BIG OIL SIGNS NEW CONTRACTS WITH BOLIVIA UNDER THREAT OF MILITARY TAKEOVER

by Franz Chavez

(IPS) LA PAZ -- A new contract for increased sales of natural gas to Argentina and the threat of military force to expropriate the assets of firms that refused to renegotiate their contracts gave the new leftist government the clout it needed to pressure 10 foreign oil companies to agree to new pacts.

Any company that refused to negotiate new contracts risked being immediately taken over by the military and experts from the state-run Yacimientos Petroliferos Fiscales Bolivianos (YPFB) oil company to guarantee domestic fuel supplies, Bolivian President Evo Morales said in a briefing with correspondents Tuesday.

On May 1, Morales decreed the re-nationalization of the country's energy reserves, which were privatized in the mid-1990s, and set a 180-day deadline for companies to negotiate new terms of operation and tax rates.

A combination of military and business strategy provided the context for the recovery of state control over the country's vast natural gas reserves, which were in the hands of foreign oil companies that had paid a mere 18 percent in royalties for a decade.

With his tough stance, Morales, the country's first Native president, has thus converted the foreign firms into mere operators for YPFB.

Prior to signing the agreements when the six-month deadline expired on Saturday, all of the companies promised not to take legal action in any international court, Energy Minister Carlos Villegas told IPS, describing how South America's poorest country was able to recover control over its natural gas and oil reserves.

Bolivia is thus no longer a simple supplier of raw materials, but has become a skillful negotiator which hopes to industrialize its energy reserves.

This country has 48 trillion cubic feet of known natural gas reserves, the biggest in South America after Venezuela's. Nevertheless, around 65 percent of the country's population of nine million lives below the poverty line.

"I am prepared to sign this document, knowing that it is one of the toughest ever, and that it will bring consequences for future contracts," an executive of one of the foreign oil firms told YPFB adviser Manuel Morales Olivera.

Nearly 70 contracts will be made available to the public when they begin to be submitted next week to Congress for approval. That contrasts with the secrecy that has surrounded investment agreements since the first term of right-wing president Gonzalo Sanchez de Lozada (1993-1997), who offered the foreign companies lucrative deals when he privatized the country's natural gas reserves.

Sanchez de Lozada was unable to complete his second term, which began in 2002, due to a month-long October 2003 social uprising over plans to export natural gas to North America through a Chilean port. Morales was one of the leaders of the protests.

After at least 60 demonstrators were killed when Sanchez de Lozada called out the army to break up the protests, he was forced to step down on Oct. 17, 2003. He fled to the United States, where he had been raised, spending so many years there that he speaks Spanish with an American accent.

The 10 companies that signed new contracts Friday and Saturday were Brazil's Petrobras Energy and Petrobras Bolivia; the French company Total; Pluspetrol from Argentina; the British Gas Bolivia Corporation; British Petroleum-Amoco's subsidiary Chaco; the Spanish-Argentine Repsol-YPF and its local subsidiary Andina; and the U.S.-based Vintage Petroleum and Matpetrol.

Now it is up to the legislature, which is to be sent the new contracts by Nov. 20. The new arrangements continue to give rise to varied interpretations with respect to revenues, taxes and profits.

Bolivia's bargaining power grew after Oct. 19, when Argentine President Nestor Kirchner gave a strong boost to Morales' nationalization plan by signing a 20-year contract that more than tripled the amount of natural gas Bolivia sells to Argentina.

The agreement with Buenos Aires was decisive for the strategy followed by the Morales administration, which held it up as an inducement and an investment opportunity for the oil companies, especially Repsol-YPF.

The Argentine-Spanish firm announced that it would invest one billion dollars in the Margarita gas field, in the southern province of Tarija, in order to meet increased Argentine demand, which will climb from the current 7.7 million cubic metres of gas a day to 27.7 million as of 2010.

Morales' nationalization process was atypical, as it did not include the seizure of company assets and account books, noted Alexis Perez, a professor of history at the public Mayor de San Andres University (UMSA).

The government deserves to be congratulated on how it was carried out, he told IPS, although he added that he would wait to see the contents of the accords and the conditions in which they were achieved, before making a final assessment.

But Perez said the government does not have a program that would encourage the strengthening of the national productive apparatus and invest the enormous future gas revenues announced by Morales in long-term initiatives to diversify the economy and eventually replace natural gas, which could run out in 40 years.

The oil companies will pay an estimated $67 billion in taxes, royalties and transport costs over the next 30 years, said Villegas.

From 2007 to 2010, the corporations will invest $3.5 billion in exploring and developing fields to increase output and meet the rising demand from Argentina and the requirements of the huge Brazilian market, said the minister.

The decision to turn Bolivia into the energy hub of the central part of South America and a nationalization model without asset seizures encouraged the companies to commit themselves to long-term agreements and major investments, said Villegas.

He pointed out that during two earlier nationalization processes, Bolivia seized the assets of U.S. companies, for which it paid compensation. But the lack of capital then forced it to invite foreign corporations back in.