WHILE Bolivia enjoyed the May Day holiday last week, Evo Morales, its new president, donned a hard hat and headed out to the San Alberto gasfield near Tarija, 450 miles south of the capital, La Paz. He was accompanied by armed troops.
At the entrance to San Alberto, operated by the state-owned Brazilian oil-and-gas company, Petrobras, the troops hoisted a banner declaring in Spanish: “Nationalised: property of the Bolivians”. One soldier climbed to the top of the gas facility to drape it in the Bolivian national flag.
Morales, Bolivia’s first indigenous president, took a microphone and issued a presidential decree ordering foreign companies to hand over control of gas production to the Bolivian state petroleum company, YPFB.
Across Latin America, left-wing governments are claiming greater rights to hydrocarbon reserves in the hands of foreign firms as high energy prices lead to record profits.
Morales, 46, a former coca farmer and llama herder who likes to present himself as a man of the people by meeting world leaders wearing a woolly jumper or casual short-sleeved shirt, came to power in January after promising nationalisation. Last week he gave foreign firms 180 days to sign new operating contracts, or quit Bolivia.
He said: “This is just the beginning. Tomorrow it will be the mines, the forest resources and the land.” As he spoke, troops moved on 56 installations in the Andean country.
Last month Venezuela transferred half the value of 32 upstream assets back to the state. When France’s Total and Italy’s Eni refused to comply, President Hugo Chavez ordered the seizure of their oilfields. Venezuela is plotting a tax and royalty increase on four oilfields in the Orinoco region that would net £5 billion for the government at the expense of Conoco Phillips, Chevron and Total.
Ecuador has applied a windfall profit on oil companies, and Argentina has tweaked its tax regime for resource firms. In Peru, Ollanta Humala, the nationalist presidential hopeful, has said he, too, would force foreign mining and gas companies to renegotiate contracts.
Merrill Lynch’s head of oil and gas commodity research, Francisco Blanch, said: “Events in Bolivia are a signal that things are going to get harder for companies.”
Seizing foreign-owned assets or increasing the tax take on resource companies provides the governments with a short-lived popularity boost. In the process, they put much-needed foreign capital under threat and create waves in the world’s jittery energy markets. “It adds to an overall sense of unease in a year when there is a lot of uncertainty,” said Mark Spelman, global partner for resources strategy at Accenture, a consultancy.
Bolivia’s gas reserves are the second-largest in South America after Venezuela. Proven reserves at the end of 2004 were 890 billion cubic metres, according to the BP statistical review — seven times higher than in 1997 when the sector was liberalised, largely thanks to £2.2 billion of foreign investment.
The main foreign investors in Bolivia’s natural-gas sector are Petrobras, which controlled 45% of the gasfields until last week, and Spain’s Repsol, which produces about a quarter of the country’s gas. Brazil is Bolivia’s main customer for natural gas.
The biggest British operator in Bolivia is BG Group, with 4% of its total proven gas reserves in the landlocked country, and 3.5% of group production. BP also operates in Bolivia but its joint venture with Pan American Energy produces only 10,000 to 15,000 barrels of oil a day out of total global daily output of 4m.
The timing of Morales’s announcement on Monday took the companies by surprise. BG Group’s Neil Burrows said: “It is too soon to tell what it means. We’ll be looking to the (Bolivian) government for details and implementation.”
On Wednesday Bolivia’s energy minister, Andres Soliz Rada, announced that foreign companies would be audited so that a value could be put on their interests. According to the consultant Wood Mackenzie, Repsol’s reserves in Bolivia are worth £450m, Petrobras’s £390m, Total’s £143m, BG Group’s £108m and BP’s £73m.
A large chunk of their holdings could eventually revert to the state, for which they may or may not be compensated. Reserves they have booked may have to be unbooked. In January Repsol removed 1.25 billion barrels from its proven reserves because of uncertainty over its Bolivian and Argentine assets. Repsol and Petrobras are likely to agree to renegotiate their contracts.
International reaction to Bolivia’s asset grab was swift. The International Energy Agency said Bolivia’s energy- nationalisation policy had sent a chilling message to international oil companies that would jeopardise future investments in the country. Petrobras said it was suspending investment in Bolivia. This put on ice the company’s ambitious plans, including an increase in its oil- refining and distribution capacity, construction of thermoelectric power plants, and the creation of a petrochemical complex on the border with Brazil.
Bolivia needs foreign investment of about £1 billion to bring gas to its population. Only six of its cities have access to mains gas at present.
Blanch said: “Underinvestment puts further upward pressure on energy prices. The market needs stable investment.”
Nationalisation of gas production has angered Morales’s neighbours, undermined foreign confidence, and will potentially cripple a vital industry that depends on foreign technical expertise. That is something the poverty-stricken country can ill afford when gas accounts for 15% to 20% of gross domestic product.
Resource companies in Latin America will be crossing their fingers that other countries do not follow suit.
