Gas and Bolivia: Nationalization = Negotiation

Since I arrived back in Bolivia early Monday morning I have gotten a flurry of media calls and emails asking for comment on President Morales's dramatic May Day move to "nationalize" Bolivia's gas and oil. Reporters have been quite taken by images of Bolivian soldiers occupying gas fields and the rhetoric of the government declaring the nation's gas and oil reserves to be sovereign property of the people.

To be sure, all this is a dramatic development in the ongoing saga of Bolivia's #1 public policy issue. Friends and readers, it was intended to be dramatic. But let us not lose track of the big picture: At the end of the day Bolivia will develop its gas and oil through some kind of partnership between the Bolivian government and foreign oil companies. That’s just a fact. What is going on is a very high stakes negotiation over what those partnerships will look like. I don’t think you can properly analyze the events in the news unless you keep that in mind. Nationalization = Negotiation.

Nothing exemplifies that more than the twin headlines yesterday and today in the Cochabamba daily, Los Tiempos. Both days the paper led with the dialogue over gas between Bolivia and Brazil. Brazil's s state-owned oil company, Petrobras, is the major player in Bolivia's energy market, far more than any of the US, UK, or Spanish interests.

Yesterday the morning headline was based on the revelation that during Brazil-Bolivia-Argentina-Venezuela summit last week, Brazilian President Luiz Inacio "Lula" Da Silva supposedly told Higo Chavez and Evo Moreles, his Venezuelan and Bolivian counterparts, that Brazil was getting plenty tired of Venezuela's deepening involvement in the Bolivia gas issue. Today’s headline reveals that Brazilian and Bolivian officials met all day yesterday to look at how to reshuffle the two nation’s gas and oil deals to reflect the terms of Morales’ nationalization decree last week.

Understanding what is going on here is as simple as our memories of our kindergarten sandbox.

If you don't play they way I want you can't play with my toys.

If you don't play the way I want I won't play with you at all.

Turn it into a negotiation with billions of dollars of oil and gas reserves at stake and it turns into:

Either be a partner in developing our gas and oil on our terms or we will just turn to other investors.

Either give us the control and profits we want or we will cutback on our investment.

Morales sends in the troops for a symbolic takeover of oil fields. Repsol, Petrobras and others announce cutbacks in their Bolivian investment. One is a flipside of the other. Of course the companies play that card. That is what corporations always do. Taco Bell threatened to move its corporate headquarters from California to Texas if California didn’t give them a tax break, a bluff lawmakers almost fell for. It is how the game is played. The job of governments is to sort out when the threat is real and when it is just a negotiating ploy.

It is also worth noting that Morale’s nationalization dramatics last week were probably designed more for his domestic audience, not a foreign one. How all those images would play in the foreign press (with the effect of making Morales seem more radical than he is) was, I suspect, a secondary concern if it was one at all.

Both sides are playing hardball and ought to. The stakes in this reshuffling of the cards on gas in Bolivia are enormous. A few modifications here and there in tax rates and the like translates into many millions of dollars.

In the end though, both sides – Bolivia and the foreign corporations – need the other and know they need the other. The corporations don’t want to walk away from the second largest oil and gas reserves in South America and Bolivia still needs investors and partners.

I believe, that despite the drama of the nationalization decree last week, the essential policy questions to watch for remain the same that they have been:

1. Who controls the volume of production and the price, foreign oil companies or Bolivia?

2. How will Bolivia and the companies involved share the profits – through taxes, royalties, etc.?

3. What is the appropriate role for the Bolivian government’s oil company (YPFB)?

4. How will Bolivia invest the funds it gets from gas and oil to benefit the people of Bolivia in the best way?

5. How will indigenous rights and the environment be protected?

6. How will all these arrangements be made transparent and enforceable so that what it says on paper becomes what actually happens in reality.

The debate over gas and oil in Bolivia, as dramatic and important as it is, remains what it has been from the start – a negotiation over what a new approach will look like, one in which the Bolivian people receive the control and benefits they expect from a key national resource under their feet.