Bolivia’s gas industry is about to head down a rocky path. Riding on the coat tails of a socialization trend that is sweeping over Latin America, Bolivian president Evo Morales is taking the gas companies from foreigners and placing them under the government’s control. Although a small player in other industries, Bolivia possesses the second largest source of gas reserves in Latin America, and fuels much of the supplies of big-time neighbors like Brazil and Argentina. Claiming that foreigners have taken advantage of Bolivia’s impoverished state to scrape profits outside its borders, Morales is determined to move operations under state management to funnel more money to Bolivians. Whether this is a good move will depend on the government’s oil and gas department to overcome its wretched state.

He calls the foreign investors “multinational conspiracies”. Clearly, Morales is not fond of outsiders exploiting his nation’s vital resources. It’s been a couple of decades now that European, U.S. and other Latin American companies have been the primary investors in Bolivia gas exploration, refining and distribution. They’ve made a pretty penny for themselves, and built Bolivia up to being the second largest source in the continent. Morales is set on making sure the profits stay with his people.

In fact, the sun did not set on his very first day on the job before Morales signed agreement with Venezuelan president Hugo Chavez to help revive the old Bolivian petroleum company, Yacimientos Petroleros Fiscales de Bolivia (YPFB). On Wednesday, he ratified an agreement to increase taxes and royalty payments on gas extraction and exportation by over 50 percent. Foreign companies who have invested hundreds of millions of dollars into the country’s infrastructure with the expectation of running a business will now have to renegotiate their contracts to continue operating.

These extreme measures are in reaction to more than Morales’ aggressive personality. Bolivia, with a per capita GDP of only $2,600 and torn by political upheavals during the 1990s, was desperate for cash. Foreigners came in with much-needed capital and built up an industry that the Bolivians themselves could never have afforded. This provided some tax revenues and employment, but, ironically, many Bolivians sitting on one of the world’s most bountiful natural gas resources still live to this day without gas to heat their homes or cook their meals. The wealth produced by the reserves has clearly eluded Bolivian citizens, and nationalization is one way of reallocating the profits.

But to achieve Morales’ humanitarian goals he and his team will have several obstacles to overcome. First, the YPFB has been virtually defunct since the mid 1990s, and consists primarily of bureaucrats who have been out of the business for many years. Second, the amount of cash the state-owned company will need to start operating enterprises accounting for nearly 60% of Bolivia’s exports is massive. The government may not be able to do it alone, and will probably need to seek the help of other countries to ensure the operation’s financial success. And even if the company does get on its feet and start operating, measures will need to be taken to ensure that one of nationalization’s most gripping vices, corruption, will not displace Morales’ good intentions of distributing the funds to those who need it.

Posted by Michelle Smith on February 27, 2006 09:15 PM