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May 3, 2006 9:32 pm

Brazilians fear for livelihoods amid gas turmoil

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José Raimundo Polonha paid R$3,000 ($1,456) in 2002 to convert his Volkswagen Santana taxi to vehicular natural gas, saving himself hundreds of dollars a month on petrol bills.

Now Mr Polonha, like thousands of taxi drivers in Brazil, is worried that Bolivia’s planned nationalisation of its gas reserves could damage his livelihood.

“It’s already hard enough to make a living,” he says. “If fuel prices go up, it will be even worse.”

While Petrobras, Brazil’s state-controlled oil company, has promised supplies and prices will be maintained, industry executives warned on Wednesday that both Brazil and Bolivia could soon face gas shortages.

“There is a question mark over whether the system can generate enough gas to meet its obligations,” said Carlos Alberto Lopez, a former Bolivian hydrocarbons minister who now advises the industry.

“This comes after a pipeline rupture caused gas exports to Argentina to be suspended and a 20 per cent reduction in exports to Brazil last month.”

Ramiro Moreno, a former board member of YPFB, the Bolivian state-owned energy company, said he was concerned about supplies in Bolivia.

“I have my doubts about whether YPFB can manage these companies,” he said. “It has been out of the business for a decade. The administration will be inefficient and uncompetitive, and that could well mean a shortage of gas for Bolivians.”

The presidents of Brazil, Bolivia, Argentina and Venezuela will meet on Thursday in an effort to defuse tension over Bolivia’s surprise announcement. People close to negotiations say an agreement will probably involve Brazil paying a higher price for its Bolivian gas.

Meanwhile, Petrobras said it would defend its investments in Bolivia through the courts and may seek international arbitration.

“Any cuts in natural gas would be a disaster for local industry,” said Adriano Pires, a director of CBIE, an energy consultancy in Rio de Janeiro. He said that, while Petrobras planned to invest in natural gas production in Brazil, the country would remain dependent on imported gas for the next six to seven years.

“We will likely see an acceleration of investments in natural gas in Brazil but in the short term it’s a delicate situation,” said Luiz Octavio Broad of Agora Senior, a brokerage in Rio de Janeiro.

“If we had more natural gas available, we could increase sales,” said Walter Piazza, the president of SCGas, the natural gas distribution company for the southern Brazilian state of Santa Catarina.

Mr Piazza added that he expected Petrobras to maintain its contracts and that prices would remain stable. However, the company is developing a contingency plan in the event that supplies of natural gas are cut.

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