August 27: Time’s up, Ulises

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Anyone seeking to understand Mexico’s growing political tensions should visit Oaxaca, where a three-month teachers’ strike is spiralling out of control. The teachers, who began their protest over pay, are now demanding the head of Ulises Ruiz, the state governor and a member of the Institutional Revolutionary Party (PRI). Mr Ruiz’s heavy-handed tactics in trying to dislodge the protesters from their camps in the city centre have only made things worse. Their struggle has now been reinforced by most of the state’s social and indigenous organisations. At the weekend, even the Church told him to leave. “Let the unanimous voice of the people be heard,” it said in a statement.

Mr Ruiz’s reluctance to comply is understandable. On a personal level, he has more than four years left in office. On a political level, resignation before December would mean new elections and the PRI, which did exceptionally badly in last month’s presidential poll, would certainly lose its seat in Oaxaca. Indeed, the biggest beneficiary would be Andrés Manuel López Obrador, whose leftwing Democratic Revolution Party (PRD) gained considerable ground in last month’s presidential and legislative elections – even though Mr López Obrador is still disputing his narrow loss to Felipe Calderón of the centre-right National Action Party (PAN). Both the PAN and the PRI are desperate to avoid further gains for the PRD.

But the parallels between the situation in Oaxaca and the rest of the country show the real danger that unrest could spill over into neighbouring states. Mr Ruiz came to power surrounded by allegations of electoral foul play, and many of the state’s 2.4m inhabitants feel they have been excluded from the economic progress of the last decade. Given the continuing tensions over the July 2 presidential elections, that is the last thing Mexico needs. For the sake of Oaxaca and the nation, Mr Ruiz should go forthwith.

Futurology in Brazil

A fortnight into saturation TV and radio campaigning leading up to Brazil’s elections in October, President Luiz Inácio Lula da Silva of the left-leaning PT appears to have an unassailable lead in the polls. His main challenger, Geraldo Alckmin of the centrist PSDB, has failed to make any dent in the president’s chances of winning an outright majority at the first round on October 1 and there is increasing frustration among PSDB party ranks.

Not surprisingly, Mr Lula da Silva is actively planning his second mandate (for which he will launch a programme of government on Tuesday). More surprising are rumours going around about his efforts at alliance-building. José Serra, his PSDB challenger in the 2002 race, has reportedly been approached with a view to forming a government of national unity. And try this for size: Aécio Neves, the hugely popular PSDB governor of Minas Gerais state, is widely tipped as the PSDB’s strongest card for president in 2010. He is one of many PSDB leaders failing to put their full weight behind Mr Alckmin. Now the rumour is that he is preparing to join the catch-all PMDB, unify it – something no other politician has been able to do – and get it behind him in 2010 as Mr Lula da Silva’s chosen successor. It’s a bizarre idea, but it makes sense.

Opening on ethanol?

There can be no mistaking President Hugo Chávez’s intentions to reduce his dependence on the US market. New agreements signed with China last week provide for sharp increases in Venezuelan oil exports to China, as well as for Chinese investment in the Venezuelan oil sector. The shift will all take time. China still needs to build the refineries capable of processing Venezuela’s heavy variety of crude. But Washington has every incentive to reduce the amount it imports from Venezuela, seek alternative sources of supply and press harder to reduce domestic consumption.

Interesting to note then that there is some high-level support for deepening energy ties with Brazil. According to an interesting new blog Florida’s governor Jeb Bush wants to lift the 54 cents a gallon tariff on Brazilian ethanol, a product that can be used in flex fuel mixes. This is not new but in an interview also published in the St Petersburg Times President George W. Bush’s brother gives the most detailed explanation so far of his ‘ethanol initiative.’ Apparently, President Bush apparently likes the idea. Governor Bush, meanwhile, says Brazil’s sugarcane-based ethanol is a better product than US ethanol produced from corn. Could this be the point at which the US prioritises national self-interest over vested interests?

Tense days at Escondida

As the strike at Escondida enters its fourth week, the mining industry and Chile’s government are watching ever-more agitatedly. The negotiations are complex. While the workers may be justified in asking for a bigger slice of profits as copper prices remain sky-high, their pay demands – which are not linked to the ups and downs of the copper market – are either audacious or outrageous, depending on your point of view.

BHP Billiton and its partners at Escondida are aware that the outcome of the conflict will set a precedent for other settlements in Chile and perhaps in other mining countries in the region such as Peru. The vast majority of analysts believe today’s record copper prices will drop substantially within the next decade and no company wants to be stuck with a burdensome pay structure. The government, which controls Codelco, is particularly torn. If workers do well at Escondida, it will be under pressure when contract renegotiations open at its Andina mine in October and at its northern division in December.

Until now, the negotiations have been stuck at the bluffing stage. The workers have talked of upping the pressure, while the company has threatened to use replacement workers to break the strike – a hollow threat at a time when there is a marked shortage of skilled labour in northern Chile. Talks may get more serious this week. But until a new agreement is actually signed, these are nervous days for Chile’s mining industry – and signal testing times ahead for the six-month-old administration of Michelle Bachelet.

The man who botched nationalisation

When officials from the attorney-general’s office in Santa Cruz, the heart of Bolivia’s energy sector, raided the offices of a Repsol subsidiary on Friday, it usefully distracted attention from the government’s own problems with its nationalisation policy.

This month Evo Morales’s administration was forced to call a “temporary suspension” to its plan to take a greater stake in the country’s gas sector, the second biggest in Latin America, due to lack of funds and expertise. At the same time, YPFB, the state energy company, became embroiled in a dispute over whether it had acted illegally in signing a deal with Brazil to swap crude oil for refined diesel. Then last week, the Senate passed a motion of censure against Andrés Solíz, the hydrocarbons minister, for botching the nationalisation and for alleged corruption at YPFB.

Mr Solíz’s response suggests an unhealthy use of the instruments of the state to pursue his foes. The raid on Andina’s offices in Santa Cruz was a serious counter-punch. Andina’s lawyer was detained and documents seized relating to a 2002 price hedging contract with Brazil that the government says was illegal. The company insists that such contracts are standard industry practice and says it notified the authorities at the time.

But perhaps a more worrying development was Mr Solíz’s response to the censure vote: he urged Bolivians to take to the streets to defend nationalisation – by which, presumably, he meant his own reputation. Mr Morales, who has stood by Mr Solíz, presumably feels that to dump his hydrocarbons minister would be giving in to his opponents. But he should consider seriously whether Mr Solíz is furthering his government’s aims or harming them.

Argentine energy struggles to keep up

It is no secret that there is an energy crisis lurking around the corner for Argentina if more is not done to increase supply. So it is welcome news that the government plans to invest $3.5bn in revitalising its nuclear energy sector, including the completion of the Atucha II plant in the province of Buenos Aires, which has been languishing unfinished for 25 years.

But this is not enough to solve Argentina’s energy problems – which are shared by Chile, as it imports its natural gas from Argentina and is the first to suffer cuts when demand outstrips supply, as it has this winter. Nuclear energy currently accounts for just 7 per cent of electricity generated in Argentina, with most of the rest produced by thermal and hydroelectric power. Plans to boost these sectors – such as expanding the capacity of the Yacyreta dam shared with Paraguay – also need to be put into action.

Moreover, badly-neglected investment in the exploration and development of oil and gas are essential for the long-term viability of the sector. So is a new hydrocarbons law and the stalled renegotiation of concession contracts to energy companies following the 2001-02 economic crisis. The construction of a gas pipeline with Bolivia is another major project that needs to be tackled.

There is much to be done, but not much time to do it in: energy generation capacity is already stretched, but Argentina’s economy continues to grow at breakneck speed.

Notes by Adam Thomson, Jonathan Wheatley, Richard Lapper, Hal Weitzman and Benedict Mander.

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