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Lagniappe
Bolivia’s
Gas Problems
By
Aaron Luoma
Much
of the recent news in Bolivia has been about the ongoing problems
of the Morales Administration is having in implementing its
much-heralded “gas nationalization” decree. The
musical chair dramas of coming and going government gas officials,
revelations about poorly drawn contracts, and a basic lack of
professional capacity at the highest levels have cast real doubt
over how much Morales can really deliver on the centerpiece
of his government so far.
BOLIVIA'S
GAS PROBLEMS
Last Friday,
after just 14 months in office, President Evo Morales named
his fourth president of Bolivia’s state oil and gas company
(YPFB) in just over 14 months in office, Guillermo Aruquipa
Copa. Bolivia’s oil and gas team has been a story of one
turnover after another, including three heads of its regulatory
agency and two energy ministers. The current minister, Carlos
Villegas, submitted his resignation last month, but was talked
into staying by President Morales.
This and
other recent setbacks have left Bolivians questioning their
government’s capacity to manage its all-important oil
and gas industry.
Contract
Problems
Manuel Morales
Olivera (no relation to President Morales), who was replaced
as YPFB president after less than two months at his post, had
faced a wave of criticism over his role in the negotiating of
44 new contracts with 12 foreign oil and gas companies. After
months of tense negotiations, on October 28th of last year the
Bolivian government declared an important milestone in their
nationalization process when the contracts were signed. The
new contracts, approved by Congress on November 28, aim to give
Bolivia a measure of control over its oil and gas and create
higher taxes that would more than triple government revenue
from those of 2004. This critical new revenue would provide
Bolivia with an important source of funds to begin to address
its social and development needs. But almost five months after
their signing, however, the contracts are not yet in force.
Morales
Olivera’s credentials had been questioned from the start.
He had no previous experience in the oil and gas business before
President Morales named him an advisor to YPFB’s president
in January of last year. He did, however, come with significant
party references - his father is a leading member of the MAS
party, and his sister the director of Bolivia’s customs
service. Last October opposition lawmakers accused him of favoring
his father in the awarding of auditing contracts for gas fields.
Then in January, over objections by critics that he was unqualified,
President Morales tapped Morales Olivera to be YPFB’s
president despite a YPFB statute that stipulates that the company's
president should be a professional in the field, and have at
least five years’ leadership experience in the energy
sector.
One of Morales
Olivera’s first moves as YPFB president was to suspend
the implementation of the October contracts, stating that the
state company was unable to “guarantee the necessary conditions
for their implementation," citing transcription errors
that he said did not affect the content of the contracts. On
February 12th the Morales administration proposed an amendment
to Congress to correct errors in 15 of the 44 contracts. The
amendment is being held up by the opposition-controlled Senate
that says there are both errors of ‘form’ and ‘substance’
in the contracts, and the impasse can only be overcome by passage
of further legislation. The Senate is currently holding public
hearings to review the contracts, saying they will take all
the time they need to review in detail all the contracts and
their annexes.
Secret Side
Deals and Havana Nights
Issues of
contention in the October contracts include errors such as incorrect
company names and locations of gas and oil fields, and also
more serious issues that would affect government revenues such
as what company expenses are deductible. In grueling Senate
testimony this past week, both Minister Villegas and ex-YPFB
president Juan Carlos Ortiz said they were unaware that Morales
Olivera, chosen by the Morales administration to head Bolivia’s
negotiating team during the October contract talks, had made
a verbal side agreement with Petrobras (Brazil’s state-private
oil and gas company) in the final moments of negotiations.
The agreement
Morales Olivera made was to “soften,” in the week
after the contracts were signed, an annex that concerns what
expenses by Petrobras are eligible for tax deductions. Morales
Olivera, in his defense, said both Villegas and Ortiz were present
when the decision was made to negotiate a different version
of the annex. Earlier this month Morales Olivera blamed errors
in new contracts on the company’s disadvantage in complex
negotiations with foreign oil and gas companies: “on one
side of the negotiating table sat professionals with 30 years
of experience [in oil and gas], and on our side, people just
30 years old.”
Perhaps
the final blow for Morales Olivera was the appearance in national
media of a series of photographs taken last December showing
him and his negotiating team of young professionals, who call
themselves the ‘rug rats,’ enjoying the beaches
and nightlife of Havana, Cuba. They had just completed a training
seminar at a cost to Bolivian taxpayers of over $40,000. Vice
President Garcia Linera has asked YPFB to justify these expenses.
What’s
Next?
Upon taking
office, the new president of YPFB, Guillermo Aruquipa Copa,
former vice minister of oil and gas exploration, warned that
any further delay in the application of the new contracts could
have grave consequences for the country. He asked that the corrected
contracts be approved this week. But getting the contracts through
the Senate is no sure thing this time around.
On Thursday
opposition party members and Evo Morales’ former first
energy minister, Andres Soliz Rada, called for negotiations
of contracts to start over, stating they were invalid. Roughly
$4 billion in investments are pending, much of which will go
to meet a quadrupling in gas export demand from Argentina, which
are estimated to raise government oil and gas revenues to nearly
$2.5 billion by 2010. It also delays the administration’s
nationalization process, chiefly the buying back of a controlling
interest in the five public-private capitalized companies involved
in exploration, development, refining and distribution that
used to make up YPFB - as mandated by the May 1 decree of last
year.
A Democracy
Center source within YPFB said that the refineries would likely
revert to YPFB control, along with accompanying fuel distribution
duties, this May. If recent history is any guide, however, that
timeline may be overly optimistic. Critics say the government
is asking YFPB to move faster than it can - that the operating
funds and technical capacity are not in place yet to be able
to operate efficiently in and oversee Bolivia’s oil and
gas industry. Fuel shortages in the domestic market and a lack
of spending on social needs and infrastructure, despite windfalls
in oil and gas revenues, have also lead to continuing frustrations
among the Bolivian people.
Minister
Villegas claims the new contracts will net Bolivia $82 billion
in revenue in the next 25 years. But implementing the government’s
nationalization policy that would turn this potential into reality
is no easy task. "We’ve got to turn a ministry that
before only served to sign papers into a body that can design
energy policy," explains Villegas. "We've got to turn
a state company used to only rubber-stamped contracts into the
main operator of a huge industry." To date, Bolivia’s
lack of capacity has become the main impediment to real change.
In testimony
before the Senate last week, former YPFB president Ortiz said
the motive for his January resignation was the constant destabilization
and sabotage carried out by government officials who started
an “information war” against him after he called
attention to the errors in the October contracts. Such in-fighting
does not bode well for YPFB’s prospects of building a
cohesive oil and gas management team that is fully capable of
leading the development of Bolivia’s oil and gas resources.
Aaron
Luoma
is co-author of the chapter on gas for The Democracy Center’s
forthcoming book, "Dignity and Defiance: Stories from Bolivia’s
Challenge to Globalization" (University of California Press,
2008). Here he looks at the current comings and goings of Bolivian
gas politics. )
Petroleumworld not necessarily share these views.
Editor's
Note: This commentary was originally published by The Democracy
Center’s briefing papers, on Monday, March 26, 2007. Petroleumworld
reprint this article in the interest of our readers.
