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BOLIVIA
Gas shortage takes hold
Martin Garat
4/19/2007
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New energy contracts cause uncertainty in sector.

“I don’t have gas in my house. I have to find some no matter what,” said teacher Edwin Martínez, while he was waiting for the gas delivery truck in Obrajes in southern La Paz. A 10-kilogram (22-pound) tank of gas costs less that US$3, and covers his family’s needs for a month. But the gas did not come.

La Paz residents form long lines every morning, waiting for gas tank deliveries, and sometimes block roads in protest when these deliveries don’t materialize.

Most Bolivians living in La Paz use small tanks of liquefied gas for cooking. When they run out, they return the tank and buy a new, full one.
But now, a gas shortage has taken hold of the capital, and the task has become a challenge.

Gas delivery trucks sell tanks directly to consumers in the street to ensure that store venders do not overcharge, forcing customers to carry the heavy tanks several blocks to their homes.

The shortage was sparked by simple economics: an increased demand and insufficient supply. The shortage has also affected cities Oruro and Cochabamba.

On May 1 last year, President Evo Morales announced that his government was nationalizing Bolivia’s rich gas reserves.

An unorthodox plan
But his plan did not entail the expropriation of foreign assets and expulsion of these companies. Instead the government rescinded current contracts and increased the tax on foreign energy companies operating in the country from 50 percent to 82 percent until new contracts were drawn up.

Morales’ approval ratings soared to 80 percent after the move. The nationalization of Bolivia’s gas reserves was a major demand in the protests that led to the ouster of former President Carlos Mesa in June 2005.


In October 2006, Bolivia’s state oil company YPFB signed new contracts with foreign energy companies operating in the country such as Brazil’s state company Petrobras, Argentine-Spanish Repsol YPF and the French firm Total, in line with the Hydrocarbons Law that was approved in May 2005.

But in March of this year the opposition found inconsistencies between the contracts presented to Congress for its approval and the ones posted in YPFB website. YPFB then admitted to having signed several versions of the agreements, some of them more demanding than others.

Later the contracts were criticized, especially by ex-Hydrocarbons Minister Andrés Soliz Rada, who pushed for the nationalization process. Soliz alleged that the agreements went against the very idea of nationalization because they were too easy on the foreign companies.

Tax breaks
One part of the agreement allowed the energy firms to categorize salaries and some taxes as “recoverable expenses” and granted them the right to deduct these expenses before paying the overall state tax. The universal 82-percent tax on gross earnings was also replaced by complicated formulas that changed the amount depending on which field the company operated.

But the Senate approved 44 contracts on mid-April, though approval from the lower house is still pending. Even though they were subjected to harsh criticism, Bolivia’s gas industry will still generate more money for the country in the coming years than it did under the previous agreements. The Hydrocarbons Law ensures nearly $1 billion in revenues for the country, a significant amount considering the landlocked country’s small economy.
Nevertheless, it is still unclear how much Bolivia will walk away with under these new contracts.

Mauricio Medinacelli, Hydrocarbons minister during the transition government of Eduardo Rodríguez between June 2005 to January 2006, says that the additional revenues for Bolivia can fall from anywhere from 1 to 20 percent of foreign energy companies’ earnings, aside from the 50 percent already established by the Hydrocarbons Law.

It is difficult to calculate the exact figure because it depends on gas prices and the amount these companies extract.

Medinacelli estimates the additional sum for the state will be roughly $200 million a year, or 10 percent.

But the former minister worries that the new contracts will “only work with high gas prices, like we have now thanks to the high price of oil.” He warns that if prices fall the companies will have far lower earnings and lower their production levels.

He adds that there should be “clear rules” for the companies such as determining a certain tax level that corresponds to a specific production and investment level.

Bolivian officials have still not made it clear how they plan to use the additional funds generated by the new contracts. Medinacelli recommends they use them to invest in the state energy company.

“The weak YPFB must be strengthened,” he said. The company cannot “be used like the petty cash machine for the government, as it has been in the past. We’ll have to be very careful not to use funds that can vary year to year for social spending.”

In the meantime, La Paz residents keep lining the streets waiting to buy gas. They find it impossible to fathom why in Bolivia, home to South America’s second-largest natural gas reserves after Venezuela, there is a shortage.

Medinacelli says it’s a structural problem.

“Natural gas production has not increased in the last few years because of a lack of investment. But the demand has increased and continues to increase as urban transport uses [natural] gas instead of gasoline,” he said.

“To increase production capacity is a long and costly process. Either the internal market prices will increase or the state will have to spend more to subsidize it.”


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