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Bolivia takes back gas fields

President sends troops to evict foreign oil firms, nationalize industry

Posted: Tuesday, May 02, 2006

LA PAZ, Bolivia - President Evo Morales ordered soldiers to occupy Bolivia's natural gas fields Monday and threatened to evict foreign companies unless they give Bolivia control over the entire chain of production.

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The move fulfills an election promise by the leftist president, who has forged close ties with Cuba's Fidel Castro and Venezuela' Hugo Chavez, to increase state control over Bolivia's natural resources, which he says have been "looted" by foreign companies.

Morales sent soldiers and engineers with Bolivia's state-owned oil company to installations and fields tapped by foreign companies - including Britain's BG Group PLC and BP PLC, Brazil's Petroleo Brasileiro SA, Spanish-Argentine Repsol YPF SA, France's Total SA and Texas-based Exxon Mobil Corp. The companies have six months to agree to new contracts or leave Bolivia, he said.

"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources," Morales, Bolivia's first Indian president, said in a speech from the San Alberto field operated by Petrobras in association with Repsol and Total SA.

State television aired footage of soldiers and police standing guard outside some gas installations and petroleum company offices in the eastern city of Santa Cruz, where much of the industry is based.

Vice President Alvaro Garcia Linera said troops were sent to 56 locations nationwide.

"The looting by the foreign companies has ended," Morales declared.

Brazil is Bolivia's biggest natural gas client, followed by Argentina, and Brazil's demand has been rising rapidly due to power generation, cooking and automotive needs.

Landlocked Bolivia must sell to its neighbors because it lacks a pipeline to ship gas to the Pacific Ocean and from there to Asia, Mexico or the United States.

Any price jolts would mostly be felt in Argentina and Brazil, but Bolivia already has been seeking to boost prices for customers in both countries.

The announcement follows a trend by oil- and gas-rich Latin American nations to exact a larger share of profits from extraction of the fossil fuels.

It comes as Ecuador argues with Washington over a new oil royalties law and less than a month after Chavez ordered the seizure of oil fields from Total and Italy's Eni SpA when the companies failed to comply with a government demand that operations be turned over to Venezuela's state oil company, Petroleos de Venezuela SA.

Bolivia has South America's second largest natural gas reserves after Venezuela, and all foreign companies must turn over most production control to Bolivia's cash-strapped state-owned oil company, Yacimientos Petroliferos Fiscales Bolivianos, Morales said.

Multinational companies that produced 100 million cubic feet of natural gas daily last year in Bolivia will be able to retain only 18 percent of their production, with the rest being given to YPFB, he said. Morales did not name the companies.

A Repsol spokesman said the company could not respond because it had not received official word of the announcement. Petrobras officials did not immediately return messages seeking comment on Monday, a national holiday in Brazil.

"We are monitoring the situation very closely," said Bob Davis, a spokesman for the world's largest oil company, Exxon Mobil, which has a 30 percent interest in a non-producing field called Itau, which is operated by Total.

In Madrid, Spain's Foreign Ministry expressed "deep concern" about the decree to nationalize the hydrocarbons sector.

"The government hopes that in the 180 days period announced by the Bolivian president for foreign companies to regularize their current contracts, there is authentic negotiation and dialogue between the government and the different companies in which each other's interests are respected," the ministry said in a statement.

Morales said the government would begin negotiations immediately with the companies to make sure they are willing to comply, but said they could be stripped of their privilege to operate in Bolivia if they don't sign new contracts within six months.

In the past, YPFB produced Bolivia's natural gas, but it was reduced to an administrative role in the mid-1990s after the country's gas exploration and production business was privatized. Experts have warned that the company is incapable of becoming a producer again without a massive infusion of cash.

Morales has repeatedly said the country's natural resources have been "looted" by foreign companies and must be nationalized so that Bolivians could benefit from the profits that were being sent overseas.

But he has also said that nationalization will not mean a complete state takeover, because Bolivia lacks the ability to tap all its natural gas on its own.

Last week, Morales told Brazil's Valor Economico newspaper that Bolivia would have to "set up a new battalion, a new army of oil and gas specialists to exert the property right" for a complete state takeover of petroleum production.

Morales chose May 1, International Day of the Workers, to announce the nationalization plan, wearing a YPFB helmet as he gave his speech.

Morales also said the state would retake majority control of Bolivian hydrocarbons companies that were partially privatized in the 1990s.

Morales is following the path of Chavez, his populist political mentor, said Pietro Pitts, editor-in-chief for the Venezuela-based LatinPetroleum.com.

"You can call Bolivia Venezuela Part II because it seems like he (Morales) is going to try to do the same thing that Chavez is doing," said Pitts, referring to giving the state majority control of hydrocarbons.

Ecuador's Congress last month ratified a hydrocarbons reform law designed to cut into windfall profits of foreign crude producers, among them U.S.-based Occidental Petroleum Corp.



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