Shengli Delays Signing YPFB Contracts, Pending New Law

Chinese oil company Shengli Oilfield International Exploit has delayed signing contracts with Bolivia's state oil company YPFB until the new hydrocarbons bill becomes law, which it hopes will happen in January, a Shengli spokesperson told BNamericas Friday.

Shengli had planned to sign about seven contracts with YPFB in December 2004, but delayed the plans pending the approval of the new law. "We are already about a month behind due to the lack of a hydrocarbons law and we are still waiting for the new law," the spokesperson said.

"For example, the exploration and production contracts would have to refer to certain articles in the new law," the spokesperson said. If, as Shengli hopes, the law is approved in January, contracts with YPFB could be signed by end-February, the spokesperson said.

Bolivia's congress began approving some articles of the bill in December, but the more controversial articles, such as those related to increasing taxes and royalties on hydrocarbons production up to 50% and forcing companies with existing contracts to accept the new terms, have been left until this month.

Foreign companies are concerned by the lack of legal certainty in Bolivia and by the terms of the new law, which would give the national government sovereignty over hydrocarbons at the wellhead. As a result, some companies have delayed announcing investment plans until the law is passed.

But the delay has not changed Shengli's plans to invest at least US$1.5bn in the country's hydrocarbons sector, the spokesperson said, adding, "Shengli has not reduced its interest in Bolivia at all, but out of respect for the country we are waiting for the approval of the law." "Shengli's policy, ever since it arrived in Bolivia, has been to respect the process of the Bolivian congress and we will respect everything the new law says," the spokesperson said.

Meanwhile, Shengli engineers are continuing work on technical studies for the contracts. Although many engineers have gone home to China for vacations over the New Year, Shengli has opened an office and is in Bolivia for the long haul, the spokesperson said.

The contracts will include at least one 1,500MW thermoelectric plant near Villamontes on the border with Argentina, a 600,000 tonnes/year polyethylene plant, two refineries (the respective sizes of which are presently under consideration), the installation of 40,000 vehicle conversion kits and 250,000 residential gas connections, and doubling the service station network of state oil company YPFB to 80 outlets.

Shengli and YPFB will also sign exploration and production contracts for about 10 blocks located in the Chaco and Chapare areas of Bolivia as well as in the country's north, and build a pipeline from the wells to their petrochemicals plant. Shengli signed a preliminary strategic alliance with YPFB in September 2004, and China's national bank has provided YPFB with a US$15mn guarantee of Shengli's investment plans.

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