Bolivia issues ultimatum to foreign oil companies

Sept. 22, 2006
Bolivia Vice-President Alvaro Garcia Linera, acting as the nation's head while President Evo Morales is traveling abroad, has issued an ultimatum to foreign oil companies operating in Bolivia. He said the companies have until Oct. 28 to agree to new contracts regarding nationalization of the country's oil and gas sector.

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO, Sept. 22 -- Bolivia Vice-President Alvaro Garcia Linera, acting as the nation's head while President Evo Morales is traveling abroad, told foreign oil companies operating in Bolivia that they have until Oct. 28 to agree to new contracts nationalizing the country's oil and gas industry.

Bolivia newspaper La Razon on Sept. 20 quoted Linera as saying, "If the oil companies do not sign the contracts, they will have to stop operations in the country."

Linera added that foreign oil companies have been slow in signing contracts in hopes that the deadline will be extended.

Brazil's state-owned Petroleo Brasileiro SA (Petrobras) is not interested in leaving Bolivia, company officials said, but last May Petrobras announced it was suspending future investment after the neighboring country took state control of the gas industry and established that foreign oil companies had 180 days to sign the new contracts.

Petrobras, which has been in Bolivia since 1996, has invested $1.6 billion and is responsible for 20% of Bolivia's gross domestic product. The nationalization decrees force companies to cease autonomous oil and gas exploration and production and become service providers for Bolivia's state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB).

On numerous occasions, Petrobras Pres. Jose Sergio Gabrielli emphatically declared that the Brazilian company would not accept being reduced "to the role of a service provider."

Soliz expropriated two refineries owned and operated by Petrobras and on Sept. 13 placed them under the control of YPFB (OGJ Online, Sept. 14, 2006). The two refineries' total output is 60,000 b/d.

New minister
Separately, politicians and private sector executives consider Bolivia's new hydrocarbons minister, Carlos Villegas, a moderate replacement for radical leftist Andrez Soliz, who recently resigned. They hope Villegas will smooth negotiations with Brazil and other foreign entities.

Yussef Akly, manager of coordination and strategy of the private sector organization Bolivia Hydrocarbons Chamber, told the Brazilian financial paper Valor, "We have to grant full support to the new hydrocarbons minister and a technical character to negotiations."

Brazil President Luiz Inácio Lula da Silva said, "It will be easier to negotiate with Villegas, a moderate, who will probably take a more technical approach."

On Sept. 18, Linera suspended a measure that would have exerted majority interest in the operations of Petrobras refineries in Bolivia.

On Sept. 19, Gabrielli said he hopes to restart negotiations with Bolivia concerning indemnification values for nationalized assets. Morales in May had said the companies would not be compensated for them (OGJ, May 22, 2006, Newsletter).

Villegas has already sought to lessen tensions by confirming that talks with 12 companies operating in Bolivia, including Repsol YPF SA, BG Group, and Total SA, will resume soon.

Before the nationalization of Bolivia's oil and gas, Brazil was requesting a review of the "bilateral gas import contracts" signed between Bolivia and Brazil. The 20-year gas supply agreement requires investments by Petrobras in Bolivia to increase oil and gas production and to maintain the volume of gas exports from Bolivia to Brazil.

Brazil currently imports 26 million cu m/day from Bolivia via the 3,150-km Bolivia-Brazil pipeline that started operating in July 1999, but now that conditions have changed and Bolivia wants to hike gas prices, that import contract may also require renegotiation.