Thursday, May 04, 2006

Bolivia Nationalizes Natural Gas Sector

Bolivia Nationalizes Natural Gas Sector

By HAROLD OLMOS, Associated Press Writer Tue May 2, 3:09 AM ET

SANTA CRUZ DE LA SIERRA, Bolivia - Soldiers guarded natural gas fields and refineries across Bolivia after President Evo Morales ordered the sector nationalized, threatening to evict foreign companies unless they cede control over production within six months.

Reclaiming ownership of Bolivia's natural resources, Morales said Monday, is "a fundamental means for recovering our sovereignty" and also fulfills an election promise.

The bold stroke solidifies Morales' role along with Venezuela's Hugo Chavez and Cuba's Fidel Castro in Latin America's new axis of populist leaders opposed to U.S. and corporate influence in the region.

About 100 soldiers peacefully took control of the Palmasola refinery in the eastern city of Santa Cruz, some carrying submachine guns, others anti-riot gear. Most stood in front of the gates of the refinery, which is run by Brazil's Petroleo Brasileiro SA, or Petrobras.

"Our mission is to guarantee the normal operations" of the refinery, said unit commander Capt. Jorge Lenz.

The government said soldiers and engineers were sent to 56 locations around the country � including gas fields tapped by foreign companies � including Britain's BG Group PLC and BP PLC, Petrobras, Spanish-Argentine Repsol YPF SA, France's Total SA and Texas-based Exxon Mobil Corp.

The companies have six months to agree to new contracts or leave Bolivia.

"The looting by the foreign companies has ended," Morales, Bolivia's first Indian president, said in a speech at the San Alberto field, in the southern state of Tajira, which Petrobras operates in association with Repsol and Total SA.

Speaking later to thousands of supporters at the presidential palace in La Paz, Morales thanked the military for its support and said "foreign petroleum companies that announced they will freeze their investments can leave."

Morales added that the nationalization of the hydrocarbons sector "was just the beginning, because tomorrow it will be the mines, the forest resources and the land."

Foreign companies extracting and exporting Bolivia's gas have invested about $3.5 billion over the last decade, and Petrobras alone has pumped $1.6 billion into the nation to feed ever-increasing demand in Brazil.

But new investments have been largely frozen since last year over concerns about what Morales' nationalization plans would mean for producers.

The announcement follows a trend by oil- and gas-rich Latin American nations to exact a larger share of profits from extraction of the fossil fuels.

It comes as Ecuador argues with Washington over a new oil royalties law and less than a month after Chavez ordered the seizure of oil fields from Total and Italy's Eni SpA when the companies failed to comply with a government demand that operations be turned over to Venezuela's state oil company, Petroleos de Venezuela SA.

Morales is following the path of Chavez, his political mentor, said Pietro Pitts, editor-in-chief for the Venezuela-based

"You can call Bolivia 'Venezuela Part II' because it seems like he (Morales) is going to try to do the same thing that Chavez is doing," said Pitts, courting a poor majority by telling them that they � and not foreign companies � should be the main beneficiaries of their nation's mineral wealth.

Bolivia has South America's second-largest natural gas reserves after Venezuela.

Until new contracts are reached, companies running gas fields that produced 100 million cubic feet of natural gas daily last year will be able to keep only 18 percent of their production, said Morales. Bolivia's cash-strapped state-owned oil company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), will get the rest.

"We are monitoring the situation very closely," said Bob Davis, a spokesman for the world's largest oil company Exxon Mobil Corp., which has a 30 percent interest in a non-producing field called Itau that is operated by Total.

Petrobras called the Morales' decree an "unfriendly" action that took the company by surprise.

"It obliges us to analyze very carefully our situation in the country," company President Jose Sergio Gabrielli told the official Brazilian news service.

Gabrielli planned to return to Brazil Tuesday to meet with President Luiz Inacio Lula da Silva to discuss the matter.

In Madrid, Spain's government expressed "deep concern" about the decree to nationalize the hydrocarbons sector, expressing hope "there is authentic negotiation and dialogue between the government and the different companies in which each other's interests are respected."

Brazil is Bolivia's biggest natural-gas client, followed by Argentina, and Brazil's demand has been rising rapidly.

Landlocked Bolivia must sell to its neighbors because it lacks a pipeline to ship gas to the Pacific Ocean and from there to Asia, Mexico or the United States.

YPFB produced Bolivia's natural gas until the mid-1990s, when it was reduced to an administrative role after the country's gas exploration and production business was privatized.

Experts have warned that the company is incapable of becoming a producer again without a massive infusion of cash, and Morales has said that nationalization will not mean a complete state takeover because Bolivia lacks the ability to tap all its natural gas on its own.

In Santa Cruz, near the Palmasola refinery, shop owner Beatriz Valda said she thought the nationalization "will be good for Bolivia and my business because there will be more money and I'll sell more."

But some industry experts doubt Bolivia's ability to run the gas fields.

"They have no technicians; no trained people," said Andres Stepkowski, a petroleum consultant in Santa Cruz.


AP Business writers Frank Bajak and Alan Clendenning contributed to this story from Bogota, Colombia and Mexico City; and AP writer Alvaro Zuazo contributed from La Paz, Bolivia.

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