Bolivia: Considering Intervention in Petrobras Operations

RIO DE JANEIRO Oct 23, 2006 (Dow Jones Newswires)

Bolivia's government has threatened to intervene in the operations of Brazil's state-run oil firm Petroleo Brasileiro SA (PBR), or Petrobras, next week if no deal over new production contracts is reached by Oct. 28, the Valor newspaper said Monday.

Juan Ramon Quintana, an envoy of Bolivian President Evo Morales, traveled to Brasilia Thursday in a secret mission to hand over an ultimatum to Brazilian President Luiz Inacio Lula da Silva, the newspaper said.

Morales on May 1 had announced the nationalization of his country's oil and gas sector, and gave foreign oil firms 180 days to migrate to new production contracts or leave the country. The Bolivian government last week rejected calls to extend the deadline which expires on Oct. 28.

Petrobras has invested more than $1.5 billion in Bolivia in recent years and would be the most affected company by the hydrocarbons nationalization.

Lula in recent weeks tried to avoid the Bolivia issue in order not to spoil his re-election chances in a runoff vote on Oct. 29. His challenger Geraldo Alckmin repeatedly has accused Lula of being soft on Bolivia and watching passively as Morales seizes Petrobras' assets.

Morales in an article printed in a Brazilian newspaper last week had promised that Brazilian consumers won't suffer from the effects of nationalization.

Yet, crucial negotiations on new production contracts in recent weeks ran into new difficulties as Petrobras continues to reject becoming a mere service provider to Bolivia's ill-equipped state-energy firm Yacimientos Petroliferos Fiscales Bolivianos, or YPFB, Valor said.

Instead, the Brazilian company proposed to explore Bolivian oil and gas deposits jointly with YPFB.

Petrobras also rejects certain clauses in Bolivia's proposal for new production contracts, the newspaper said.

Among them are a clause that would give Bolivian authorities the right to carry out monthly audits into Petrobras production and reduce payments to the company if their costs are contested.

Another clause would give Bolivia the right to transfer Petrobras' production contract to a different company at any time with a previous notice of only 30 days, Valor said.

Brazil currently is the biggest client of Bolivian gas, and imports about 26 million cubic meters of gas a day from the Andean country - more than two thirds of Bolivia's production.

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

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