Bolivian balancing act

LA PAZ, BOLIVIA
Nation wants more control over its natural gas, but it also needs to attract foreign investment.

President Evo Morales warned last month of a conspiracy against him by the natural gas industry. While running for office last year, he called for nationalizing the foreign-owned operations and at one point even said they had looted the country's rich reserves.

But Morales and top government officials here have also said that the country needs more foreign investment to expand production. Bolivia's leaders need to sell more gas to fulfill promises to build schools and clinics, and to provide natural gas service for more people here.

Welcome to Bolivia, the land of contradictions when it comes to managing the second-largest natural gas reserves in Latin America.

No one has reached an exploration deal with the new administration, which was elected on a wave of anger over the management of the country's natural gas resources. But observers say both sides have powerful motivations to come to terms.

"Everybody wants to see something happen with the substantial reserves," said George Beranek, a manger at PFC Consulting in Washington, D.C. "Bolivia can use the extra money. The neighboring countries can use the extra gas. How do you structure a deal that meets the needs of Bolivian politics and satisfies the commercial needs of the investors?"

One given is the terms are likely to be a lot less attractive to oil companies than past deals. A law passed by the Bolivian congress last year doubled the taxes on gas production and broke existing contracts, which drastically reduced drilling.

Speculation on which company is likely to announce an exploration deal with the Bolivian government first points to Petroleo Brasileiro, better known as Petrobras.

Investments planned
The Financial Times reported in February that the Brazilian company was planning to invest $5 billion in the Bolivian natural gas sector. Bolivia's oil and gas minister followed that up by saying Petrobras and the government were about to clinch a $1.3 billion deal to build a petrochemical plant in Bolivia.

But Petrobras officials responded that the company has not reached a deal. And the company, which is publicly traded with the Brazilian government holding a 40 percent share, added that the final decisions will be based on the prospect for profits, not a desire for good relations between the Brazilian government and Bolivia's new leftist leadership.

Bolivian officials sound confident nonetheless.

''Several companies have said they want to invest in exploration and production,'' said Jorge Alvarado, the new president of the Bolivian state oil company, Yacimientos Petroliferos Fiscales Bolivianos, or YPFB. ''Petrobras is one. PDVSA has said it wants to invest. Two Chinese companies want to invest. There's interest."

Not strong now
While Morales plans to rebuild YPFB into a strong company, it's not now capable of handling projects on its own. It dwindled as Bolivia relied on international firms to find and export gas.

Bolivian officials have not ruled out any company based on its nationality, but there's been little talk of deals with big multinational oil companies, like Exxon Mobil Corp.

Carlos Alberto Lopez, a former secretary of energy, said the interest in investment "has come from state-owned companies like PDVSA or Petrobras, which respond more to geopolitical issues."

There are 13 foreign oil and natural gas producers, led by Petrobras. The list includes BG Group from Britain, Total from France and Repsol from Spain.

For its part, Exxon Mobil doesn't sound interested in investing in exploration in Bolivia, where it holds a 34 percent stake in the Itau Field, which holds potentially enormous reserves.

"Exxon Mobil relied on the fiscal system committed to by the Bolivian government when making its investment decision, and the government has now violated that established contract by making the new Bolivian Hydrocarbon Law retroactive," according to an e-mail from Exxon Mobil spokesman Robert Davis. Those tax increases made Bolivia uncompetitive, he added.

A new role
These kinds of comments do not appear to worry Vice President Alvaro Garcia, who said: "The companies need to get used to a new role of the state."

Yet the state's role is another point of confusion.

Morales has developed cozy relations with Cuba's Fidel Castro and Venezuela's Hugo Chavez, Washington's least two favorite Latin American leaders, and has promised to give the foreign companies less say in how they develop and sell their gas. That policy is popular in a country with a long history of foreign mineral companies earning huge profits with little trickling down to average Bolivians.

While he's promised to nationalize the foreign companies controlling Bolivian reserves, he has hastened to say that he's not calling for the traditional form of nationalization, where government troops occupy a company's holdings and send the foreign executives home.

Greater say wanted
Alvarado said nationaliza-
tion under Morales simply meant giving the national oil company, YPFB, a greater say in investment, production and marketing decisions.

How these questions get settled is no idle matter. Controversy over how to best exploit its reserves played a key role in toppling Bolivia's last elected president, Gonzalo Sanchez de Lozada, as well as his vice president, Carlos Mesa, who succeeded him.

One point of contention has been the demand by many Bolivians for better access to gas. Only about 20 percent of Bolivians actually have a gas hookup for home cooking.

Most Bolivians either have to buy gas in expensive minitanks or, if they are very poor, burn wood, straw or dried cow dung.

Alvarado said he hopes that tax revenue from natural gas production will help finance a program to triple the number of homes with gas hookups.

"This is how we cook," Elsa Falcon said as she put straw under a pot that would be used to make squash soup in a lean-to behind her simple home in the town of Mecapaca, outside La Paz. "And yet we have had presidents who sell our gas to other countries. We need to use gas to industrialize Bolivia."