Latin
America's New Petro-Politics
By
Nadia Martinez
In his 2006 State of the Union address, President
Bush famously stated that “America is addicted to oil.” He soon
followed that proclamation with an announcement that his solution
to the addiction is to diversify U.S. sources of oil — not
to diversify away from oil with clean, renewable sources of
energy.
That is sure to mean increased U.S. political attention to
Latin America. Oil multinationals are already looking to intensify
drilling operations in Latin America, because that’s
where the oil is. The U.S. government and oil and gas companies
are likely to pressure Latin American countries like Mexico,
Venezuela, Colombia and Ecuador — already major suppliers
of oil to U.S. markets — to ramp up production and to
exploit new oil and gas fields. And Big Oil is likely to propose
new exploration and development projects in Costa Rica, Nicaragua,
Panama, Bolivia and Peru as the industry struggles to maintain
a steady flow of energy resources to the North.
But the political landscape is rapidly evolving in Latin America,
with traditional docility to U.S. economic and political demands
giving way. As Latin American citizens express their discontent
with conservative economic policies by electing more left-leaning
leaders, countries are increasingly turning away from multinational
energy companies and shifting their energy policies inward,
nationally and regionally.
That approach is not likely to sit well with policymakers
in Washington, or industry executives in Houston.
The Failure of Corporatization
Although Venezuelan President Hugo Chavez has
become the Bush administration’s least favorite pundit, he is one of
several new leaders in Latin America who are vowing to run
their countries differently than their predecessors, and becoming
very popular because of it. Behind Chavez’s blunt style
and provocative speeches, such as the one at the United Nations
when he referred to President Bush as the devil, is a discourse
that is resonating with voters from Mexico to Argentina. Particularly
the poorest Latin Americans see in leaders like Chavez a sign
of hope for improving their deteriorating conditions.
In the early 1990s, under the influence of the International
Monetary Fund (IMF) and the World Bank, Latin American countries
embarked on a series of free-market economic reforms. Central
to the economic reform package was the privatization of a range
of formerly state-owned industries, from phone companies to
electric utilities to oil and gas companies.
The “Washington Consensus” policies of privatization,
deregulation, reduced labor rights, opening to foreign trade
and investment, and orienting economies to exports were a failure
for Latin America’s people. The Washington, D.C.-based
Center for Economic Policy Research’s “The Scorecard
on Development” found that for low- and middle-income
countries in the region, the last 25 years have seen sharply
reduced economic growth as well as setbacks in health and education,
when compared with the two decades before 1980.
But the Washington Consensus policies did benefit a narrow
elite and foreign investors. Multinational companies, especially
those in major industries like oil and gas, were able to acquire
privatized government-owned enterprises on the cheap and secure
outrageous profits.
Latin American energy markets really opened
to multinationals with the privatization of Argentina’s national oil company,
Yacimientos Petroliferos Fiscales (YPF), in 1993. Similarly,
in 1995, Venezuela began opening up parts of its petroleum
sector to foreign investment, including the Orinoco Belt’s
heavy-oil deposits — the world’s largest petroleum
reserve. Brazil swiftly liberalized its oil industry through
a constitutional amendment — the Brazilian constitution
had prohibited foreign involvement in oil and gas — and
in 1998 began offering several lease agreements to private
oil companies to tap into Brazil’s offshore oil reserves.
The case of Bolivia illustrates how large corporations,
often foreign companies, reaped huge benefits from privatization
at the expense of Latin American governments and people. Bolivia
has the second largest gas reserves in South America, after
Venezuela. The Bolivian Constitution declares that all hydrocarbons
are property of the state, but in the mid-1990s, the IMF demanded
the government permit the sale of oil and gas concessions to
foreign companies. Bolivia complied. All of the country’s
gas transportation networks were sold to a consortium owned
by Royal Dutch Shell and the now-defunct Enron. Other corporate
winners included BP-Amoco, British Gas, Australia’s BHP,
Spain’s Repsol and Petrobras, the Brazilian state-owned
oil company. The deal allowed foreign corporations in the oil
and gas business, gave them a majority share in previously
state-owned companies and, at the same time, lowered the government’s
share of profits from the operation to a mere 18 percent, a
steep drop from the previous 50 percent.
In October 2003, then-President Gonzalo Sanchez
de Lozada fled the country amidst massive popular protests.
Already disenchanted
by his earlier privatization policies, Bolivians rose up to
block yet another gas export deal, known as Pacific LNG. (That
the project was meant to transport gas to Mexico and the United
States via Bolivia’s archrival, Chile, didn’t help.
The enmity dates back to 1884, when Chile swiped Bolivia’s
only coast following the War of the Pacific, leaving the nation
landlocked.) The project was halted and the episode became
known as the “gas war.” Subsequently, calls for
the government to retake control of Bolivia’s resources
expanded and gained strength. By the 2005 election, eventually
won by Evo Morales, every single major candidate for president
was offering significant reforms in the oil and gas sector.
Resource Sovereignty
After decades of dictatorship and civil war,
it is no small feat that democratic elections have been held
throughout Latin
America in the last two decades. New, non-traditional leaders — like
a coca farmer in Bolivia, a former metal worker in Brazil,
a torture survivor in Chile, and socialists in Uruguay and
Venezuela — have been elected president in countries
throughout the region. In Bolivia, Evo Morales won the presidential
election in December 2005 with a stunning 54 percent of the
popular vote. No president in Bolivia’s fractured electoral
history had achieved even close to that support. In Venezuela,
Chavez won another term in 2006 with 60 percent of the vote
in an election where an impressive number of voters — nearly
75 percent — went to the polls.
These votes offered an explicit mandate for
the new leaders to bring about significant change. In Bolivia,
reasserting
control of the oil and gas industry was one of the main issues
of the election campaign. Shortly after taking office, Morales
announced a decree nationalizing Bolivia’s hydrocarbons.
Government negotiators met an established six-month deadline
to rewrite existing contracts with oil and gas companies. The
new contracts will direct between 50 and 80 percent of oil
profits to the government, according to Gretchen Gordon of
the Democracy Center in Bolivia. The government’s oil
revenues will rise an estimated $1.3 billion in 2007, increasing
to roughly $4 billion by 2011. “The challenge will be
ensuring that those resources are used effectively to improve
people’s lives,” Gordon concludes.
In Venezuela, the government has significantly
increased royalties and cracked down on oil companies for
underpayment of income
taxes. During his re-election campaign, Chavez promised to
expand his “socialism for the 21st century” program,
which requires the government to take a dominant role in the
economy and in the provision of social welfare programs, funded
largely with oil revenues. Immediately after Chavez started
his new term last year, the Venezuelan government resumed attempts
to re-negotiate several oil contracts signed with a number
of oil majors in the 1990s — including ExxonMobil, ChevronTexaco
and ConocoPhillips — and to replace them with more favorable
joint-venture agreements dominated by the state-owned oil company,
known by its Spanish acronym PDVSA.
In
July 2007, all the international companies doing business
in Venezuela’s Orinoco oil belt agreed
to negotiate new contracts with the Venezuelan government.
ChevronTexaco* and
ExxonMobil, however, announced that they would cease their
Venezuelan operations. Both have reserved the right to seek
compensation through international arbitration.
In Ecuador, calls for redistributing oil revenues
are high on the agenda of newly elected President Rafael
Correa. Oil
revenues account for approximately one-third of Ecuador’s
national budget and over 40 percent of its export earnings.
However, “the largest portion of the revenue from oil
exports goes to servicing the country’s massive debt,” explains
Debayani Kar of the Jubilee USA network. “This leaves
few funds that can be allocated for social infrastructure and
development, while creating an incentive for the country to
pump more oil,” she says. Correa has vowed to renegotiate
contracts with foreign oil companies to ensure that a greater
share of the oil wealth goes into the national treasury. He
has also offered to leave some oil in the ground — to
lessen global warming and protect endangered areas — if
Ecuador’s debt is cancelled.
Efforts like those of Chavez, Correa and Morales
to garner greater control over their countries’ profitable oil
businesses and to spread the industry’s economic benefits
have been extremely popular in resource-rich but economically
poor countries throughout Latin America. High global oil prices
mean that governments obtaining a sizeable chunk of oil profits
will be able to fund a variety of social programs to assist
the poor. The power flowing from exerting greater control of
oil at a time of high prices has also emboldened leaders to
openly distance themselves from Washington, and to seek to
diminish the traditional U.S. dominance in the region by reaching
out to other allies in the international community, and by
increasing regional ties.
Regional Petro-Politics
Given the likely prospects for continued unrest in the Middle
East, analysts expect Latin America to be the fastest-growing
oil producing region in the world in the coming years. However,
domestic demand is also likely to increase significantly. Large
and rapidly growing countries like Brazil, Chile and Argentina
are already experiencing energy shortages and thus looking
for ways to ensure steady supplies of resources to meet their
demand. At the same time, as energy producers and exporters
like Venezuela, Bolivia and Ecuador look to diversify their
markets, they are increasingly looking to regional buyers.
Governments have been moving to forge stronger
regional ties. Venezuela has signed agreements with Central
American and Caribbean
countries to supply discounted oil and other petroleum products,
often in exchange for something else. Cuba, for example, provides
Venezuela with thousands of highly skilled professionals, teachers
and doctors, who work in the poorest areas of the country.
After long and difficult negotiations, Bolivia and Brazil reached
an agreement for Brazil to purchase Bolivian gas at rates many
times higher than the discounted rates it had been paying. “Brazil’s
President Lula was criticized by his opponents for being too
soft on Bolivia and allegedly playing ideological politics,” explains
Lucia Ortiz of Friends of the Earth in Brazil. “In the
end, agreeing to pay the global market price for gas is only
fair, but it does show that there is a level of solidarity
among Latin American countries that wasn’t there before.”
The 12 South American countries have come together
to create the South American Union (known as Unisur), in
a process similar
to the one that launched the European Union. Although the Unisur
agenda includes myriad issues upon which its members are attempting
to find common ground, energy integration is at the top of
the list. One such proposal is to merge the region’s
oil and gas companies into one.
Led by Venezuela, the region’s energy ministers in 2005
officially endorsed the concept of a strategic alliance of
state-owned oil companies to manage and operate all aspects
of the energy sector. According to its founding declaration,
PetroAmerica, as it is called, “will integrate Latin
America and the Caribbean on principles of self-sufficiency,
and re-invest profits into development and social programs.” This
ambitious undertaking is already taking shape, particularly
through its Caribbean subsidiary, PetroCaribe, which has established
a formal structure that includes a board comprised of the members’ energy
ministers, as well as a secretariat, and is already carrying
out several joint projects.
The Democracy Alternative
Although Latin Americans have generally welcomed
these initiatives — and
the wider regional strategy — to become less dependent
on the United States and strengthen regional ties, some plans
have been criticized as too reminiscent of business-as-usual.
For example, environmental and indigenous rights
advocates are already sounding alarm bells about plans to
build a 10,000-mile
pipeline from Venezuela to Argentina through the Brazilian
Amazon. “It is really worrisome that this project is
being talked about as a done deal, without a comprehensive
process of public debate and consultation,” warns Maria
Eugenia Bustamante, director of Amigransa, a citizens group
for the protection of the Gran Sabana national park in Venezuela. “This
project will directly impact some of the most vital ecological
areas in this part of the world, including the Guyana Shield
and the Amazon Rainforest.”
Brazil has recently expressed reservations
about going forward with the project. Venezuela’s Chavez has declared that
the project is currently “frozen,” but that he
remains committed to finding ways to make it happen.
As governments attempt to find ways to free themselves from
the shackles of past economic failures and to chart a new path
for the betterment of their peoples, their greatest challenge
will be achieving a true transformation that also makes social
and environmental concerns a central pillar. While they need
revenue to carry out social welfare programs and to create
jobs that will revive the economy, advocates are calling on
Latin American leaders to be keenly aware of the negative impacts
that often accompany an oil-based economy.
Other challenges will emerge as regional integration
moves forward, threatening the oil multinationals of the
United States.
The Bush administration, for example, is scrambling to ensure
that the United States isn’t fully left out. In what
some see as a move to counter Venezuela’s collaboration
with its neighbors, President Bush offered Brazil an energy
deal for the production and trade of biofuels — a controversial
alternative energy source — during a visit to Latin America
in March 2007. The United States and Brazil are already the
world’s largest ethanol producers, and it is estimated
that demand for the fuel\ will face a significant increase
worldwide.
Throughout the developing world, oil has correlated with imperial
subjugation, local authoritarianism and human rights abuses.
As Latin America’s new wave of democracy consolidates,
Latin Americans are seeking to disrupt this equation. If they
can achieve positive change without excluding dissenting opinions
from public debate, the region’s countries could even
become the world’s most authentic democracies.
* It should read ConocoPhillips and not Chevron ( Petroleumworld's
Editor)
Nadia
Martinez is co-director of the Sustainable Energy and Economy
Network (SEEN), a project of the Institute for Policy
Studies in Washington, D.C. Petroleumworld
not necessarily share these views.
Editor's
Note: This commentary was originally published in Multinational
Monitor ,
on Oct. 2007.
Petroleumworld reprint this article in the interest of our readers.
All
comments posted and published on Petroleumworld, do not reflect
either for or against the opinion
expressed in the comment as an
endorsement of Petroleumworld. All comments expressed are
private comments and do not necessary reflect
the
view of this website. All comments are posted and published
without liability to Petroleumworld.
