Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international
politics & civilization.
Sunday
Feature
Political
Conflict over Gas and Oil Tax Distribution
Insight
into Bolivia's gas nationalization - Part
II
By Tina Hodges
The Bolivian government envisions that increased oil and gas
revenues will promote national development and create better
living conditions for the population.[1] According to Vice
President García Linera, the revenue “bonanza” offers “a
historic opportunity to escape from poverty” and requires
the country to “channel resources to invest in production
and industry.”[2] The Ministry of Planning and Development
Ministry reports that the Bolivian people expect the distribution
increased oil and gas revenue will benefit the people, increase
employment, and address inequality and exclusion.[3]
However, the central government alone cannot determine how
and where to invest gas and oil revenues. The 2005 oil and
gas law stipulates that the direct hydrocarbons tax (IDH) should
go to departments, municipalities, universities and indigenous
groups. Unfortunately, the executive further defined distribution
guidelines during a politically tumultuous time resulting in
a system rife with inequities and illogical twists. The 2005
law requires the funds to be used for education, health, roads,
productive development, and projects that generate employment.[4]
Distribution to the departments, as well as the increased revenues,
has economically strengthened the opposition regional governments,
exacerbating existing conflicts with the Morales administration.
On
November 27, the Bolivian legislature approved the Renta
Dignidad,
a monthly pension for Bolivians over age sixty, and
the redistribution of the IDH to pay for it. This move significantly
reduced departmental revenues, angering opposition governors.
They interpret the measure as Morales’ attempt by President
Morales to stem growing departmental power more than as a way
to help the elderly. Administration officials counter that
departments receive a disproportionate share of oil and gas
revenues and do not invest them responsibly.
This
second memo in AIN’s four part series on Bolivian
gas policy and nationalization seeks to explain the revenue
distribution process and the regional conflicts it exacerbates.
Types
of Revenue
The three main types of oil and gas revenue that benefit the
Bolivian public sector are each distributed differently among
levels of government and geographic areas.
- Revenue destined to the state oil company, YPFB
During the contract renegotiation period, 32 percent of revenues
from the largest gas fields went directly to YPFB. Based on
the new contracts, YPFB now receives about four percent of
the remaining revenues after reimbursing the private companies
for their expenses.
As
established by the 2005 law, the 18 percent royalty is comprised
of an
11 percent royalty to the producing department,
a one percent royalty to the least developed departments of
Beni and Pando,[6] and
a six percent royalty to the nation’s general treasury.[7]
This distribution of royalties stems from the thirty year-old
movement for producing departments to receive the benefits
from the natural resources in their territory. It also follows
the precedent of the distribution established under the 1996
privatization.
- Direct Hydrocarbons Tax (IDH)
The distribution of the IDH is more complicated. The 2005
hydrocarbons law, which established the IDH, provides only
minimal guidance on its distribution, leaving it to the executive
branch to determine the distribution of the rest of the income
by supreme decree.[8]
IDH cuts for pension plan stoke regional animosity
Under the 1996 privatization initiative, a portion of oil
and gas company profits went to a special pension fund, called
the BonoSol, (Solidarity Bonus), to Bolivians over age sixty-five.
With gas nationalization, dividends received from the private
companies for this fund dropped to $20 million, well below
the $110 million needed, placing the BonoSol in peril.[9] In
October 2007, the Morales administration proposed cutting the
Direct Hydrocarbons Tax (IDH) received by departments, municipalities,
and universities in order to pay the BonoSol. The plan met
with resistance from departmental and municipal governments
and university students.
The Morales administration then proposed replacing the BonoSol
with a Renta Dignidad (Dignity Pension) that would expand eligibility
to citizens beginning at age sixty[10] and would increase the
amount of the benefit from about $225 to $300 per year (divided
in twelve monthly payments), raising the total needed to $215
million per year. The president proposed financing the pension
with a 30 percent cut in IDH funds from the departments, municipalities,
universities, and the national treasury and submitted the Renta
Dignidad bill to the national congress for approval in mid
October. However, Morales threatened to implement the pension
by supreme decree, if the Senate, in which MAS does not have
a majority, failed to ratify it.
While politically popular among the elderly and MAS supporters,
the initiative encountered strong resistance, marches, and
protests in seven of nine departments of the country.[11] Protestors
were careful to state that they are not opposed to the pension
plan, but that it should be funded from other sources. The
elderly, supported by social sectors, marched in support of
the Renta Dignidad. Influential unions also came out in favor
of the plan.[12] The sheer number and size of protests, as
well as confrontations with police, arrests, injuries, and
strong rhetoric, indicate the high regional passion surrounding
the issue.
Upping the ante further, the Morales administration passed
Supreme Decree 29322 on October 24, increasing the portion
of IDH funds to municipalities from 34.5 percent to 67 percent,
while decreasing the departmental share from 56.9 percent to
24.4 percent. Combined with the 30 percent cut to fund the
Renta Dignidad, this amounts to more than a 60 percent cut
in IDH resources available to the departmental governments.[13]
The 30 percent Renta Dignidad cut to municipal budgets would
in effect be offset by the increase in the municipal share
of IDH funds, leaving the municipalities no worse off by the
pension plan. Also, Morales dropped the proposal of cutting
IDH funds from the universities, leaving the departmental governments
with the only reduction in funding. The Morales administration
justified the change in distribution as in line with the decentralization
policy that brings decision-making closer to the population.
On November 27, MAS legislators, and a handful of other members
of congress, passed laws in the absence of opposition representatives,
to approve the Renta Dignidad[14] and the corresponding IDH
cuts to the departments, as well as other controversial measures.
Pressured negotiations created illogical IDH distribution
The
fight over the pension plan and IDH cuts is the most recent
conflict
created by an oil and gas revenue distribution that
suffers from inequities and lacks a clear logic. The interim
Rodriguez administration instated the majority of the distribution
guidelines at during of political turmoil. Rodriguez came to
power after protests led to President Mesa’s 2005 resignation.
The decisions were made under intense pressure with multiple
competing demands.
An
editorial in the Bolivian newspaper, La Prensa, explained: “In
the middle of the crisis and a lack of State authority, all
of the sectors able to mobilize segments of the population
demanded a piece of the pie, which set off a greedy scramble
between the departments, municipalities, police, armed forces,
and universities. The result was the consolidation of a totally
irrational and inequitable revenue distribution system that
amplifies asymmetries and inequalities in the country.”[15]
President Rodriguez promulgated three supreme decrees between
June and October 2005, creating a complex and illogical system
for distributing the IDH.[16] The decrees allocate 12.5 percent
of the tax to be divvied up among producing departments based
on their production and 6.25 percent to each non-producing
department. Under the first decree three of the four oil and
gas producing departments received fewer funds than the non-producing
departments. A second decree corrected this situation, granting
all departments, except Tarija, equal shares of the revenues.[17]
Tarija receives more revenue because it is the largest producer
with 68% of the total dollar value of oil and gas production
in Bolivia in 2006. In terms of production, Tarija is followed
by Santa Cruz, at 16%, Cochabamba, at 13%, and Chuquisaca,
at 3%.[18]
Municipalities received 34.38 percent of departmental funds,
based on population, and 8.62 percent went to public universities.[19]
The decree also destines five percent of departmental taxes
to set up a compensation fund in the most populous departments,
La Paz, Santa Cruz, and Cochabamba. This extra income goes
to the municipalities within these departments. Finally, the
decree sets aside five percent for an indigenous fund, five
percent for an internal national development fund and an amount
to be determined annually through the budget process for the
armed forces and police. The remainder flows to the national
treasury.[20]
See Appendix I for a chart showing funding to each entity
and Appendix II for a map showing the departments and key political
data.
Uneven distribution creates disparities
The IDH distribution is not equitable when judged on the basis
of departmental production nor on the basis of population size.
As explained above, three of the four producing departments
receive the same amount as the non-producing departments. Each
department receives the same amount of IDH funds for its departmental
government, regardless of population, with the exception of
Tarija, the largest gas producer. Each department also receives
the same amount of IDH funds for all of its municipalities,
with the exception of the three most populous departments,
which receive slightly more from the compensation fund, and
again Tarija. Municipalities within each department obtain
funding based on population. Thus, municipalities in departments
with smaller populations receive more per capita than those
in departments with larger populations.
Therefore, on a per capita basis, revenues vary greatly across
the country, as shown in the graph above. The department of
Pando, with a tiny population and no gas production, receives
over $1000 per capita in IDH and royalties while Santa Cruz,
a populous gas producing department, receives $58 per capita.
Tarija receives nearly 20 times more per capita than does La
Paz. Ironically, the citizens of La Paz department were the
most active in protests demanding gas nationalization, but
benefit least from the revenues.
More
equitable distribution systems have been applied in Bolivia.
For example,
population determines how much general tax revenue
municipal governments receive. The World Bank’s Highly
Indebted Poor Countries (HIPC) program uses a formula to destine
additional monies to municipalities with higher numbers of
poor people.[21]
In addition to the horizontal disequilibrium between departments,
there are also vertical inequalities. The majority of the IDH
goes to the departments and municipalities, while the Bolivian
national government retains 29 percent. The national government
continues to run a deficit of $390 million. Meanwhile the departments
and municipalities have not been able to spend all of the oil
and gas revenues allocated to them and are have a surplus of
$650 million.[22]
This disparity has created impediments for the national government,
which bears the bulk of responsibility for public expenditures,
including for areas slated to benefit from the IDH, such as
education, health, and roads. For instance, the central government
pays teacher and health worker salaries. There is a great need
to increase these extremely low salaries to recruit and retain
qualified individuals.[23]
The distribution logically benefits the producing departments
for resources extracted from their territory, but it does not
assure preferential treatment to the localities where exploitation
takes place. The greatest negative environmental impacts of
exploitation occur at the local, rather than departmental,
level.
Finally, YPFB receives insufficient funds to develop the company
and make future investments. Under the 1996 law, YPFB received
one third of the 18 percent royalty, yet the 2005 law does
not dedicate any revenues to YPFB. The congress that approved
the 2005, elected at the same time as Gonzalo Sanchez de Lozada,
showed little interest in investing in the state company.[24]
YPFB does receive an estimated four percent of revenue based
on contract terms.[25] However, the percent of oil and gas
revenues dedicated to rebuilding YPFB does not match the high
expectations for the state company.
The Morales administration faces the political challenge of
reforming the illogical and inequitable distribution system
it inherited. Unfortunately, the IDH redistribution instituted
by the Morales administration to fund the Renta Dignidad further
complicated revenue distribution without addressing fundamental
inequities. In order to stem resistance and clarify IDH distribution,
the administration must educate the population about the problems
with the current distribution. A strong, equitable proposal
that interlocks with a clear development plan could help the
nation realize its vision of gas revenues spurring development.
Finally, the distribution of IDH should be defined under law
and approved by congress in order to avoid conflict and ensure
more budget certainty for departmental and municipal governments.[26]
* AIN researcher Emily Becker contributed to this report.
Appendix I: Distribution of Oil and Gas Revenue in
Bolivia [27]
Comparison of Oil and Gas Income Before and After Nationalization
(In Millions of US Dollars)
Ley = Law
D.S. = Supreme Decree
PART YPFB = Revenue to State oil and gas company YPFB
IDH = Direct Hydrocarbons Tax
REG Y PART TGN = Royalties and other revenue to the national
general treasury
Distribution of Royalties and IDH by Department, 2004 to 2007
(In Millions of US Dollars)
Regalía y Participaciones TGN = Royalties
and other income to the national general treasury
IDH: TGN y Fondo Indígena = Direct Hydrocabons Tax:
National General Treasury and Indigenous Fund
YPFB Por DS Nacionalización = Income to YPFB because
of Nationalization Supreme Decree
Distribution of Royalties and IDH by Department, 2004 to 2007
(In Millions of US Dollars)
Regalía
Departmental = Departmental Royalty
IDH = Direct Hydrocarbons Tax
Prefectura = Departmental Government
Univ = University
Municipio = Muncipality
Depto = Department
Appendix II: Map of Bolivia and Comparison of Departments
Map is courtesy of the University of Texas Libraries, The
University of Texas at Austin.
Comparison
of Departments
Department |
Party
of Prefect |
Passed
Autonomy Referendum |
%
of total population, 2001 |
%
of oil & gas production, 2006 |
%
of IDH and Royalties, 2007
|
| Chuquisaca |
MAS |
No |
6% |
3% |
7% |
| La
Paz |
Opposition |
No |
28% |
0% |
9% |
Cochabamba
|
Opposition |
No |
18% |
13% |
11% |
| Oruro |
MAS |
No |
5% |
0% |
6% |
| Potosi |
MAS |
No |
9% |
0% |
6% |
| Tarija |
Opposition |
Yes |
5% |
68% |
30% |
| Santa
Cruz |
Opposition |
Yes |
25% |
16% |
15% |
| Beni |
Opposition |
Yes |
4% |
0% |
8% |
| Pando |
Opposition |
Yes |
1% |
0% |
7% |
1. República de Bolivia, Ministerio de Hidrocarburos
y Energía, Nacionalización en el siglo XXI, May
2007, p188.
2. Ibid, p249. Unofficial translation.
3. Author interview with Marcelo Martínez Céspedes,
Expert in International Commerce and International Relations,
Ministry of Planning and Development, October 25, 2007.
4. Law 3058, Article 57.
5. In addition to the three main types discussed here, consumer
taxes such as the value added tax and the Impuesto Especial
Directo a los Hidrocarburos (IEDH) also apply. This report
does not focus on the consumer taxes as they did not change
with the nationalization.
6. This one percent is split between the departments of Beni
(two-thirds) and Pando (one-third).
7. Law 3058, Article 52.
8. Law 3058, Article 57. The law states that at a minimum,
4 percent of the tax must go to each producing department (Tarija,
Santa Cruz, Cochabamba, and Chuquisaca) and 2 percent to each
non producing department. It then provides that the executive
branch will determine the distribution of the remainder.
9. La Prensa, October 25, 2007.
10. During the privatization process, the minimum retirement
age went up from 55 to 65 at a time when the average life expectancy
at birth was around 59.81. According to the current CIA World
Factbook, the average life expectancy in Bolivia is currently
66.19 years. November 15, 2007.
11. La Prensa. “Las movilizaciones por el IDH se extienden
por 7 regiones.” October 26, 2007.
La Prensa. “Marcha Cruceña por IDH acaba con líos,
hay mas presiones.” October 25, 2007
12. La Razón. “Sindicalistas apoyan el recorte
a las 9 prefecturas.” October 31, 2007.
13.
ABI. "Renta Dignidad se pagará desde fines
de enero de 2008 y se garantiza por 50 años."November
28, 2007.
14. Ley 3791
15. Gregorio Lanza, “El pecado original del IDH,” La
Prensa, October 16, 2007. Unofficial translation.
16. Supreme Decree 28223 of June 2005, Supreme Decree 28333
of September 2005, and Supreme Decree 28421 of October 2005.
Other legal documents governing the distribution of the direct
hydrocarbons tax include Law 3058, Law 3322, Supreme Decree
28701, and Supreme Decree 29322.
17. The first decree stipulates that the largest producer,
Tarija, received most of the 12.5 percent destined to producing
departments. Production determined the distribution of the
remainder (12.5 percent) to the Santa Cruz, Cochabamba and
Chuquisaca. They received far less than the 6.25 percent allocated
to each non-producing department.
18. Figures for 2006. Computed from royalty figures found in:
República de Bolivia Ministerio de Hidrocarburos y Energía,
Nueva Política Hidrocarburífera del País:
Distribución de I.D.H., Regalías, y Participaciones,
La Paz, Bolivia, March 2007, p4-6.
19. Decreto Supreme 28421. The 2007 changes to IDH distribution
did not affect the universities’ share.
20. Ibid.
21. Author interview with Diego Cuadros Anaya, Coordinator
of Planning, Oversight, and Evaluation, Vice Ministry of Decentralization,
Ministry of the Presidency, October 26, 2007.
22. Autor interview with René Martínez, Fundación
Jubileo, October 25, 2007.
23. Ibid.
24. Autor interview with Roberto Fernández, Centro
de Estudios Superiores Universitarios, Universidad Mayor
de San
Simon (CESU-UMSS), October 12, 2007.
25. YPFB also received 32 percent of revenues from the largest
gas fields while the contracts were under negotiation.
26. Author interview with Jose Padilla, Santa Cruz Departmental
government, October 18, 2007. Author interview with Elizabeth
López, Red Umavida, October 25, 2007.
27. República de Bolivia, Ministerio de Hidrocarburos
y Energía. Nueva Política Hidrocarburífera
del País, Distribución de IDH, Regalías
y Participaciones. La Paz, March 2007. Author’s translation.
28. Population data from Instituto Nacional de Estadistica,
2001 Census.
29. Oil and gas production and IDH and royalty figures are
from the Ministerio de Hidrocarburos y Energía.
Tina
Hodges is WOLA program Assistant for Mexico and the
Andes. AIN researcher Emily Becker contributed to this report.
The Washington Office on Latin America ( WOLA) is funded by
foundations, religious organizations, and individuals. Petroleumworld
not necessarily share these
views.
Editor's
note:This
article was originally published by Andean Information Network,
on Tuesday, 04 December 2007. Part I : Background
on Bolivian Oil and Gas Policy, Current Conflicts, and Challenges was
publish on PW Nov. 25, 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.
Fair use Notice: This site contains copyrighted material the
use of which has not always been specifically authorized by
the copyright owner. We are making such material available
in our efforts to advance understanding of issues of environmental
and humanitarian significance. We believe this constitutes
a 'fair use' of any such copyrighted material as provided for
in section 107 of the US Copyright Law. In accordance with
Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with
Title 17 U.S.C. Section 107, this material is distributed without
profit to those who have expressed a prior interest in receiving
the included information for research and educational purposes.
Petroleumworld has no affiliation whatsoever with the originator
of this article nor is Petroleumworld endorsed or sponsored
by the originator.
Petroleumworld
encourages persons to reproduce, reprint, or broadcast Petroleumworld
articles provided that any such reproduction
identify the original source, http://www.petroleumworld.com
or else and it is done within the fair use as provided for
in section 107 of the US Copyright Law. If you wish to use
copyrighted material from this site for purposes of your own
that go beyond 'fair use', you must obtain permission from
the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated.
