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Bolivia: The mouse that roared

By Gustavo Coronel

13.05.06 | Bolivia has nationalized the hydrocarbons industry three times: from 1916 to 1920; from 1936 to 1989; and now, in May 2006. In Bolivia these nationalizations have really meant State, government control, rather than true national ownership. The Bolivian nationals have remained poor and without access to the benefits derived from the use of those resources. In fact, it is during the intervening years of privatization that the Bolivian hydrocarbons industry has made significant progress and has given stable financial benefits to the nation. The reason for this is that the management of the industry by the Bolivian government has always been inefficient and, often, very corrupt. Foreign investment has been responsible for the growth of the gas reserves during the last 20 years, a growth that has allowed Bolivia to export significant volumes of natural gas to Brazil and Argentina. When under government control the Bolivian hydrocarbons industry has been managed by Yacimientos Petroliferos Fiscales Bolivianos (YPFB), a typical Latin American state-owned company, this is, badly managed, over staffed and politicized. In 1968, for example, while YPFB produced 6,000 barrels per day with 4,200 employees, foreign operator Gulf produced 33,000 barrels per day from other Bolivian fields with only some 200 employees.

Government control of the hydrocarbons has never been a successful commercial alternative for Bolivia but remains as an attractive political battle cry. The step taken by Evo Morales two weeks ago has been received with enthusiasm by large sectors of the population that believe that the act will mean instant wealth for the poor of Bolivia. They do not realize that the hydrocarbons industry requires capital investment, technology and sound management that cannot be provided by the state-owned company.

The problem with Latin American "nationalizations" of the hydrocarbons sector is that, most of the time, they are politically inspired, not commercially driven, and take place as a show of "sovereignty" by governments against the foreign enterprises active in the country. The most frequent reason given to justify the act is that these companies obtain exorbitant benefits and keep the country in poverty. In fact, the truth is that corrupt and inefficient governments are most often to blame. They are not true nationalizations since Governments usurp the place of the nation and use the income derived from the exploitation of the hydrocarbons to enrich the ruling clique, while little of this income reaches the majority of the population. Poverty is the result of the ineptness and corruption of governments rather than the result of foreign presence in the country. This has been the case in Bolivia where previous "nationalizations" only served to make the social and economic problems of the country more acute. Now it will be no different. After the popular euphoria about the act of "sovereignty" subsides, the Bolivian people will realize that they are not better off than before and, in fact, they might be much worse off.

What took place in Bolivia is a clear case of the use of oil as a political weapon. Evo Morales has fallen under the influence of Hugo Chávez, who has pretensions of becoming a hemispheric leader in an all-out fight against the United States. In trying to fulfill this objective Chávez has only been modestly successful, although he has already spent or promised no less than $16 billion to Latin American and Caribbean countries in his efforts to gain their political loyalties. Kirchner in Argentina has limited himself to receive about $3 billion of Venezuelan money without clearly siding with him. Lula of Brazil has already realized that Chávez is a major nuisance. Morales, the Bolivian president, is the only piece of chess Chávez has been able to acquire. Morales is little more than a pawn but is well placed to attack the two white rooks, Brazil and Argentina, countries that largely depend on the natural gas produced by Bolivia. The way Morales has acted to "nationalize" the hydrocarbons sector has been largely inspired by the arrogant and rude manners of Hugo Chávez. Morales has said "the foreign companies will not be able to steal from Bolivia any longer." The case of REPSOL is illustrative. This company has been accused by Morales of tax evasion and of smuggling hydrocarbons out of Bolivia. The two main managers of the company were briefly put in prison. The offices were raided by the armed forces. Paradoxically, Morales recently visited Spain and said "Spanish investments were crucial for Bolivia." PETROBRAS has also been the victim of Morales aggressive rhetoric, when he labeled this company as being in Bolivia illegally, in spite of the fact that Lula has been one of his closest friends.

The decree of "nationalization" is a classic example of pompous underdevelopment: "the historic struggle of the Bolivian people, at the cost of their blood, has given them the right to control the hydrocarbons wealth," and so on and so forth. The income split for the future would be 82% for the Bolivian government and 18% for the foreign operators, until a new form of contract is established. The decree is not clear about the compensation due to the nationalized companies for their assets. If anything, it includes a de-nationalization clause, through which the shares owned by Bolivian national in two companies, Chaco and Transredes, are taken over by the government. It also includes a clause establishing that YPFB will be a "transparent, efficient corporation with social control." This is a mission impossible for a company that lacks competent management and a professional attitude. A company under "social control" cannot be efficient since the main objective of a corporation is to optimize profits, not to be a welfare institute. This confusion of roles condemned many petroleum state-owned companies to failure in the past: YPFB, Yacimientos Petroliferos Fiscales of Argentina, Petroperu, PEMEX and PERTAMINA of Indonesia. It is also ruining the current Petróleos de Venezuela (PDVSA), a company that used to be transparent and has now become a black box and the personal bank of Hugo Chávez.

In Bolivia the mouse has roared. Given the indignant reaction in Brazil, Argentina and Spain, the three countries most affected by this act, the strange roar of the mouse could also become Morales political swan song.



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