolivia, under the control of the Bolivian people. This is the solution to the social and economic problems of our country.

Once we have recovered these natural resources, this will generate work; it is the end of the looting of our natural resources by multinational oil companies.

RAY SUAREZ: The response came quickly, especially in Europe. Many of the energy firms facing nationalization are either European or Brazilian. A European Union spokesman had this to say.

JOHANNES LAITENBERGER, E.U. Spokesman: We would have liked to see here a process of prior consultation and discussion on any proposals before their adoption, and we are now analyzing the situation created by this decree.

RAY SUAREZ: Under the terms of the decree, some 25 private gas companies have six months to renegotiate their contracts with the Bolivian government or be expelled, and they will be forced to sell at least 51 percent of their holdings to the state.

Bolivia is one of Latin America’s poorest nations. Most of Bolivia’s 9 million people get by on less than $2 a day. The country sits in the Andes Mountains, landlocked by Peru, Chile, Argentina and Brazil. Bolivia is rich in oil and gas reserves, the second largest in South America after Venezuela.

The fate of Bolivia’s energy reserves has been a hot-button issue in the country. It saw two presidents ousted by popular uprisings in three years.

Morales won office in 2005 on promises to improve the situation for the poor by reclaiming the country’s natural gas resources. The move by Morales is his latest gesture of solidarity with other Latin leftists, notably Cuba’s Fidel Castro and Venezuela’s Hugo Chavez. They met last month and vowed to try to reduce U.S. influence in the hemisphere.

Fulfilling a campaign promise

Mark Weisbrot
Center for Economic Policy and Research
They have a very strong legal argument that the privatization that took place in the mid-'90s was not constitutional... So, from their point of view, this isn't quite as radical as it appears on the news here.

RAY SUAREZ: For more on the Bolivian president's move, we're joined by Mark Weisbrot, co-director of the Center for Economic Policy and Research, an organization that promotes debate on economic and social issues in the U.S. And abroad.

And Enrique Alvarez, Latin American strategist for the research firm IDEAglobal.

Mark Weisbrot, why did this happen? Why did Evo Morales make this move?

MARK WEISBROT, Center for Economic Policy and Research: Well, first of all, he promised. This was one of the reasons that people voted for him, and he got a mandate -- 54 percent of the electorate -- which was a record for at least 20 years in high voter turnout, as well. And so this was one of the things that people were demanding.

And they need the money. They've promised also to -- for example, they've created a water ministry. They want to provide clean water to the millions of Bolivians that don't have access to clean drinking water.

It's a poor country, as you noted in the introduction, so this is a way for the state to get some of the revenues that they used to have in the past. You know, that's the other thing. If you look at it from the Bolivian perspective, this is not so much a nationalization as a return to constitutionality.

They have a very strong legal argument that the privatization that took place in the mid-'90s was not constitutional, that the contracts, for example, with these companies are supposed to be approved by Congress, according to the constitution, and they weren't. So, from their point of view, this isn't quite as radical as it appears on the news here.

RAY SUAREZ: Enrique Alvarez, fulfilling a campaign promise and a return to constitutionality?

ENRIQUE ALVAREZ, IDEAglobal: Well, I think that, essentially, fulfilling a campaign promise is exactly correct. You cannot see this event as something that was unexpected.

It was totally outlaid by Morales in his campaign; he ran on this, even before becoming an actual presidential candidate. He had spoken strongly about the need to nationalize the petroleum and, in particular, the natural gas fields.

Now, beyond that, I don't really think that the constitutional aspect here is totally in favor of the Bolivian government. There were laws that were given to favor foreign investors and other dedication and exposure to the sector, and those laws have now been violated.

And, for all practical purposes, foreign investors are really here on the defensive, because they only have 180 days to comply with Mr. Morales' newfound or new imposed structure in the oil sector. Otherwise, they basically lose all their investment.

Taking complete control?

Enrique Alvarez
IDEAglobal
Mr. Morales has tagged the companies that basically exploit or explore the sector in Bolivia with new taxes, a very high 82 percent tax ratio for the companies that explore or exploit natural gas fields...

RAY SUAREZ: Piggy-backing on that point, is this a classic nationalization, where the government comes in and basically seizes everything, not only the fields, but the capital equipment used to extract the resource, the equipment used to ship it, and so on?

ENRIQUE ALVAREZ: Well, from my understanding, I don't believe that it's a classical nationalization, in the '60s or '70s sense, where basically everything was expropriated and the companies were expelled immediately the following day. I think here a period has been given to renegotiate contracts.

The real problems that exist is that, essentially, Mr. Morales has tagged the companies that basically exploit or explore the sector in Bolivia with new taxes, a very high 82 percent tax ratio for the companies that explore or exploit natural gas fields with more than 100 million barrels or tonnage of production per day.

So this is going to be an essential, a key point going forward, as far as having foreign firms complying with this measure and going forward in attempting to deal with Mr. Morales.

RAY SUAREZ: Mark Weisbrot, is that an important distinction for you, that this is not wholesale confiscation, certainly enforced, but a renegotiation of the terms under which these companies operate in Bolivia?

MARK WEISBROT: Well, sure, I don't see any confiscation. They've raised the royalty or the tax, and these companies will still be able to make a profit there.

And, you know, you see this going on throughout the region; this isn't just Bolivia, for example. You saw this in Venezuela. The government -- well, first, they had to fight the government just to control their own -- to get control of their own nationalized oil industry. Then, they had to renegotiate some of the contracts with the foreign companies.

But those companies are still there. The biggest companies, Exxon-Mobil, Chevron, Texaco, they're not going anywhere, and I don't expect that these companies will go away, either.

They'll be able to still make money. They won't make the kind of super-profits that you see the big oil companies making today, for example, big U.S. oil companies, but they'll still be able to make money.

And, again, it is, from their point of view, not only a constitutional right for them, but also this is really democracy. I think we've gotten used to -- here in Washington especially people have gotten used to the idea that people have elections in South America, and it doesn't make any difference what the candidates promise, what people vote for, that there just going to go ahead and do the same things, whatever Washington wants, what the foreign companies want.

And in the last five or six years, it's really a very changed picture. You're seeing not only, again, in Venezuela, in Bolivia, and now in Ecuador they're going to renegotiate some of their contracts, in Argentina, you see a change.

Also, because there's been a change in the overall control over policy in the region. You used to have the IMF was an extremely -- the International Monetary Fund was a very powerful force in the region, and it isn't anymore. And so these individual companies are not as strong as they were before.

Not a unique example

Map of Bolivia

RAY SUAREZ: Enrique Alvarez, how do you respond to those two points, that this is something that's happening all over the continent, and that the players remain, just under the new terms, so that these governments just do get more money in return for the resource?

ENRIQUE ALVAREZ: Well, I think there's an issue at hand here and it's called the global rally in commodities prices, essentially. That's what's motivating this pull or push for renegotiated terms on contracts that are already in existence.

Yes, it has been something of a feature throughout the region. It's been done in Venezuela. It was also done in Ecuador, but it's still not completely resolved, but that does not necessarily mean that the rule of law has been upheld here.

In Venezuela, basically a period was given for renegotiation of contracts. And, in essence, the foreign firms were stripped of most of their exploration rights that they had been given. And now the majority shareholder in joint enterprises, which have been formed by force, essentially, is the Venezuelan government through PDVSA.

Ecuador's case is somewhat different. All they want is a larger share of petroleum-priced markup in their relationship with foreign firms.

But, nonetheless, the point here is that higher commodity prices throughout the world have essentially motivated domestic governments to attempt to gain further participation in what had been basically a business dedicated or run by foreign firms, due to the high need for investment in the sector, which really hadn't been something that the governments throughout the region could afford.

RAY SUAREZ: Let me get your quick response to Mr. Weisbrot's point that this is also a consequence of politics, that voters in South America are electing governments that are empowered by the ballot box to go and do these things.

ENRIQUE ALVAREZ: Well, I would concur in that sense. There are a number of elections that have occurred or are still without resolution, in the case of Peru, that essentially point to the fact that voters disenchanted, perhaps, with free market-type policies in the region are pushing for greater state participation or greater gains by the population at large from the exploitation of natural resources.

This has not, at least visually, been something that's been evident to voters throughout the region, and that's why this push has been sustained, so I would agree with the second point.

Making capitalism work

RAY SUAREZ: Mark Weisbrot, isn't there also a risk? You say that this is a consequence, that elections have consequences, but is there also a risk for Bolivia and other countries taking this course that it'll also discourage inward investment, that companies that find themselves stripped of the rights granted to them by long-term concessions, stripped of a predictable investment horizon will say, "You know, it's just too hot to go into Bolivia; I'm not sure my money is safe there"?

MARK WEISBROT: Yes, I think these kinds of Chicken Little theories you see a lot are quite exaggerated. You know, they said this about Argentina three years ago, for example.

They took a very hard line against their foreign creditors. They stood up to the IMF, even temporarily defaulted to them. They imposed an export tax. They had a confrontation with the foreign utility companies. They did all the things that they were supposed to be punished for, and they've had 9 percent annual growth for three years now.

In fact, the two fastest growing economies in Latin America today in the hemisphere are Argentina and Venezuela.

And you also have to remember that all of these governments are responding to the worst economic failure in Latin America in more than a century. The last 25 years have shown the worst economic growth -- you have to go all the way back to even find a period close to this bad, this 13 percent per capita growth that you've had, according to the IMF's latest numbers, you have to go back to 1905 and pick a period that includes the Great Depression and World War I.

So that's what these governments are doing; they're trying to find a way to make capitalism work.

RAY SUAREZ: Mark Weisbrot, Enrique Alvarez, thank you both.

ENRIQUE ALVAREZ: Thank you.