Watching Government - Energy referendum

Aug. 2, 2004
Bolivian President Carlos Mesa faces the daunting task of keeping both voters and investors happy following a referendum meant to ensure a large government role in the country's growing energy sector.

Bolivian President Carlos Mesa faces the daunting task of keeping both voters and investors happy following a referendum meant to ensure a large government role in the country's growing energy sector.

With the second largest natural gas reserves in South America, Bolivia has the potential to become a gas hub in the region, as well as an LNG exporter to Mexico and the US, according to the US Energy Information Administration.

An explosive topic

Internal tensions over the role foreign companies should play in expanding gas exports turned into a riot last October after the government approved a plan to build a gas export pipeline to Chile in support of LNG exports.

The ensuing violence forced then-President Gonzalo Sanches de Lozada to resign.

Mesa, his successor, approved a referendum last month on whether the impoverished country should manage reserves more directly (OGJ Online, July 20, 2004).

Preliminary indications are that voters approved several broad options for the government to reinsert itself into the energy business. But according to some legal experts, it's too soon to say whether multinational oil companies should worry if the vote could lead to something more dramatic.

"I do not think we are heading for renationalization in the region, even if there can be some isolated cases that seem to suggest that," said Elisabeth Eljuri, an oil and gas attorney in the Caracas office of Macleod Dixon LLP.

"On the other hand, I do believe that the Bolivian experience shows how important it is that any key economic policy, such as hydrocarbons policies, enjoy the full support of the country and its people and be put in place after full consultation with them," she said.

Having more certainty also is in the long-term interest of international investors, because it tends to keep the rules stable and predictable over the long period that it may take for capital-intensive investments to return a profit, she said.

Taking stock

A July 16 Deutsche Bank AG note to clients suggested that the "yes" vote will be a good base for the integrated oil companies with stakes in the country, namely Respol YPF SA, Petróleo Brasileiro SA, BG Group PLC, BP PLC, Total SA, and Exxon- Mobil Corp. to get down to business on monetizing the country's more than 50 tcf of gas.

Some companies may want to stay and some may want to sell out, analysts said.

For landlocked Bolivia, the key issues are what terms should be set for shipping routes and taxes, Deutsche Bank said.

Following the early returns of the referendum, most of Bolivia's neighbors, including US antagonist and Venezuelan President Hugo Chávez, praised the decision.

The leaders of Bolivia, Venezuela, and Argentina also were scheduled to meet in late July specifically on energy issues.

The US, meanwhile, officially has not expressed concern over the referendum results, although privately some White House officials are worried the move may have broad antibusiness implications for the region.