OBSERVARE
Universidade Autónoma de Lisboa
ISSN: 1647-7251
Vol. 6, n.º 1 (May-October 2015), pp. 100-115
ENERGY ON THE PUBLIC AGENDA:
CHANGES IN BOLIVIA WITH IMPACT ON ADJOINING COUNTRIES
Natalia Ceppi
natalia.ceppi@fcpolit.unr.edu.ar
Ph.D in International Relations. National University of Rosario, Argentina (UNR). CONICET
researcher. Lecturer of the Consular and Diplomatic Law subject in the Bachelor Degree in
International Relations (UNR).
Abstract
This paper focuses on the rise of the energy issue in the relations of Bolivia with Argentina
and Brazil during the first decade of the twenty first century from a comparative viewpoint.
In this context, the nationalization of Bolivian hydrocarbons decreed by Evo Morales on 1
May 2006 became a central point of the analysis in that it became a target and a political
tool of the Movement for Socialism party (MAS). It proposes to investigate, on the one
hand, the actions derived from this Decree within Bolivia and, on the other, the similarities
and differences that have arisen in the negotiation processes and their results in the
Argentine-Bolivian and Bolivian-Brazilian ties.
Keywords:
Argentina; Bolivia; Brazil;Hydrocarbons; Agreements
How to cite this article
Ceppi, Natalia (2015). "Energy on the public agenda: changes in Bolivia with impact on
adjoining countries". JANUS.NET e-journal of International Relations, Vol. 6, N.º 1, May-
October 2015. Consulted [online] on date of last visit,
observare.ual.pt/janus.net/en_vol6_n1_art7
Article received on December, 1 2014 and accepted for publication on April, 23 2015
JANUS.NET, e-journal of International Relations
ISSN: 1647-7251
Vol. 6, n.º 1 (May-October 2015), pp. 100-115
Energy on the public agenda: changes in Bolivia with impact on adjoining countries
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ENERGY ON THE PUBLIC AGENDA:
CHANGES IN BOLIVIA WITH IMPACT ON ADJOINING COUNTRIES
Natalia Ceppi
Introduction
On 18 December 2005, Bolivian society went to the polls in a context marked by
uncertainty, the advancement of social movements that questioned the prevailing
economic and political model and the constant tension between continuity and change
that is characteristic of all presidential elections. In this race, Evo Morales, leader of the
Movement for Socialism (MAS), won against seven other political forces with 53.74% of
the votes, leaving behind the system of government coalitions that had characterized
democracy for more than two decades1
This absolute majority victory was a significant sign that much of the population
welcomed a government programme that was highly critical of the neoliberal period,
excluding the state from controlling the production system and the lack of care paid to
social demands, whose triggering axes were poverty and inequality (Government
Programme MAS-IPSP, 2005). Unlike the proposals of the traditional political parties,
the MAS project focused on revaluing the role of the state, seeing it not only as a major
player in the process of 'rupture' with the past but also as the main driver of a more
distributive and inclusive socio-economic model. In order to fulfil this commitment,
100 days after his stay in power, Morales decreed the nationalization of Bolivian
hydrocarbons through the stock recovery of the Yacimientos Petrolíferos Fiscales
Bolivianos (YPFB), a company that, one behalf of the state, was responsible for the
entire national energy chain for decades
.
2
The nationalization of hydrocarbons was not a measure taken at random. Quite the
opposite, Decree 28.701 "Heroes of Chaco" is part of the social demands that hatched
in the Gas War - October 2003 - and one of the priorities of the MAS political
programme, namely to gain control of a sector that is strategic within a poorly
diversified economy so that income could be allocated to the country’s economic and
social development (MAS-IPSP Programme, 2005: 14). Due to the fact that Bolivia's
.
1 Apart from the MAS, the political parties contesting the elections were: Nueva Fuerza Republicana (NFR),
Unión Social de los Trabajadores (USTB), Unidad Nacional (UN), Movimiento Indígena Pachakuti (MIP),
Movimiento Nacionalista Revolucionario (MNR), Frente Patriótico Agropecuario de Bolivia (FREPAB) and
Poder Democrático y Social (PODEMOS).
2 This company was created in 1936. According to Gordon & Luoma, an issue inherited from the Chaco War
– a conflict of the first half of the 1930s that opposed Bolivia to Paraguay- was “understanding the
importance of the role of the state in the development of the country’s hydrocarbon resources, of which
85% are now in the Chaco region” (2008: 92). With the founding of the YPFB belief in the economic and
symbolic significance of the energy resources under state control was reaffirmed.
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hydrocarbon production has historically focused on feeding external trade, the
nationalization was a turning point in the connection with transnational corporations
involved in the exploitation of energy and adjoining states such as Argentina and Brazil,
whose consumption is supplied largely by Bolivia.
Based on the above, this paper starts from the idea that at a time of high international
prices on commodities, including energy, as was the first decade of the twenty firs
century3
, Evo Morales sought to comply with a dual aim through the nationalization of
hydrocarbons: to increase the weight of the state in the sector, particularly in terms of
tax collection, and plan different social policies to address the needs of the poorest and
most vulnerable population groups. Thus, control of the national energy industry
became the driving force for consolidating the political project of MAS at home, while in
the external agenda it revitalized the role of the YPFB in existing energy contracts.
Accordingly, this paper intends to unravel a series of questions that are intrinsically
related: What are the most significant aspects in the nationalization of Bolivian
hydrocarbons? How will this decision impact on the Argentine-Bolivian and Bolivian-
Brazilian ties? And in connection with the previous point, what were the key similarities
and differences in the negotiations undertaken by Argentina and Brazil?
The nationalization of hydrocarbons: politics & energy, a complex
binomial
The report of the World Trade Organization (WTO) in 2010 dedicated a special section
to the trade of natural resources. It describes natural resources as "stocks of materials
that exist in the natural environment that are both scarce and economically useful in
production or consumption, either in their raw state or after a minimal amount of
processing” (Report WTO, 2010: 5). This definition suggests the strategic feature of
nature’s goods in general, especially when it comes to energy resources. Within the
group of non-renewable products, natural gas is considered to be the fuel of the twenty
first century in that it has a number of positive factors, such as positive global indices
in levels of reserves/production; it is cleaner than coal and other petroleum-based
products; it has an efficient combustion in the generation of electricity and its use is
very important in the production of basic petrochemicals, among others (Ríos Roca,
2013: 16-18).
Compared to other regions of the world, natural gas reserves in Latin America and the
Caribbean are not significant since they represent only 3.8% of world reserves.
However, this figure takes another meaning when evaluating the actions of
governments in the sector. As advanced by Linkohr, Latin America is one of the regions
where power and politics have a special connection. This does not mean ignoring the
existence of this relationship in other parts of the world, but it must be stressed that in
the case of Latin American countries, energy is significant when it comes to politics
(2006: 90-91). This argument can be clearly seen in Bolivia where, after the collapse of
the tin industry in 1985, "gas became the most important natural resource of the
country" (Gordon & Luoma, 2008: 89) and therefore the main source of government
3 On this matter see the research conducted by Acquatella, et. al. (2013), Rentas de recursos naturales no
renovables en América Latina y el Caribe: evolución y participación estatal, 1990-2010 for the seminar
CEPAL Gobernanza de los recursos naturales en América Latina y el Caribe: desafíos de política pública,
manejo de rentas y desarrollo inclusivo.
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revenue. As expected, thereafter the exploitation of hydrocarbons has been central,
with varying connotations, when making decisions on political and economic matters.
As happened with its neighbours, Bolivia was not without its own neoliberal wave in the
nineties and YPFB was one of the first public companies to be in the hands of foreign
operators during the first presidency of Gonzalo Sanchez de Lozada (1993-1997).
According to Campodonico, Bolivia, together with Argentina and Peru, became leaders
on the privatization of their energy industry in South America. While recognizing that
each country had specific features, their respective governments reformed the legal
framework to encourage foreign investment in the upstream and downstream sector
(2007: 40-42)4
The YPFB trans-nationalization was made possible by Capitalization Law 1544 of 1994
and the 1689 Hydrocarbons Law of 1996, which laid the legal basis for going from "a
state vision of the oil and gas economy, which was in force for 60 years, to one of total
privatization" (Villegas Quiroga, 2004a: 74). The capitalization of YPFB resulted in three
operating units established as joint stock companies: Chaco and Andina - responsible
for exploration and production- and Transredes, which brought together the transport
capacity. Therefore YPFB, an emblematic company for Bolivian society, went through a
process of dismemberment that limited its action to the provision of hydrocarbon to
export markets (Villegas Quiroga, 2004a: 76). It should also be added that its
capitalization - justified in the pursuit of economic growth and welfare of the population
- had no positive impact on national socio-economic indicators. On the contrary,
statistics show that from an overall perspective, the policy of openness and economic
liberalization had favoured the construction of a poorer and more unequal society
(Nogales Iturri, 2008). At the end of 2005, i.e., coincident with the first electoral
triumph of Evo Morales, moderate poverty reached 60.6% of the population; extreme
poverty affected 38.2% and the Gini coefficient was 0.60 (UDAPE, Statistical
Information: s/f). These data are similar to the information provided by the Economic
Commission for Latin America and the Caribbean (ECLAC). After two decades of
neoliberalism, in 2004 63.9% of Bolivian society was mired in poverty, which was much
higher in rural areas, affecting 80.6% of the population. Nationally, indigence stood at
34.7% and in rural areas it emulated the behaviour of poverty, that is, had higher rates
(58.8 of the total population). As for inequality, the statistics showed a Gini coefficient
of 0.56 for the same year
. Furthermore, Sanchez Albavera & Altomonte argue that the energy
reforms carried out in Latin American countries during this period were 'similar' in their
origins and motivations. There was widespread belief that the state-led management
model was agonizing - many state enterprises were in a serious financial situation due
to the debt crisis of the eighties - and that the supply and demand game would make
the industry efficient (1997: 29).
5
These indicators show that the privatization of the energy industry focused on
strengthening hydrocarbon production for the foreign market without income from
commercialization, or at least most of it, being reinvested in the country. Under the
slogan that repositioning the state against transnational energy traders was a 'historical
.
4 Among the most important general reforms, the following stand out: reducing the percentage of royalties
to be paid by the multinationals, the relaxation of investment conditions, the no obligation to share the
findings with the state, and the liberalization of the fuel market.
5 These data correspond to the CEPAL Database and Statisticla Publications (CEPALSTAT), where statistics
and indicators per country can be consulted interactively. Available at:
http://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/Portada.asp. Accessed on 17/04/2015.
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imperative', on 1 May 2006 Evo Morales, accompanied by ministry officials and
representatives of social movements - and a large deployment of the Armed Forces in
the San Alberto field in Tarija - decreed the nationalization of hydrocarbons, stating:
“The much awaited day has come, a historical day for Bolivia to
resume absolute control of our natural resources […] No more
looting by international oil companies” (Clarín: 02/05/2006).
From the overall analysis of Decree 28.701 "Héroes del Chaco", the following
considerations emerge: First, its most salient provisions are aimed at laying the
groundwork for YPFB, which from now on will be acting on behalf of the state – to have
a higher manoeuvrable capacity, offsetting the place of foreign companies in both the
upstream and the downstream sector. To this end, at least 51% of the shares of the
companies resulting from the process of trans-nationalization of the nineties (Decree
28,701: 01/05/2006) was recovered. In practical terms, this was achieved by paying
compensation – either by agreement or request - to companies affected by the
measure.
Secondly, as a sign that Morales’ nationalization did not exclude the participation of
foreign investment, energy operators were given 180 days to comply with the
provisions of the Decree and sign new contracts, otherwise they would be barred from
continuing the activity. Accordingly, international agents should respect the
requirement mentioned above and comply with Hydrocarbons Law 3058 that was
passed during the brief tenure of Carlos Mesa Gisbert (2003-2005) following the
resignation of Sanchez de Lozada. That law had ensured a higher percentage of
revenues from the sector than Hydrocarbons Law 1689 (1996). While the latter
reduced taxes for transnational companies from 50% to 18% on royalties and
participations (Gandarillas Gonzales, 2008: 72), Law 3058 set again this percentage,
i.e. 50% of the value of production as a result of the sum of 18% of royalties and of
32% of the Direct Tax on Hydrocarbons (IDH). The IDH is of great importance in
economic and socio-political terms because income is shared among producing
departments, non-producing ones and the General Treasury of the Nation. The
government allocates the balance to municipalities, universities, the Indigenous Fund,
and the Armed Forces, among others (Law 3058: 17/05/2005)6
The 44 signed contracts had in common the fact that YPFB ensures a levy of 50% of
production value and retains ownership of the deposits and production at control point.
Foreign companies continue to be part of the exploitation of gas fields as 'remunerated
contractors' due to YPFB’s inability to conduct proprietary trading (Zaratti, 2013). The
companies assume the costs of activities as well as risks, but benefit from the clause
'recoverable costs', which cover items such as staff costs, materials, transportation,
depreciation of fixed assets, insurance, and foreign exchange differences, among
others. These costs vary according to the contract and are percentages that YPFB
.
6 It must be added that during the transition period – up to the signing of contracts between YPFB and
international companies – energy operators must also pay 32% of the value of production for the
additional participation of YPFB in the fields. In 2005, the certified production of natural gas was over 100
million cubic feet per day (article 4 Decree 28.701).
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reimburses to transnational operators (Medinaceli Monroy, 2010: 26). In the words of
Molero Simarro et. al., existing contracts
"rarely pose a risky scenario for foreign companies [because] they
continue to exploit the concessions on deposits with proven and
probable reserves they already knew about, and also with markets
assured by the state" (2012: 167).
Thirdly, the writing of the Decree shows that the nationalization of hydrocarbons was a
goal in itself but also a tool to make viable a set of decisions and actions that are part
of MAS’ government programme. If, as Linkohr argues, in Latin American countries the
control of energy resources enables political actions, this nationalization largely
confirms that assertion. It suffices to see the areas the government has allocated the
bulk of the revenue derived from the external gas trade.
Since 2007, fiscal resources have grown significantly thanks to a higher tax burden -
Decree Law 28.701 and Law 3058 - and a favourable international context in energy
prices, with the exception of 2009 due to the impact of the global financial crisis. In the
period 2007-2013, oil revenues nearly quadrupled from US $ 1,533 million to US $
5.5856 billion (YPFB Special Report: 06/08/2013). This had a direct impact on the
evolution of the annual Gross Domestic Product (GDP), which in the same period rose
from 4.56% to 6.78%, experiencing a slight decrease in 2009 (INE, Press Release,
04.23.2014).
This situation of greater economic well-being has allowed the Morales administration to
deploy a set of social policies designed to alleviate poverty, inequality and shortcomings
in the areas of health and education that are financed from the central government
through resources from the General Treasury of the Nation and the IDH (Morales,
2010). Social policies are tools that governments implement "to regulate and
supplement market institutions and social structures" (Ortiz, 2007: 6). While not new
to this century, what indeed has changed is the design and the purposes that they
pursue. Unlike the eighties and nineties when social policies had a purely charitable
nature and sought to cover market failures, at present Latin American countries see
them as part of the primary functions of the state because they bring economic growth
to population groups who do not automatically benefit (Ortiz, 2007: 9).
Within these policies, the conditional cash transfer (TEC) programmes stand out, which
are aimed at the poorest populations, where the benefits and conditions - the
requirements to be met by the recipients - vary according to politics and country
(Sauma, 2007: 5). Other policies must be added to this set, such as social pensions
and labour inclusion and production programmes. The most important fostered by the
MAS include the Juancito Pinto and Juana Azurduy Bonuses, the Universal Old Age
Pension or Dignity Pension, the Zero Malnutrition Programme, and My First Decent
Job.7
7 Reference to these programmes is merely illustrative of the mentioned social policies. This does not mean
ignoring the existence of other programmes that also seek to address issues related to poverty and
vulnerability. Examples include the literacy programme Yo sí Puedo (Yes I Can), the professionalisation of
Their main differences, however, are the social protection strategies they pursue
and the purpose behind the regulation. The following table summarizes these aspects:
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Figure I: Social Policies
Social
Programmes
Recipients
Strategies to adopt
Purpose of the
regulation
Juancito Pinto
Bonus
Children and
Adolescents
Building human
capabilities
Education: encourage
school enrolment and
retention
Juana Azurduy
Bonus
Mothers and children
up two years of age
Health: reducing
maternal and child
mortality
Zero
Malnutrition
Families with minors
Nutrition: fighting
hunger and poverty
Dignity
Pension
Bolivians over 60 who
receive or not an
income from the social
security system
Increasing and
improving income Long-
term social
security: expanding
social protection
My First
Decent Job
Young people from
urban and suburban
areas with low income
Building human
capabilities
Labour inclusion: to
facilitate insertion and
expand the number
of jobs
Source: Own calculations based on data from Morales (2010); Plurinational State of Bolivia -
Ministry of Planning and Development-UDAPE (2011).
It should be emphasized that programmes in Bolivia are not an isolated event but have
a parallel in multiple policies currently being developed in Latin America and the
Caribbean. Some of them have been in force since the early years of this century and
even since the nineties. Examples include the Previdência Rural Program – Rural
Welfare Programme (1993, Brazil); the Pensión Mínima de Vejez - Old Age Minimum
Pension (2001, Peru); Más Familias en Acción - More Families in Action (2001,
Colombia); Chile Califica - Chile Qualifies (2002, Chile), and Jóvenes con Oportunidades
- Youth with Opportunities (2003, Mexico)8
When analysing the results of such social policies in Bolivia, one finds that they are
preliminary in nature but are, at the same time, associated with reducing poverty and
inequality. The latest official data from the Analysis of Social and Economic Policy
(UDAPE), which provides technical assistance to the government – indicate that in the
2005-2011 period, moderate poverty increased from 60.6% to 45% and extreme
poverty dropped from 38.2% to 20.9%, the whole Gini coefficient declined from 0.60 to
0.46 (UDAPE, Statistical Information: s/f). The ECLAC statistical information also
reflects an even more significant falling movement. By 2011, the poverty rate was at
36.3% of the population and indigence stood at 18.7%. In turn, the Gini coefficient was
0.47
.
9
interim teachers, community incentives, the school breakfast programmes, etc. See “Programas de
Transferencias Condicionadas en Bolivia: Bono Juancito Pinto, Bono Juana Azurduy” (2011). Available at:
.
http://www.rlc.fao.org/es/prioridades/seguridad/ingreso6/documentos/Presentaciones/Países/BOLIVIA.pd
f. Accessed on 13/11/2014.
8 I recommend consulting the CEPAL database, which contains dozens of social programmes operating in
Latin American and Caribbean countries in the areas of Conditional Transfers, Social Pensions and Labour
and Productive Inclusion Programmes. Available at http://dds.cepal.org/bdptc/. Accessed on 18/04/2015.
9 CEPAL Database and Statistical Publications (CEPALSTAT). Available at
http://estadisticas.cepal.org/cepalstat/WEB_CEPALSTAT/Portada.asp. Accessed on 17/04/2015.
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In short, the nationalization of hydrocarbons understood as an objective and policy
tool presents positive aspects and questions to resolve. Considering the circumstantial
limitations, the Morales administration undertook the state recovery of YPFB, seeking to
place the state in control of the energy income but without letting go of foreign
investment as guarantor of the exploration and exploitation activities. As mentioned
earlier, the high international prices during the first decade of the twenty first century
and the payment of higher taxes than in the nineties generated growing revenues and
a steady increase in the GDP and FDI, highly concentrated on the oil and gas activity to
the point that in 2012, it accounted for 62.9% of the total FDI that entered the country
(BCB, 2014: 22). This economic boom was useful for MAS’ goals of establishing a more
distributive model. The poverty and inequality levels responded positively to the many
social programmes that have been put into operation. However, they did not directly
solve these problems, especially because the revenues supporting them are volatile.
Integral actions that fall within a national development strategy are required. In
addition, these measures have some shortcomings, particularly the conditional transfer
policies. As programmes with little experience, there are difficulties in implementing
them. There is lack of complementarity and coordination between the actors and the
different levels of government, weaknesses in their monitoring and assessment and
incompatibility between the information systems of the central government and rural
municipalities (Morales, 2010: 6).
On the other hand, this cycle of growth and economic stability following the
nationalization has reaffirmed the country's dependence on the exploitation of energy
without added value. Advances in the industrialization of the sector are still not
significant and there are notorious delays regarding the expansion and modernization
of refineries operating in the country (Zaratti, 2013). These are no minor points if the
government wants to work on a vision of economic development in the long term that
goes beyond an economy anchored in the extractive economy.
Argentina and Brazil: regional partners against nationalization
Nationalization as a political tool was also part of Bolivia’s external agenda. In a country
where the foreign trade of hydrocarbons sets the direction of the economy, the Morales
administration had to use its bargaining power to agree on new rules in the sector
without losing investments or markets. In this context, the governments of Argentina
and Brazil, which are top destinations for Bolivian exports, had to renegotiate the terms
of hydrocarbon imports and exports. This indicates that the energy issue plays an
important role in the relations Bolivia maintains with these two neighbours. However,
its rise in the bilateral agendas and its subsequent treatment had more differences than
similarities.
From March 2004, Argentina’s government began to experience a major energy crisis
that manifested itself in difficulties in domestic supply and problems to meet natural
gas exports to Chile, agreed in the mid-1990s. Faced with this critical situation, the
government of Nestor Kirchner (2003-2007) asked his Bolivian counterpart Carlos Mesa
Gisbert for the temporary secondment of natural gas to mitigate the negative
consequences of the lack of self-sufficiency. On 21 April 2004, the two leaders signed a
purchase and sale agreement in Buenos Aires for an initial volume of 4 MMm3 per day
for a period of six months, which was subsequently renewed twice until 31 December
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2006 for an amount of 7.7 MMm3. On the one hand, this agreement opened a new era
of rapprochement in bilateral relations due to the import and export needs of each of
the actors involved. On the other hand, it was an indication of the errors committed by
the Argentine governments since the nineties in the treatment of energy, considering
that natural gas represents over 50% of the national energy matrix. The purchase of
Bolivian hydrocarbon resurfaced a project that had been launched by the Argentine
government in 2003: the construction of the pipeline in north-eastern Argentina
(GNEA). This infrastructure project was intended to transport Bolivian natural gas to
the provinces in the region that do not have access to it (Federal Agreement for
launching the pipeline in north-eastern Argentina, 24/11/2003). As expected, former
President Gisbert explicitly endorsed the project as it would help increase sales and
thus the country’s tax revenue. However, the marketing of energy in Bolivian-Brazilian
relations today did not ascend unexpectedly and was motivated by a national energy
crisis scenario. Efforts to market natural gas began in the seventies after the first oil
shock, which enhanced the strategic nature of energy in the state agenda, but did not
result in definitive agreements. The arrival of Petrobras in the nineties to San Alberto
and San Antonio mega fields was crucial at the beginning of the export of natural gas to
Brazil, particularly because the company had information about the existence of
reserves to supply the main cities of the country (Villegas Quiroga, 2004a: 89-94). In
1996, YPFB and Petrobras signed two agreements: a natural gas purchase and sale for
a period of 20 years, with a projected daily sending of 30.08 MMm310
Although the contractual motivations were different, namely the crisis in Argentina’s
case and a political decision in the case of Brazil, the 1996 and 2004 agreements
consolidated a clear situation of exporter/importer 'dependency'. This commercial
binomial was evidenced by: a) the role of gas in Bolivian exports to both countries. In
Argentina and Brazil, this hydrocarbon corresponds to over 90% of total imports from
Bolivia; b) Argentine purchases have had a rising trend in less than 24 months, from
794.790 Mm3 2004, and when the agreement was signed to 1,734.946 Mm3 in late
2005 (IAPG, Statistical Information, s/f); c) the percentage of Bolivian natural gas
consumed in Brazilian cities located southeast stands at between 50% and 100%
(Carra, 2008).
and another for
the construction of a bi-national gas pipeline (natural gas purchase and sale contract
between Petrobras and YPFB, 16/08/1996, Villegas Quiroga, 2004b: 41-42). The latter,
whose inauguration was in 1999, connects the Bolivian gas fields with south-eastern
Brazil, from São Paulo to Porto Alegre. The Cuiabá pipeline that feeds a power station
in the State of Mato Grosso derives from this pipe.
Despite the surprise that the announcement of the nationalization caused, the
government of Nestor Kirchner and Lula Da Silva lent it their support. They understood
it as a sovereign decision and in face of it expressed their willingness to renegotiate the
purchase-sale of natural gas under the current legal framework – Law 3058 and Decree
Law 28.701- but seeking to ensure state and corporate commercial interests involved in
the hydrocarbon import. As expressed in the Declaration of Iguazú, "energy integration
[is] essential to regional integration [although] discussion on the price of gas should
take place within a rational and fair framework" (Joint Declaration of the Summit of
Puerto Iguazu, 04/05/2006).
10 Usually known as the Gas Supply Agreement (GSA).
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When Decree 28.701 was announced, Argentina’s energy context was in a quite
unfavourable situation: the domestic consumption of natural gas grew about 12%
between 2003 and 2005 but not the reserves, due to lack of upstream investments.
They fell from 612.291 MMm3 to 438.921 MMm3 in the same period (IAPG, Statistical
Information, s/f). In addition, Argentina had no impact on the phases of the Bolivian
energy industry since hydrocarbon imports were the responsibility of international
companies, especially Repsol, operating in Bolivia, that had participated in the
privatization of Argentina’s state company Yacimientos Petrolíferos Fiscales (YPF)11
For its part, Brazil offered a different picture. For the first five years of the twenty first
century, natural gas played a reduced role in the national energy matrix, of around 9%
(EPE, 2030 National Energy Plan, 2007). The power crisis the country went through in
2001 acted as a trigger and led the Ministry of Mines and Energy to foster the
expansion of the domestic supply of natural gas (De DICCO, Deluchi & Lahoud, 2008,
1-4). To undertake this measure, the Lula administration was counting on the YPFB-
Petrobras contract and in parallel decided to foster exploration and exploitation
activities.
.
Unlike Argentina, whose reserves fell between 2003 and 2005, Brazil saw a slight
improvement from 245.340 MMm3 to 306.395 MMm3 (ANP, 2013). Thus, in the face of
Bolivia’s nationalization, Brazil showed signs of reduced domestic consumption, rising
reserves and Petrobras's presence in the energy industry of its neighbour. By 2005,
Petrobras was operating 45.9% of total proven and probable gas reserves and
monopolized refining activities after buying the Gualberto Villarroel (Cochabamba) and
Guillermo Elder Bell (Santa Cruz) refineries in 1999 (2004a: 146-147 ; YPFB Technical
Report, 01/01/2005).
The differences in the contexts of Argentina and Brazil meant that the negotiation
processes undertaken by both administrations had their own characteristics. Lacking
influence in Bolivian production and exports, the government of Nestor Kirchner set
about negotiating the price and the quantities of natural gas. As a first step, they
signed a macro agreement with Evo Morales on 29 June 2006 which defined the
contractual relationship until the end of that year and anticipated a future purchase and
sale agreement under Decree 28.701. A value of $5 million per million BTU was
negotiated for the period between 15 July and 31 December 2006, with a commitment
to send 7.7 MMm3 per day. This amount had been agreed in a 2005 addendum12
11 YPF was created in 1922. The privatization process began in 1992 and a few years later the entire stake
was acquired by the Repsol group (Gadano, 2013).
(Framework Agreement between Argentina and Bolivia, 29/06/2006). In that same
meeting, the representatives set as a goal the signing of an agreement with a term of
20 years that predicted the gradual expansion of shipment, namely 7.7 MMm3 per day
from 2007 to 27.7 MMm3 by day between 2010 and the end of the agreement. Such
commitment exposed the need to undertake the construction of the GNEA in the
absence of infrastructure between the two countries to transport the agreed quantities
(Framework Agreement between Argentina and Bolivia, 29/06/2006). The contract
between the two countries was signed on 19 October 2006, with YPFB and Energía
Argentina Sociedad Anónima (ENARSA), which was created by government decision in
12 The price issue was the subject of several meetings, since Evo Morales demanded a price of US$ 6 per
million BTU, which the government of Argentina could not afford.
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December 2004, being responsible for the hydrocarbon purchase and sale (Contract
between ENARSA and YPFB, 19/10/2006).
In the first term of Cristina Fernandez (2007-2011), the ENARSA-YPFB contract had to
be adjusted through an amendment agreed on 26 March 2010 because neither
company could meet its obligations, which prevented the trade link from proceeding
normally. Due to difficulties inherent to the adjustment process after the
nationalization, YPFB sent shipments lower than those agreed in October 2006 (La
Razón, 26/09/2006) and Argentina’s government delayed the start of the bi-national
gas pipeline construction due to lack of funding. Therefore, the administrations of
Fernández and Morales reviewed the weakest points of the agreement: the
transportation capacity and supply and reception volumes. Where did this addendum
lead to? According to existing possibilities, the implementation of a smaller
infrastructure called Juana Azurduy Integration Gas Pipeline was negotiated to expedite
the import of hydrocarbon. The pipeline was inaugurated in 2011 and was designed to
join the GNEA once the Argentine government completes its construction. As a second
step, ENARSA and YPFB officials changed the contracted daily production (CDC) to
gradually add larger volumes of hydrocarbon. According to the addendum, a 27.7
MMm3 CDC per day was predicted as from 2021 (Annex D First addendum to the
ENARSA-YPFB contract, 26/03/2010). These changes have enabled a greater
stabilization in the export of natural gas. The data provided by ENARSA show that as of
the signing of the addendum, the amounts have increased every year from 1851 million
MMm3 in 2010 to 5690 MMm3 in 201313
Negotiations between the governments of Morales and Lula were not expeditious as in
the Argentine case because the continuity of the energy supply to a region of great
economic dynamism - very dependent on gas - and the presence of Petrobras in
Bolivian territory as a transnational operator were at stake. The sensitivity of the issue
caused a reactionary stance on sectors like the company itself, the opposition political
forces and much of society, who demanded the Brazilian State and Petrobras to be
assertive when evaluating the requests of the Morales administration (Neiva Santos
Magalhães, 2009). In particular, the Brazilian Social Democracy Party (PSDB) claimed
vehement action without concessions from the Workers Party (PT), which was also
criticized for its foreign policy performance in general and especially for its attitude
towards the nationalization of Bolivian hydrocarbons.
.
“[...] It is vital that the authorities of the Federal Government
clarify the consequences of the nationalization of PETROBRAS in
Bolivia [...] The situation is very serious, Mr. President. The
Brazilian government underestimated the crisis and has been
behaving incompetently [...] PETROBRAS is a heritage of Brazil.
We must care for this company" (Feijó -PSDB- Journal of the
House of Representatives, 04/05/2006).
13 ENARSA, Evolution of purchases of natural gas from Bolivia. Available at
http://www.enarsa.com.ar/index.php/es/gasnatural/125-gas-de-bolivia. Accessed on 19/04/2015.
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[...] “The best picture of President Lula’s erratic foreign policy was
the Bolivia episode [...] Lula did not condemn Evo Morales, he
justified the act and accepted the breach of contract" (Alckmin in
PSDB Note, 06/05/2006).
The government was not a supporter of radical statements and opted to favour the use
of diplomacy to negotiate with the government of Bolivia and YPFB executives. The
negotiating process was complex because the aim went beyond the signing of a
purchase and sale agreement as had happened with Argentina. It had the difficult task
of defending the interests and safeguarding the achievements of Petrobras in upstream
and downstream activities of Bolivia. Finally, the agreement between YPFB and
Petrobras was signed on 28 October 2006, a few days before the deadline set by
Decree 28. 701. The MAS argued that after the nationalization, Petrobras and other oil
companies in the country were service providers to YPFB (Los Tiempos, 19/05/2008).
Instead, the board of the Brazilian company argued that the 2006 agreement was more
like a production sharing contract because "according to the contract, company
receives for its share of the sales and additional profit, besides costs. The risk of
additional profit continues to remain with the consortium (formed by Petrobras, Repsol
and Total), which, therefore, has the market risks. Accordingly, it is not a services
provision contract "(Agência Câmara Notícias, 6/12/2006). Other points illustrating the
distance from the ENARSA-YPFB Agreement are: a) the main objective - adjusting the
exploration and production of Petrobras in Bolivia, especially in the San Alberto and San
Antonio fields; b) – the assets belong to Petrobras until the end of the contract-; c)
Petrobras investments are guaranteed and some of these may be considered in the
provision 'recoverable cost '- (Petrobras Agency, 21/11/2006).
The price treatment and the sale of refineries Petrobras had acquired in the late
nineties were negotiated at the beginning of Lula's second term. At the signing of the
Act of Brasilia on 14 February 2007, Petrobras agreed to pay international prices for the
so-called 'rich gas', i.e. hydrocarbon fractions such as propane, butane and natural
gasoline included in the exports of Bolivian hydrocarbon (Act of Brasilia, 14/02/2007).
The price of gas feeding the Cuiaba power station had a rise of US $3 per million BTU.
This sparked criticism from the opposition although the arrangement was positive for
Brazil because it reinforced its status as a ‘strategic partner’ and received a lower
amount than what Morales claimed - US$5 less -, which, in turn, was lower than the
price negotiated by Nestor Kirchner in 2006. The refineries were transferred to YPFB in
June 2007 for the amount of US $ 112 million. Morales publicized the recovery of the
refineries as an achievement of the nationalization. However, the sale was a decision of
the Brazilian company to concentrate its efforts - in terms of investment and resources
-in the phases of exploration and exploitation that allow ensuring the delivery of natural
gas to Brazil (Petrobras Agency, 26/06/2007).
Conclusions
The nationalization of Bolivian hydrocarbons in 2006, as a pillar of the process of
redefining the link state-foreign investment, is a clear example of the synergy between
politics and energy. By repositioning the state in a strategic sector of Bolivia’s
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economy, the MAS has fulfilled a goal that was present since its presidential campaign
and transformed it into a political tool.
The official nature of the act could exert a higher tax pressure on multinationals
operating in the country and a more centralized control of income generated by the
commercialization of energy. Much of that revenue is allocated to the implementation
of several social policies - conditional and non-conditional cash transfers – aimed at
fighting poverty and inequality. The consulted statistics show that these programmes,
by bringing the most vulnerable populations closer to several areas of social protection,
have helped improve socio-economic indicators in general. However, since these
policies are almost exclusively sustained by the export of a non-renewable resource,
the government should be alert to the risks faced in terms of enforcement and/or
continuity, when energy prices on the international stage decline.
In terms of exporter/importer relations, the cases of Argentina and Brazil have more
differences than similarities, being analogous as to the context that led to the rise of
the energy issue in their national agendas, such as the impact of Decree 28.701 and
negotiations and results between their companies and the YPFB. The common elements
were the situation of 'gas dependence' that has been forged over the years and the
confusion following the nationalization regarding the interests at stake. Argentina,
during the energy crisis, had little scope for action. The deficiency in the management
of energy, manifested in the decline of reserves and the absence of a state company to
intervene in the Bolivian gas production, could only ensure the signing of a contract of
purchase and sale, which ENARSA had little chance of exerting pressure before a
possible change in the rules. Despite the aforementioned criticisms, Brazil affirmed its
place as the first partner in the Bolivian trade balance and managed to adjust the
provisions of the nationalization to much of its objectives, since both the sustainability
of hydrocarbon shipments and the interference of Petrobras in the energy industry of
its neighbour could be preserved.
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