Bolivia and Brazil resolve oil dispute

Bolivia and Brazil have reached agreement after an acrimonious dispute over the nationalisation of two oil refineries in Bolivia owned by Petrobras, the Brazilian government-controlled oil group.

The agreement on the price to be paid for the assets fell short of what Petrobras said was their market value and is likely to put a freeze on any future investment by Petrobras in Bolivia’s natural gas industry, currently the main supplier to Brazil’s fast-growing market.

“Petrobras will have to think very carefully about any future investments in Bolivia,” said Adriano Pires, an oil industry consultant in Rio de Janeiro. “Unfortunately it has no way of leaving the natural gas industry because Brazil is a hostage to Bolivian gas.”

Brazil had threatened to take the issue to the World Bank’s International Centre for Investment Disputes, the main international forum for dispute settlement on cross-border investments.

Bolivia’s response was to announce its withdrawal from the organisation earlier this week. It said it would encourage other governments in South America to follow, adding to concerns over the investment climate in the country and the region.

But the agreement was accompanied by a surprise announcement by Braskem, a Brazilian petrochemicals company controlled by Odebrecht, a construction group with operations in other politically unstable countries. It said it had reopened talks this week on a petrochemicals plant in Bolivia first proposed in 2003. Bolivia agreed to pay $112m (£56m) for the Petrobras refineries, more than its original offer of $40m but a long way short of Petrobras’s target of $200m.

Petrobras bought the refineries at privatisation in 1999 for $104m and has since invested almost $20m in modernisation. The price also includes stocks of refined products said to be worth $40bn.

“This is the third defeat for Petrobras in the past year,” said Mr Pires. First was Bolivia’s nationalisation of its hydrocarbons industry on May 1 2006, and an accompanying sharp increase in taxes paid by foreign operators.

Second was a sharp increase in the amount Petrobras pays for natural gas from Bolivia, imposed by the Bolivian government in February. Bolivia said it would begin charging for higher-value gases that are contained in the mix of gases supplied to Petrobras but which the Brazilian company does not separate out. The need to find a use for these gases is understood to have reawakened Braskem’s interest in its petrochemicals project.

Petrobras has assets valued at about $1.5bn in Bolivia’s natural gas industry, including production facilities at two gas fields and a gas pipeline with capacity to deliver 30m cubic meters a day to customers in Brazil.

The company was due to announce its first-quarter results after markets closed on Friday.

Since Bolivia’s nationalisation, Brazil has increased the speed of investment in its own natural gas resources and announced plans to build facilities to import liquefied natural gas.