After a series of false starts, delays, and violent protests, the 50% partial privatization of Bolivia's state-owned petroleum company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB) has been finally achieved, a year behind schedule.
The initial results of the so-called "capitalization" program were unveiled earlier this month (OGJ, Dec. 16, Newsletter).
YPFB's exploration, production, and pipeline operations were acquired by three winning bidders that put up total investment bids worth $835 million.
The amount received for YPFB is the highest offered for any of Bolivia's five state companies privatized to date and sets the capital market value of the company at almost $1.7 billion.
Who got what
The two upstream units for exploration and production and one transportation division belonging to YPFB were sold as separate entities to three international bidding groups from a field of six contenders.
The winners were Amoco Corp.; a group of three Argentine companies led by YPF SA; and a combine of Enron Corp. and Shell International Overseas Holdings.
The Argentine group of YPF SA, Perez Companc, and Pluspetrol bought their 50% interest in the upstream unit Empresa Petrolera Andina for $264.8 million, beating rival bidders Amoco (Bolivia) Petroleum with $242.4 million.
Amoco, however, topped bids for the second upstream unit Empresa Petrolera Chaco with $306.7 million, ahead of runner-up Repsol Exploration, which bid $280.1 million for the unit.
YFB's pipeline unit Transportadora de Hidrocarburos went to Enron-Shell in a joint venture bid for $263.5 million, well ahead of rivals NOVA Gas, which bid $213.1 million, and Williams International Pipeline Co.'s offer of $200 million.
The sales still leave a rump YPFB holding on to its refining and domestic marketing operations alongside some technical and maintenance units.
Troubled program status
The government's remaining 50% stake in the privatized industries is being used to capitalize individual pension accounts for all adult Bolivians, which would have been jeopardized had the YPFB sale not gone ahead.
Uncertainty surrounding the sale affected investor confidence, and from an original field of 25 prequalified companies, only six remained to bid in the highly controversial sale. Political and social unrest caused by opposition protests from oil workers, politicians, pensioners, and civic groups was only half the reason so many companies dropped out.
A long, drawn-out renegotiation of the 1994 joint venture contract signed between YPFB and Enron Development Corp. for Bolivia's gas sale contract to Brazil created considerable last-minute uncertainty for many bidders that eventually turned elsewhere to other opportunities in the region.
More trouble ahead?
If statements by opposition politicians in Bolivia can be believed, trouble for the winning bidders is not over yet.
Leaders of three parties have all signed an agreement vowing to overturn the partial sale of YPFB and start impeachment proceedings against the president in 1997.
The declarations are being seen as a populist electioneering stunt to make the most of the government's unpopularity over the sale.
However, opinion polls currently show that should the three parties continue their alliance after general elections are held in June 1997, they would be most likely to form the next government.
The winning companies seem largely unconcerned by the political heat still surrounding the sales and have expressed themselves satisfied with the final outcome.
The combination of the companies taking over YPFB is being seen as a good mix, given their mutual regional interests.
Different approach
The terms of the YPFB capitalization are different from other state sales in that the companies' bids are to become direct investment in YPFB's three units and will not be soaked up by the Bolivian treasury.
Companies have 5 years to commit the expenditure but are required to lodge the amounts bid in the company accounts immediately prior to financial closing.
This strategem provides a strong incentive for the bidders to spend early in order to see improved efficiency and new production yield a return on their investment sooner rather than later.
A pattern of ahead-of-schedule investment spending has occurred in the other state industries Bolivia has sold, most notably the telecommunications and electricity generation sectors. The phenomenon is therefore likely to be repeated in Bolivia's privatized oil industry, as companies choose an accelerated spending path to ensure early returns.
The much-needed capital injection combined with the winning companies' strong regional interests look set to ensure the rapid development of Bolivia's oil and gas reserves.
Amoco strategy
Amoco appeared to be somewhat of an outsider in the process and was the only company that bid alone.
Not having any current direct interests in Bolivia, its bid, the highest for any of the units, surprised observers. Regional manager and head of their bidding team Thomas Mueller explained that the bid formed part of Amoco's natural gas-focused strategy in Latin America: "We have significant operations in Colombia and Argentina and won a bid round in Venezuela earlier this year."
Mueller was well pleased to have taken the Chaco company. "We offered for both [exploration and production units], but we were happier with Chaco, which is why we bid higher for it," he said. "Chaco had more value for us and fitted with our internal strategy better; it looks more profitable. Now we've got to make relationships with the employees and get the closing done."
Enron/Shell strategy
A surprisingly late decision by Enron and Shell to team for a joint venture bid in the sale of YPFB assets has a long history.
Enron's involvement in Bolivia dates to December 1994, when it agreed to be YPFB's partner in the project to lay a 3,000-km pipeline to sell Bolivia's gas to Sao Paulo in Brazil and help raise Bolivia's $431 million portion of the project cost.
Enron also hoped to participate in the 50% partial privatization of YPFB to take on management of its pipeline division, which it has succeeded in doing. Enron's participation as a bidder for the transportation unit was bitterly opposed by the other companies prequalified to bid, which claimed Enron's pipeline contract with YPFB gave it an unfair advantage.
By virtue of Enron's interest in the pipeline, it already controlled a 34% stake in the project under its joint venture contract with YPFB.
The remainder of the project was split between YPFB 51% and Brazil's state petroleum company Petroleo Brasileiro SA 15%. The terms of YPFB's sale gave a half share in their 51% interest to the winning bidder for the pipeline unit.
A win for Enron would therefore increase its holding to a politically unacceptable 59.5% majority interest in the Bolivian end of the operation. A long search for a solution allowing the Bolivian government to let Enron participate in the bidding pushed Enron and Shell into each other's arms.
The deal struck with Shell means the two companies would place a joint bid for YPFB's transport unit, and if they won, then Shell would be given half of Enron's original 34% interest in the pipeline. The sums would then add up to Enron 43.5% and Shell 16%.
The reason behind Shell's interest is the need to find a market for the massive reserves of gas it holds at the Camisea field in southern Peru, in which Enron has realized a long-held ambition to team up with Shell.
The much-talked-about possibility of connecting the Bolivian pipeline to Brazil with Camisea becomes more likely now that Shell has secured a long-term interest in the project.
Other bidders rebuffed
News of the deal came as a big blow to other bidders, such as Gaz de France and British Gas plc, which are part of the group to build the Brazilian end of the pipeline.
Both companies considered themselves "very interested" bidders for YPFB's transportation unit and had hoped the government would be forced into refusing Enron the right to participate.
British Gas has estimated that Brazil's gas market will eventually need three to four times the volume Bolivia can deliver within 10 years.
The addition of Camisea's 11 tcf of reserves to the potential supply is a key link in Enron's regional plans to dominate the supply of gas in Latin America's southern zone.
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