Petrobras Optimistic About Negotiations with Morales Govt

The popularity of Bolivia's new President Evo Morales is good news for Brazil's federal energy company Petrobras (NYSE: PBR), which wants to continue investing in the country to increase natural gas exports to Brazil, Petrobras gas and energy director Ildo Sauer said in a radio interview on Monday morning.

"Past governments in recent years were not able to implement agreements made [with other countries] because the decisions went against the people's wishes," Sauer told radio station CBN. "The perspectives for negotiations now are very good [because] we have a head of state who has the credibility and the conditions to solve the issues."

Morales won the December election with 54% of the popular vote, giving his MAS socialist party a majority in congress. Morales took power on January 22 and one of his key campaign promises was to nationalize the country's hydrocarbons resources.

Two presidents since 2002 - Gonzalo Sanchez de Lozada and Carlos Mesa - have been ousted by popular protests against government hydrocarbons policies.

"The concept of nationalization has yet to be resolved," Sauer said. "What we know is that the new government wants YPBF [the Bolivian state oil company] to have greater participation in the gas business."

Another reason why Sauer says Brazil has little to fear from Morales' new government is the energy interdependence between the two countries. Brazil buys Bolivian gas at relatively low prices, while Brazil offers a large and growing market for Bolivia's gas reserves.

"We have a contract to buy up to 30 million cubic meters a day (Mm3/d) of Bolivian gas and there is no risk this supply will be cut off," Sauer said. "The agreement is good for both sides."

Brazil is currently importing some 24Mm3/d from Bolivia through Petrobras' 3,000km Brazil-Bolivia natural gas pipeline (B2B), equivalent to 58% of total daily consumption in Brazil.

Brazil's gas purchases guarantee yearly export revenues of US$1.3bn for Bolivia and some US$600mn a year in royalties to the government.

"This interdependence is typical of integration processes," said Sauer.

Petrobras has been in talks with Bolivian government representatives since the middle of last year, when congress approved the new hydrocarbons law that increased royalties and taxes on all hydrocarbon production in the country to a combined 50%.

Despite the negative reaction of foreign oil companies to the new law, Morales has a good relationship with Brazil's President Luiz Inacio Lula da Silva, who has declared that Brazil has "the obligation to help" Bolivia and its new president.

Morales has held meetings with Lula and Petrobras CEO Jose Gabrielli in recent weeks. Morales said in Brasilia last week he wanted Petrobras to partner Bolivia's YPFB and to continue investing in Brazil.

Petrobras is one of the largest foreign investors in Bolivia and has so far invested some US$1.5bn. The company owns gas production facilities and the country's two largest refineries as well as B2B.

Among investments planned by Petrobras is the expansion of B2B's transport capacity and a US$1bn petrochemicals complex on the Bolivian-Brazil border. Brazilian petrochemicals firm Braskem (NYSE: BAK) will likely be the majority investor in the latter.

"However, we have no illusions. We don't think negotiations [on these projects] will be quick," Sauer said.

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