Bolivia's Gas Reserves Prove a Mixed Blessing

By Monte Reel
Washington Post Foreign Service
Sunday, May 29, 2005

BUENOS AIRES -- In theory, everyone agrees that Bolivia's huge natural gas reserves -- the second-largest of any country in South America -- should be a blessing for the continent's poorest nation.

But this past week, the fight over how to exploit the underground resource once again propelled protesters onto the streets of several cities, fueling rumors of a military coup and vexing political leaders in search of a peaceful solution.

Just days earlier, the national legislature had substantially raised taxes and royalties on foreign fuel companies, a major demand of demonstrators in the past. But while fuel firms immediately criticized the hike as excessive, some grass-roots leaders said it did not go far enough and demanded full state control of the reserves.

"The people have been in constant mobilization, and we will continue to march," said Eugenio Rojas, a leader of the Aymara tribe, speaking Friday from La Paz, the capital. "We are asking for the resignation of the president, and we are demanding the nationalization of the fuel sector. It should be 100 percent for Bolivians, not for the transnational companies."

Over the past two years, energy disputes have dominated Bolivian politics. In 2003 they toppled one president; in March they prompted the current one, Carlos Mesa, to offer his resignation after weeks of protests and strikes by a coalition of indigenous peasants, miners, coca growers and socialist political groups.

Now, despite various efforts at compromise, the combustible issue has ignited again. On Monday and Tuesday, demonstrators surrounded government buildings in La Paz. Military forces kept the crowds at bay with tear gas and water hoses, and rumors swirled that the army, which ruled the country until 1982, was planning a coup.

On Wednesday, two colonels called for Mesa's resignation and suggested that a military-civilian government replace him. The next day, however, the Defense Ministry forced them to retire and reiterated its support of Mesa. The protests calmed somewhat, but opposition leaders vowed to continue pressuring the government next week.

"For the last three or four months, Mesa's interests have been focused just on trying to keep the country from exploding," said Jim Shultz, executive director of the Democracy Center, a nonprofit group in the central Bolivian city of Cochabamba. "He has satisfied no one, and he seems almost irrelevant."

So far, Mesa has avoided a repeat of the violent clashes in 2003 that forced the resignation of President Gonzalo Sanchez de Lozada after government troops opened fire on protesters who opposed the export of Bolivian gas, killing more than 50 people.

However, the president's attempts at appeasement have exasperated groups on all sides of the debate over how best to manage the development and production of an estimated 53 trillion cubic feet of natural gas buried below Bolivia's eastern lowlands.

Many of Mesa's opponents argue that the government has conceded too much potential profit from gas to foreign companies. That concern led to the sustained protests this spring in which thousands of people blocked highways to demand an increase in the 18 percent royalty imposed on such companies.

Last week, the new law passed by Congress raised combined taxes and royalties on foreign fuel companies to 50 percent. The president neither signed nor vetoed the law, letting it pass without his approval. His efforts to skirt the issue, however, have not helped his popularity. One La Paz newspaper reported Friday that support for Mesa fell 11 points between mid-April and mid-May, sinking to a record low of 44 percent.

Meanwhile, interest groups on both sides immediately attacked the new measure. Fuel companies said the new tax was so high they would be forced to drastically cut their investments in the country. Grass-roots groups, on the other hand, said the law was too weak and that instead of privatizing the reserves, the state should nationalize them.

The dispute has been especially intense in the lowland region of Santa Cruz, where much gas business is based. Business leaders there have called for greater autonomy and fewer restrictions on trade, but protesters from other regions fear Santa Cruz would benefit disproportionately from such changes. Some even want the constitution rewritten to restrict regions from gaining political autonomy.

Carlos Alberto Lopez, a fuel company consultant and former vice minister of energy, said foreign investment in the energy sector fell from $604 million in 1998 to about $200 million last year and is now likely to plummet further. The protesters "only talk about dignity, sovereignty and nationalism," Lopez said. "But if it leaves individuals with nothing, then it does not seem very dignified to me."

Proponents of gas nationalization, on the other hand, believe history is on their side. Roberto Fernandez Teran, a professor of economics at the University of San Simon in Cochabamba, said that the government ran a "successful enterprise" when it controlled the country's oil production and that revenues plunged when oil was privatized in the 1990s and largely turned over to foreign firms.

Rojas, who helped organize protests this week, is even more suspicious of letting international companies get their hands on Bolivia's natural treasures.

"They will be able to manipulate the system," even with tough new tax laws, he predicted. "The hydrocarbons will stay in the hands of the transnationals. For the people, there will be nothing."

© 2005 The Washington Post Company