Bolivian President Seizes Gas Industry

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By Monte Reel and Steven Mufson
Washington Post Foreign Service
Tuesday, May 2, 2006

CARACAS, Venezuela, May 1 -- Bolivian President Evo Morales seized control of the country's natural gas industry Monday, sending soldiers to occupy fields that he contends private companies have plundered for years.

Morales said that unless foreign energy firms agreed to give Bolivia's state oil company oversight of production and a majority of their revenue generated in Bolivia, the government would evict them from the fields.

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Morales said during a televised speech from a gas field near the country's southern border. "The looting by foreign companies has ended."

Morales's announcement was expected, but his deployment of troops to gas fields was a strong statement in a region where governments are moving to block outside influence, particularly from the United States, and exert more control over the energy industry. Venezuela recently voided drilling contracts with private companies at 32 oil fields, demanding new contracts that give the state oil company a 60 percent stake. Ecuador is finalizing a law that could limit excessive profits by foreign crude producers.

The developments in Bolivia were not expected to affect the U.S. energy market. Even in Bolivia, analysts played down the importance of the troop deployment, but they acknowledged the message Morales was trying to send.

"I think it was a symbolic move to send the military to the oil fields to show that Bolivians are now in charge of taking care of their own property," said Gonzalo Chavez, a political analyst with the Catholic University in La Paz, the Bolivian capital. "It's an extremely popular move. There's a lot of nationalism in the country right now, and this is something that a lot of people are going to like."

During his victorious electoral campaign last year, Morales promised that he would force energy companies to give at least 50 percent of their revenue to the government's state energy company. The plan announced Monday called for a substantially higher percentage -- 82 percent -- to be surrendered by any company producing more than 100 million cubic feet of natural gas daily. He said that all companies have six months to agree to the terms or be kicked out of the country.

Bolivia boasts South America's second-largest reserves of natural gas, behind Venezuela. The country does not play a major role in international energy markets, but its natural gas exports are important to some of its neighbors.

About 25 international energy firms operate in Bolivia. Brazil's Petrobras and Spain's Repsol YPF have the largest operations in the country, and Exxon Mobil Corp. of the United States maintains a smaller presence.

Morales has conceded that Bolivia needs the help of those foreign companies to get reserves out of the ground, and he has said his nationalization plan is not designed to cut those companies completely out of the sector.

Bob Davis, an Exxon spokesman, said Monday that the company was "monitoring the situation" in Bolivia. He said that earlier concerns prompted Exxon to submit a letter to an international arbitration board saying that the company was contemplating a request for arbitration.

Oil industry officials have been increasingly concerned about the investment climate in Bolivia. According to news reports, Bolivia's attorney general, Pedro Gareca, opened criminal cases in mid-March against three former Bolivian presidents and eight former energy ministers for alleged wrongdoing in drawing up and signing contracts with foreign oil companies.

Morales's government has held bilateral talks with energy firms in recent weeks, but negotiations sputtered. Petrobras, after announcing additional investments of $5 billion shortly after Morales's inauguration in January, rescinded the plan in March because of uncertainty over the government's policies. Tensions also flared with Repsol YPF after the government accused its executives of smuggling oil out of the country.

Monday's announcement coincided with May Day workers' celebrations throughout the country. Morales had been under political pressure to announce the plan, which his backers consider a key to the success of his administration. He has said he plans to use increased state revenue from the takeover to fund social programs in South America's poorest country.

A longtime leader of Bolivia's coca growers union, Morales was elected in December after leading protests railing against foreign corporations and the management of the country's gas resources, which are mostly located in the Santa Cruz province in the southeastern corner of Bolivia. He spent the weekend in Cuba with ideological ally Hugo Chavez, the Venezuelan leader who has helped lead a regional shift away from the privatization of South American industries and toward more state control.

Even though it recently reached oil independence, Brazil is the country that leans most heavily on Bolivia for natural gas. In the 1990s, the Brazilian government reinforced the country's hydroelectric power grid with plants fueled by natural gas, and many of Brazil's automobiles run on natural gas. About half of Brazil's natural gas needs -- 520 million cubic feet daily -- are supplied by Bolivia via a 2,000-mile pipeline financed mostly by Petrobras. In 2003, Petrobras discovered gas deposits within Brazil that some experts say could significantly ease demand, but tapping that gas could prove costly and difficult.

Mufson reported from Washington.


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