Petrobras, Brazil’s state-controlled oil company, has suspended investments in Bolivia following the country’s decision on Monday to nationalise its oil and gas industry, José Sergio Gabrielli, chief executive, said on Wednesday.

Mr Gabrielli said Petrobras had previously submitted a series of proposals to YPFB, Bolivia’s state-controlled oil and gas company, including an increase in its oil refining and distribution capacity, construction of thermoelectric power plants, expansion of its exploration and production activities and the creation of a petrochemicals complex on the border with Brazil.

All such investments were on hold, Mr Gabrielli said, along with plans to expand by half the capacity of a pipeline transporting natural gas from Bolivia to Brazil and Argentina.

“All of Petrobras’s investments in Bolivia have been suspended,” the chief executive said. “With an 18 per cent return, there is no incentive to invest in exploration in Bolivia.”

Under a decree issued by Bolivia, hydrocarbons companies operating in the country must pay royalties of 82 per cent to the La Paz government. Companies previously paid royalties of 18 per cent, which increased to 50 per cent under a decree issued in May last year.

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> Petrobras has invested about $1.5bn (£862m) in Bolivia’s natural gas industry and an additional $2bn on the Gasbol pipeline. The pipeline has capacity to transport 30m cubic meters of gas a day and supplies half of Brazil’s needs.

Mr Gabrielli said Petrobras would move ahead with plans to import liquefied natural gas to meet growing demand in Brazil, adding that the company would fight any price increases requested by Bolivia.

“We have a contract with YPFB and we don’t see any reason for a price increase,” he said, adding that if the two companies could not reach an agreement Petrobras would request international arbitration in New York.

However, Petrobras has ruled out filing a separate arbitration suit against Monday’s decree, which would return control of all reserves currently controlled by foreign hydrocarbons companies operating in Bolivia to the Bolivian government. It also gave foreign companies 180 days to negotiate new operating contracts.

The company has sought to quell fears that the decree would have an impact on domestic natural gas prices or supplies.

“We have no reason to alter our contracts with local distributors,” Mr Gabrielli said. Bolivia would maintain supplies at existing levels.

The presidents of Brazil, Bolivia, Argentina and Venezuela are due to meet this morning to try to defuse tensions over the nationalisation.

In an effort to decrease its dependence on imported natural gas, Petrobras plans to invest $18bn to develop its own reserves in Brazil through to 2015.

Last month, when landslides damaged Petrobras’s natural gas pipelines in Bolivia, the company was forced to reduce gas supplies to thermoelectric plants. While the reductions in supply had no impact on consumers, it underscored Brazil’s vulnerability to gas disruptions.