Nationalization under the microscope
With the state taking back strategic industries, the government needs to develop an investment policy.
|Ricardo Herrera Farell
Since 2006, every May 1— International Workers’ Day — President Evo Morales nationalizes a foreign-owned private company. This year, it was Cochabamba-based Transportadora de Electricidad, or TDE, subsidiary of Red Eléctrica de España, or REE, responsible for 74 percent of the country’s electricity grid. In that central city, the Bolivian president signed the takeover of the Spanish company’s shares. But a few hours later, in the southern city of Tarija, he inaugurated a US$100 million gas processing plant owned by a transnational oil consortium of Repsol, British Gas and Pan American Energy.
How can we understand the process of nationalization Bolivia is now experiencing, where on the morning of May 1 the president expropriates TDE with a military presence and by the evening he exchanges compliments with Antonio Brufau, chairman of Spanish oil company Repsol, and ensures him protection from legal liability for his investments?
“It is not contradictory. It’s very clear that May 1 is chosen to gain popularity by showing us that we are reclaiming strategic public resources, while demonstrating that a firm like Yacimientos Petrolíferos Fiscales Bolivianos, or YPFB, cannot go it alone with the state and requires significant international private sector investments. What happened with TDE is a nationalization done with share purchases that, while forced, could have been done without military intervention and without turning it into a media spectacle with political purposes,” Álvaro Ríos, analyst and former Mining and Hydrocarbons minister, told Latinamerica Press.
“The expropriation of TDE is part of an annual liturgy celebrated May 1 that consists of sacrificing a private company on the populist circus’s altar. That sacrifice, accompanied by ambiguous symbolism like the take-over of facilities by armed troops, sets out to give the impression of a strong state, although at this point, it attracts more indifference that interest from the people. What’s more, this liturgy is provided for in the Constitution, which states that the state should control the energy supply chain,” said Francesco Zaratti, an energy analyst.
“The hugs and smiles for Repsol are in response to a structural need at YPFB, the public hydrocarbon company, which is unable to run the energy supply chain without the help of multinational corporations. Bolivia is a rentier state that needs ‘tenants’ to pay monthly rent and to keep running its source of income — gas fields — to fully comply with supply contracts to Argentina (Repsol) and Brazil (Petrobras). Repsol is currently a good tenant and must be treated well,” said Zaratti.
Within hours of the measure, Hydrocarbons and Energy Minister Juan José Sosa told the media that with the privatization of TDE, Bolivia takes over 85 percent of the power lines in the country and with it is looking to extend the grid’s reach into all nine of the country’s departments, not just the six that were part of the Spanish company’s network.
“TDE should have expanded the network to other departments, but they kept the coverage to just six, so the state connected the other three,” Deputy Minister of Electricity and Alternative Energy Lutgardo Álvarez told state news agency, ABI.
Foreign companies emerge winners
Since Morales first came into power in 2006, his administration’s policies have been geared toward re-nationalizing state property from strategic industries that were privatized in the 1990s. To that end, hydrocarbons were nationalized with Executive Order 28701. Then came telecommunications with the Bolivian National Telecommunications Company, metal with Vinto Metallurgical Company and the Huanuni mine, and electricity with the National Electricity Company, the industry leader for which TDE transported high voltage electricity through the National Interconnected System, or SIN.
According to the Ministry of Economy and Public Finance, the conversion of these companies to the public sector last year benefited 30.8 percent of the population, which translates to just over 3 million people in poverty who receive state subsidies.
Revenue generated by nationalizations gave rise to voucher programs like “Juancito Pinto” for schoolchildren, “Renta Dignidad,” a pension for Bolivians over the age of 60, and “Juana Azurduy” for pregnant woman and children under the age of 2. The benefits of nationalization, according to administration sources, are reduced poverty and improved quality of life for Bolivians, especially in rural areas. Moreover, the majority of more than a dozen nationalizations concluded on amicable terms between the companies and the government through compensation.
“It is assumed that the purchases were made at very good prices, but this has not taken into account the depreciation of equipment and infrastructure that are being acquired. The state has purchased facilities severely damaged by the lack of investment in the last 10 to 15 years. So it has become big business for foreign companies to reach a financial settlement with the state, because they benefit when they leave,” said researcher Marcos Gandarillas, of the Bolivian Center for Documentation and Information, or CEDIB.
Lack of investment in hydrocarbons
For Gandarillas, the government’s political future depends on whether there is a real policy regarding the strategic sectors of the economy. He believes that foreign investors have not shown readiness to shoulder the country and the development of different sectors. “For example, on April 18, the government approved Executive Order 1202, which establishes an incentive payment of $30 per barrel of oil in the form of credit notes, or Nocres, which will add to the $10 per barrel [the companies] currently receive. That was one of the demands of the oil companies that, together with increased fuel prices, led to social conflicts called the “gasolinazo” at the end of 2010. Although these increases were finally repealed, companies have continued to pressure the government. The latter, lacking vision for the sector, was unable to deal with this. Now we are in a dangerous situation, because too many resources are spent on importing petroleum products. That’s because there is no investment. Companies themselves have no obligations to explore new oil reserves and when they did have them, they were not fulfilled. The latest reserves that are running out actually date from the 1970s,” he said.
According to a study by the Center for Labor and Agricultural Studies, or CEDLA, the average cost of hydrocarbon products for foreign companies is below the $27.11 paid by the state, including for the fields that have proven to be less prolific. Some have even received an additional incentive since 2006 that releases them from royalty payments.
Meanwhile Rios believes that the country is receiving very good income primarily from the sale of gas to Argentina and Brazil, but as of 2016 the output curve will begin to decline and “if nothing is done before that date to attract investments, we could enter into serious economic deterioration.”
“Nationalizations are good for governments looking at the short-term, but they are bad for the people in the medium- to long-term,” Zaratti said. “They bring in high revenue in the short term, but they leave behind investment, modernization, and efficiency. Bolivia, like the majority of countries in the region, has neither a school nor training for the skilled human resources needed to run large companies, so improvisation, party sectarianism, and electoral short-termism take hold.”
But the recent measures taken by the state have been backed by some grassroots organizations, including the Bolivian Labor Confederation, or COB, which through its executive director Juan Carlos Trujillo backed the nationalization of TDE and the state takeover of private companies, a move noted within the policy document of the COB’s 15th Congress. The National Council of Ayllus and Markas of Qullasuyu of La Paz, or Conamaq-La Paz, also showed support, though both organizations opposed Morales’s government on other issues. —Latinamerica Press.