Bolivia and Brazil, Hydrocarbons in 2008

On confirming his visit to La Paz, Lula said Bolivian gas would resolve the energy problems of his country and of Argentina and Chile. When Bolivian gas exports began in July of 1999, ex-President of Brazil Henrique Cardoso, after meeting with Hugo Banzer (trans. then Bolivian President) in the Quemado Palace, visited the San Alberto mega-gas field as an assertion of Brazilian control over our reserves. Evo’s guest reasserts that control.

Bolivia’s ambassador in the US, Gustavo Guzman, stresses these remarks by Lula, "Evo (Morales) is the most extraordinary thing that has happened in South America. Nobody better reflects than he the face of Bolivia." Mauricio Medinacelli, Hydrocarbons Minister in the neo-liberal government of Rodriguez Veltze in 2005, says that Evo’s weakness is his relationship with Hugo Chavez and his strength is Lula. These facts and opinions are summarised by the Mexican Hector Aguilar Camin, "Politics wins battles. Economy wins the war."

Evo in his two years in government has won many battles but he will cause Bolivia to lose the economic war. Every country almost without exception, tries to reinvest its economic surpluses in agricultural or industrial development, which means dignified worthwhile employment, health and education, instead of unemployment, crime and prostitution. Let’s look at some examples.

Braskem, the main Brazilian petrochemical company will invest US$150m in a plant to produce polyethylene out of ethanol derived from cane sugar.

Enap, Chile’s state petrol company announced it will invest US$70m to restart crude oil and gas production early next year in its Cuenca Austral field in southern Argentina.

AES, the US energy company sold 10.18% of its Chilean subsidiary AES Gener for US$310m. The company dropped its holding to 80.1%.

Chilean state company Codelco, the biggest copper company in the world, cut production in the first nine months of the year to 1.14m tons, 0.9% less than the year before. The company made US$6.74bn profits before tax for that period.

Venezuela will invest US$2.6bn together with Iran, Syria and Malaysia to build an oil refinery able to process 140,000 barrels in Syria. Venezuela will receive 33% of the income the project generates.

Chilean metal company CAP will invest US$3.5bn in the next 8 years to double steel production to 3m tons a year within 4 years and to triple iron ore production to 15m tons by 2009.

PetroChina managed to make US$8.92bn on its stock market entry, the biggest ever in China’s history. The state oil company will use part of the money to increase production of crude oil and ethylene as well as its refining capacity.

Weak Bolivia lends money to powerful banks

Bolivia has used 60% of its monetary reserves, that reached US$3.18bn in December 2006, in loans to foreign banks and multinationals. The same goes on with money from pension funds, administered by Spanish and Swiss banks, to the sum of US$2.25bn by the same date. Benefitting from our loans at 3% a year are Transredes (Enron-Royal Dutch Shell), Santander Bank (of Spain, Repsol’s financier) and Lloyds-TSB International Bank (of England, linked to British Petroleum). While Bolivia itself gets credits from the Andean Development Corporation at 8% a year.

National income comes mainly from the Hydrocarbons Law 3058 of May 30th 2005, not from the Nationalization Decree of May 1st 2006, which has been abrogated. That income also comes from price rises on the world market for oil, gas and minerals. What’s left is prioritized for welfare programmes.

The Nationalization Decree increased tax rates for companies by 32% over 6 months, a period in which audits were carried out fo the oil fields. When the results were not taken into account, that 32%, used to fund the school grant "Juancito Pinto", ceased to exist. But the government continues to pay the grant with resources from the meagre YPFB (trans. Bolivia’s state oil company) which also contributed US$19.2m to the BONOSOL low-income grant. That amount will double on payment of the Dignified Income grant to the over-60s rather than to the over-65s as with the BONOSOL.

Economic surpluses have not converted YPFB into a modern corporate enterprise, like Petrobras, for example. This prevents it from registering the value of its gas and oil reserves in stock exchanges from which it could generate investment resources. The Brazilian State body made US$500m profit in Bolivia between 1999 and 2006. In its first 4 years it recouped all its investment of US$284m and got away with fraud, smuggling and tax evasion.

It resold for US$400m two refineries bought from YPFB for US$104m. It would have been better to buy only 51% of the shares since 49.9% of the rest ought to have passed to YFPB gratis, given the Brazilian company’s fraudulent scams. Beforehand, Petrobras was supposed to build 49 thermoelectric energy plants using Bolivian gas – 25 in Brazil and 24 in Bolivia. Not a single one was built on Bolivian soil to comply with that commitment.

Solid welfare, non-existent industrialization

No policies exist to build mineral smelting plants or oil refineries (which would free us from importing diesel so as to be able to sell it on at subsidised prices) liquid gas separation plants, fertilizer plants or domestic gas pipelines to give life to our helpless country. Nor are the profits being used to turn YPFB into a majority shareholder of the "capitalized" companies – Transredes (Enron-Royal Dutch Shell), Chaco (British Petroleum) and Andina (Repsol) – which would make it a company with a worthwhile economic future.
MAS in opposition swung like a pendulum. It supported Carlos Mesa in November 2003 to renew gas sales to Argentina at a solidarity price of US$0.98 per million BTU. MAS agreed with Mesa the questions in the hydrocarbons referendum of July 18th 2004, despite knowing that referendum was funded by USAID and the French multinational Total.

Faced with the fraudulent Pacific Liquid Natural Gas project the position of MAS was confused. It kept quiet about the "hedging" contract agreed by Andina (Repsol) and Petrobras by which both companies sold gas at about US$1.00. outside the then current Gas Supply Agreement between Bolivia and Brazil. Minister of Defence Walter San Miguel is an ex-representative of Petrobras during the "capitalization" of YPFB. He continues to send troops to Haiti and the Congo with the United States’ blessing. Presidency Minister Juan Ramon Quintana has yet to explain his links with multi-millionaire George Soros.

Evo thinks the social welfare grants will guarantee his re-election. He does not let on that the extreme separatists, if they control gas and mining surpluses, will offer double the incomes promised by the government. The indigneous leaders and separatists are helpless faced with the demands of the oil companies, of the United States and of the European Union. Evo should ask Lula "With what right are you disposing of our gas reserves to benefit multinationals based in Argentina or Chile?"

The US-Brazil agreement on bio-fuels has increased the arrogance of Petrobras towards Bolivia. For his part presidential adviser Marco Aurelio Garcia has announced investements by Petrobras of just US$750m over the next few years, a minimal amount which will keep Bolivia acting like a beggar.

Bolivia covers Lula’s back

In the medium term, Brazil contemplates its energy future with relative tranquility. To the deal with Bush on bio-fuels can be added the discovery of the Tupi undersea mega oil field. Brazil has revived its project to start a third nuclear reactor (Angra 3). It will promote alternative energy sources and build two hydroelectric dams on the Rio Madera, to Bolivia’s environmental cost.

The inter-oceanic corridors will open up enormous chances for Brazil’s highways companies. One of them, the Queiroz Galvao company, after having been ignominiously thrown out, has returned with the step of a victor. It looks as though the same will happen with Eike Batista of the EBX company which undertook to build a smelting plant using vegetable carbon before leaving Bolivia for lack of environmental approvals.

For its part, thanks to those same inter-oceanic corridors, Chile hopes to comply with the free trade treaties it has signed across three continents. In the short term, Brazil depends on Bolivian gas, above all thanks to the droughts that affected its hydro-electric dams. Meanwhile Bolivia doles out welfare and lends its money at ridiculous interest. All this explains Lula’s praises for Evo and the joy of Medinacelli in a context in which the referendum defeat of Chavez in Venezuela has left YPFB even more defenceless against Petrobras.

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