Monday, May 01, 2006

Bolivia Nationalizes Natural Gas Sector and Bolivia's military takes control of gas fields

LA PAZ, Bolivia, May 1 (Reuters) - Bolivian President Evo Morales ordered the military to occupy the country's natural gas fields on Monday after nationalizing the energy sector and threatening to expel foreign companies if they do not sign new contracts within six months.

Impoverished Bolivia has the second-largest natural gas reserves in South America after Venezuela, and the question of how the country should manage these riches has been at the heart of several popular revolts since 2003.

Morales became president in January on vows to exert more state control over the country's natural resources, reflecting a growing backlash against free markets and foreign investment in Latin America. Radical leftists recently complained that he had made little progress on this front.

The president chose Labor Day, May 1, to announce the sector's nationalization, which stipulates companies will have to leave the country unless they sign contracts recognizing the new state control of the fields.

"We are not a government of mere promises: we follow through on what we propose and what the people demand," Morales said after signing a nationalization decree at the San Alberto field, operated by Brazil's state-owned Petrobras (PETR4.SA: Quote, Profile, Research) (PBR.N: Quote, Profile, Research) in the southeastern province of Tarija.

"We want to ask (the Armed Forces) that starting now, they occupy all the energy fields in Bolivia along with battalions of engineers," Morales said.

Bolivian Vice President Alvaro Garcia said officials from state energy company YPFB and the military began taking control of dozens of energy installations -- including gas fields, pipelines and refineries -- after Morales signed the document.

At a Labor Day celebration in La Paz's main plaza attended by a large crowd, Garcia said the government's energy-related revenue will jump to $780 million next year, expanding nearly sixfold from 2002.

Morales had promised to nationalize the gas sector even during his campaign but repeatedly said he would not expropriate foreign companies' assets.

Bolivia's actions echo what Venezuelan President Hugo Chavez, a Morales ally, did in the world's fifth-largest oil exporter with forced contract migrations and retroactive tax hikes -- conditions that oil majors largely agreed to accept.

"This is a continuation of the trend towards increasingly aggressive resource nationalization that we have seen across many countries in Latin America, starting in Venezuela," said energy analyst Antoine Halff of Fimat.

"The measure is in line with the populist tone of the new regime in Bolivia; however how it is carried out in practice still seems somewhat unclear," Halff added.


Morales read aloud the government decree, which said that "the state recovers ownership, possession and total and absolute control" of hydrocarbons.

This means the state will own these resources and take charge of their sale, relegating foreign companies to operators. Previously, Bolivian law said the state no longer owned the gas once companies extracted it from underground.

YPFB will pay foreign companies for their services, offering about 50 percent of the value of production, although the decree indicated that companies at the country's two largest gas fields would get just 18 percent.

In the new operating contracts, Bolivia will have to give some incentives to foreign companies to keep investing. YPFB alone has no way of financing the development of gas fields.

Top investors in Bolivia's gas sector include Petrobras, Spain's Repsol YPF (REP.MC: Quote, Profile, Research), UK gas and oil producer BG Group Plc (BG.L: Quote, Profile, Research) and France's Total (TOTF.PA: Quote, Profile, Research).

Spain's foreign ministry said on Monday it was deeply concerned about Bolivia's moves. Repsol said it was too early to evaluate the decree and a Total spokeswoman also said it was too early to comment.

In Brazil, Petrobras officials could not be reached for comment on Monday, a national holiday, although the country's President Luiz Inacio Lula da Silva planned to meet with senior politicians and energy officials on Tuesday to discuss the move.

BG officials were also unavailable for immediate comment.

Last year, Bolivia's Congress passed an energy law that added a 32 percent tax on production to an already-existing 18 percent royalty. It also required that companies renegotiate their contracts with the state.

South America's poorest nation, Bolivia has natural gas reserves of some 48.7 trillion cubic feet. Foreign oil companies have invested more than $3 billion in the last decade, much of it in exploration.

Fresh investment in Bolivia has stalled due to the legal changes and political turmoil that toppled two governments in as many years. The unrest was partly driven by social groups calling for the nationalization of gas reserves.

Bolivia exports most of its natural gas to Argentina and Brazil, with whom the government is negotiating higher prices.