Bolivia threatens gas work with tax increase

Bob Tippee

Bolivian lawmakers seem to want their country to remain one of Latin America's poorest and least developed.

They seem content with an economy that generated per capita income of an abysmal $914 in 2004.

They seem to think life can get better when the economy grows little faster than the population does.

The legislature on May 5 passed a hydrocarbons law that imposes a 32% tax on revenues at the wellhead atop an 18% royalty and that cancels a range of deductions.

The changes might triple government revenue from oil and gas operations (OGJ Online, May 2, 2005). Although applicability to existing contracts remains in question, President Carlos Mesa Gisbert calls the legislation "suicidal" and might veto it. He had 10 days to act.

A veto would be controversial. The government's handling of Bolivian hydrocarbon resources, of which gas is most important, has divided the country.

The tension is partly nationalistic. A plan to lay a pipeline through Chile to support LNG exports provoked protests that, in October 2003, brought down Mesa's predecessor. Bolivians still seethe over their country's 19th century loss to Chile of access to the Pacific.

Pressure to raise hydrocarbon taxes comes from the Movement Toward Socialism party, called MAS. Headed by Evo Morales, MAS draws support from Chapare area farmers angered by a US-backed effort in the late 1990s to eradicate Bolivia's illegal coca crop.

In March, Morales instigated nationwide road blockades in a push for higher taxes on oil and gas producers (OGJ Online, Mar. 17, 2005). Mesa, saying he couldn't maintain order in the country, threatened to resign.

The tax measure conflicts with a referendum last July in which voters strongly supported hydrocarbon development. Obviously, many Bolivians see in their country's large gas resource the potential for easing chronic poverty.

But resources require development, which won't happen if taxation consumes the profits.

There's more to the politics of this issue than a choice between growing drugs and developing gas, of course. But Bolivians should wonder if a country as poor as theirs can afford to treat it any other way.

(Author's e-mail: bobt@ogjonline.com)

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