Bolivian Senate votes to raise oil, gas taxes

Peter Howard Wertheim
OGJ correspondent

RIO DE JANEIRO, May 2 -- The Bolivian Senate on Apr. 29 approved a hydrocarbons law steeply increasing taxes on oil companies.

The bill now goes back to the lower house of Congress, which passed a similar bill earlier.

President Carlos Mesa might veto the measure if the Congress passes it. An override of his veto is possible.

The legislation would retain an 18% royalty and but raise tax rates and lower deductions. Promoters of the legislation say it would triple government income from the oil industry to about $600 million/year.

Analysts say the measure might cut profits of non-Bolivian companies by as much as one-half.

Mesa's government has called the law "suicidal," saying it violates contracts and discourages foreign investments.

The president sought to phase in a tax increase but retain some deductions.

José Eduardo Dutra, president of Brazil's state-owned Petroleo Brasileiro SA (Petrobras), said parts of the legislation are unclear, including applicability of proposed rules changes to existing contracts. Petrobras has invested more than $2 billion in Bolivia and is the country's largest investor (OGJ Online, Mar. 17, 2005).

One large project that could be affected by the new legislation is a proposed $1 billion petrochemical plant that would be located in the Brazil-Bolivia border region, he said.

Freezing investments
A steep tax increase would probably freeze investments by Petrobras, said Fernando de Freitas, head of the company's local office.

Julio Gavito, Repsol YPF's country director, said, "As it is now, unless it is modified, the law would make it very difficult for us to remain here." He added, "We came under one set of conditions, and if those conditions are changed, it will be very difficult for the Bolivian government to argue it is not confiscation."

Repsol YPF and Petrobras said they would seek international arbitration if the Congress passed the hydrocarbons bill. They said they cannot be obligated to change their contracts.

In addition to the tax hike, the bill passed by the Senate would revise contracts, renationalize two companies, and create a regulatory agency called Petrobolivia to take the place of the state oil company in licensing negotiations and administration.

The government has granted 76 contracts for exploration, exploitation and commercialization. Oil companies lured by Bolivia's gas resource have invested $3.5 billion in exploration and development.

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