La Paz intent on reversing ‘unconstitutional’ privatisation

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The Bolivian government’s position on nationalisation begins from the premise that the contracts under which foreign investors are currently operating in the natural gas sector are unconstitutional.

The new policy of President Evo Morales’s administration says the contracts “expressly violate” Article 59 of the constitution, since they were never individually approved by Congress. It calls the privatisation process of 1996-97 “an act of treason against the country that put into foreign hands control and direction of a strategic sector, damaging our sovereignty and national dignity”.

The policy gives the 21 foreign oil companies operating in Bolivia 180 days to hand over to YPFB, the state energy company, responsibility for determining all aspects of production and commercialisation of reserves, including output volumes and prices for internal and external markets.

While new contracts are being drafted, fields that produce more than 100m cubic feet a day will pay 82 per cent of the value of production in taxes and royalties, retaining 18 per cent. In practice, only two fields are affected – San Alberto and San Antonio, both operated by Petrobras of Brazil.

The 82-18 split is intended to be a mirror-image of the tax regime established by the original privatisation contracts, which fixed a tax rate of 18 per cent. The hydrocarbons law of May 2005 raised that to 50 per cent, a figure that will continue to apply to all other operators.

Under Article 7 of the new policy, the state will buy enough shares to give it control of three former state companies privatised in 1996: Andina, controlled by Repsol of Spain; Chaco, part-owned by BP of the UK; and Transredes, a pipeline company controlled by Royal Dutch Shell, the Anglo-Dutch group.

The Bolivian state currently retains a minority interest in these companies. The government says it will purchase a majority stake without expropriation. Andrés Soliz Rada, hydrocarbons minister, plans to create a special government auditor to determine the value of any compensation. To fill Bolivia’s gap in expertise, Mr Soliz said he would “be counting on foreign support”, which many observers take to mean advisers from PDVSA, Venezuela’s state oil company.

Oil industry sources in Caracas have told the FT that Venezuela had agreed to send Bernard Mommer, vice-minister for energy, to La Paz to advise on its nationalisation strategy.

Mr Mommer declined to comment.

He was an architect of Venezuela’s model of steeply increasing tax rates and royalty levels.

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