Bolivia Renationalization Hits Snag

Aug 15, 2006 (Dow Jones Newswires)

Bolivia has fallen behind on the timetable for its planned renationalization of its oil and natural-gas industry, showing how difficult an undertaking the recently announced takeover is going to be and underscoring the limits to the resource nationalism that has erupted across Latin America.

President Evo Morales nationalized the sector on May 1, sending army troops to seize installations owned by private companies in order to give state energy company Yacimientos Petroliferos Fiscales Bolivianos, or YPFB, majority control of the industry. But little has happened since then in the landlocked Andean country, which has South America's second-biggest gas reserves but little expertise and almost no money.

Bolivia's Energy Ministry recently acknowledged that YPFB lacks the money to take control of the industry's facilities, such as refineries and pipelines. It said the company has asked the central bank for a $180 million credit line to help it carry out the takeover.

"This is not going to be an easy process for Bolivia. They lack the resources, expertise, capital, and markets to run their industry entirely on their own," said David Mares, a professor of political science at the University of California at San Diego.

The early hiccups in the nationalization process are another reminder of the difficulty faced by developing nations that have turned to state intervention in a bid to capitalize on higher energy prices. Countries such as Venezuela, Ecuador and Bolivia have claimed a greater share of energy resources for the state, but have so far failed to boost output or find significant new reserves. Venezuela's oil output has fallen steadily during the past few years.

Bolivia is in an especially tough spot because the impoverished country has so little money to invest. The country has periodically run its own energy industry, only to allow in private companies as reserves fall. This most recent nationalization was the third in the past 100 years.

Brazilian state oil company Petroleo Brasileiro SA, or Petrobras, is the largest investor in Bolivia's energy sector. Others include Spain's Repsol YPF, France's Total SA and British gas-and-oil producer BG Group PLC.

Most analysts agree that Bolivia will need to strike some sort of deal with private companies to continue to rely on their expertise in years while it gradually hands over more operating control to YPFB, a company that had only a few hundred employees and little expertise at the time the nationalization.

"This could be a chance for clever companies to help YPFB try to get back on their feet, and help themselves stay involved in Bolivia's energy sector," said Rob Cordray, an analyst at PFC Energy, an oil consultancy in Houston. Mr. Cordray said he considers it a positive sign that Bolivia is admitting that the country needed money.

Bolivia's nationalization still allows for a role by the private sector. But the government in La Paz wants to give YPFB at least 51% control of facilities and companies operating in the industry and a greater share of the revenue from the fields. The country is also trying to negotiate a higher price for gas that it sells to Brazil, its biggest client.

Analysts say the Morales administration will likely achieve its basic aims of getting more revenue from its gas industry by claiming a greater share of production for the state and charging Brazil a higher price. But Bolivia isn't holding all the cards: Private investment in its energy industry has plummeted during the past five years. And Brazil is developing its own natural-gas reserves, meaning it could walk away from Bolivian supplies in a few years if the price climbs too high.

Copyright (c) 2006 Dow Jones & Company, Inc.


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