Brazil on edge over crisis in Bolivia.

The present political instability in Bolivia, which provides nearly two-thirds of the natural gas consumed in Brazil, has heightened the sense of urgency to increase national production, due to fears of an interruption in this supply.

Since October 2003, when month-long protests dubbed ”the gas war” toppled the Bolivian government of Gonzalo Sánchez de Lozada, the question of how best to exploit the country's abundant gas reserves, estimated at 53 trillion cubic feet, has torn that country apart.

After a new law on oil and gas was enacted last week, things came to a head once again, and demonstrations and roadblocks by leftist indigenous and labour groups paralysed downtown La Paz this week.

The law maintained the 18 percent royalty paid by foreign oil companies operating in Bolivia, while creating a new 32 percent tax on production.

The foreign oil giants - which include Brazil's state-run Petrobras, British Petroleum, France's Total, and Repsol from Spain - are upset about the new law, because it will force them to renegotiate the terms of the contracts that they signed in the 1990s.

The groups of indigenous campesinos, miners, students and teachers protesting in La Paz this week are also opposed to the new law - but because they say it does not go far enough.

Most of the organisations are demanding the outright nationalisation of Bolivia's natural gas reserves, which are the second largest in South America after Venezuela's.

An exception is the leftist Movement Towards Socialism (MAS) party, led by indigenous lawmaker Evo Morales, the head of Bolivia's coca farmers. Morales came in second in the 2002 presidential elections, just behind Sánchez de Lozada.

Morales, whose party is the strongest opposition force in Bolivia, is not demanding nationalisation, but is in favour of charging the foreign oil companies a higher direct royalty.

In a telephone interview with IPS, Morales said he would ”never” call for a rupture in relations with Petrobras, which purchases and transports natural gas from Bolivia to Brazil.

But the risk of a cut-off in supplies by actions like border closures or sabotage of pipelines in Bolivia is ”alarming” for Brazil, which does not have the infrastructure to store natural gas for emergencies, and has no viable short-term alternatives, Giuseppe Bacóccoli, an expert on energy policy at the Federal University of Rio de Janeiro, commented to IPS.

Petrobras recently announced the intention of speeding up development of the Mexilhao gas field off the coast of Sao Paulo state, which was scheduled to begin producing in 2008.

Mexilhao contains an estimated 420 billion cubic metres (14.8 trillion cubic feet) of natural gas.

But while Morales insisted that he wants Petrobras to remain in Bolivia, he said his country needs ”a new policy on hydrocarbons, with new statutes and contracts that create a balance between the state and the (oil) companies.”

Referring to the Bolivian law passed last week, he said it should be modified to ensure that the state holds a controlling stake in the country's oil and gas resources.

He added that while the law creates higher taxes and forces the oil companies to renegotiate their contracts, it also validates the contracts, which means the companies have a legal footing for turning to international courts to seek billions of dollars in compensation.

In Morales' view, the contracts should be annulled because they are illegal, since they were never ratified by Congress, and new ones should be signed, which would free Bolivia of the threat of legal action by the companies.

MAS is not calling for ”the expulsion” of the foreign oil companies, unlike the ”mistaken radical groups” - as Morales calls them - that are demanding the nationalisation of Bolivia's oil and gas industry.

”We need partners, not owners,” he said, referring to the transnational corporations.

Bolivia, along with Brazil, which he described as a ”big brother,” should ”draw up a joint energy strategy” to meet the demand for energy in Brazil and in Latin America, he said.

And in the future, if MAS makes it to the government, he added, his party would hope to be able to count on support from Argentina and Brazil in Bolivia's attempt to regain an outlet to the sea (which Bolivia lost to Chile in a late 19th century war).

But Bolivia's current crisis has been aggravated by a recent decision reached by the Santa Cruz Civic Committee - which groups business interests and large landowners in Santa Cruz, Bolivia's richest department (province) - to call a referendum on autonomy on Aug. 12.

Three other departments in Bolivia's wealthy eastern region, where the country's oil and gas are concentrated, have threatened to follow suit and hold their own referendums to allow local voters to decide if they want autonomy.

The regions ”want to freely dispose of the natural resources and taxes,” which like domestic security are questions that fall within national jurisdiction, argued Morales, who accused bankers, large landowners and businesspeople in eastern Bolivia of trying to divide the country.

MAS, on the other hand, is demanding a constituent assembly to rewrite the constitution. Morales said a constituent assembly would be the only forum that could legitimately discuss autonomy - but for the country's nine departments, not just for a few.

The armed forces are also back on the scene. The commander-in-chief recently stated that the military rejected any attempt to divide the country. He also publicly criticised two colonels for urging the president to resign, and denied that the military is planning a coup d'etat.

The crisis has caused concern in the Brazilian government, which sent President Lula's foreign policy adviser Marco Aurelio García to Bolivia this week to meet with a range of political forces and assess the situation on the ground.

Argentina also took part in the mission. For that country, a cut-off of Bolivian gas imports would be especially difficult, as the southern hemisphere winter is approaching fast, and gas accounts for nearly half of Argentina's power generation. Brazil, by contrast, is attempting to increase that proportion to 12 percent by 2010.

Argentina, which exports natural gas, was self-sufficient until last year, when lack of investment in increasing output forced it to begin importing a daily four million cubic metres of gas from Bolivia, especially to meet demand in the country's neglected northern provinces.

Under an agreement signed in 2004, imports from Bolivia are to rise to 20 million cubic metres by 2007.

The use of natural gas in Brazil is growing fast, thanks to imports from Bolivia of more than 24 billion cubic metres a day. An interruption in supplies would hit some industries hard, said Bacóccoli at the University of Rio de Janeiro, who noted that natural gas is the main source of energy for more than 2,200 companies.

Besides, ”there is no way to produce gas in Mexilhao before 2008, and it will even be difficult to begin doing it that year, since 1.5 billion dollars in investment are needed,” said the expert on energy policy.

Alternative sources of gas imports are much more distant, like Trinidad and Tobago or Nigeria. Furthermore, imports from those countries would have to be transported in the form of liquefied gas, and Brazil does not have regasification plants, he pointed out.

The conclusion, said Bacóccoli, is that Brazil must invest more in local exploration and production, since promising gas reserves have been found in the country.

The Bolivian crisis is a second hard lesson for Brazil, said the analyst. After the 1970s oil crisis, Petrobras began to search for oil in Arab countries, until it discovered a giant oil field, Majnoon, in Iraq in the 1980s.

But the Iraqi government confiscated Majnoon, and paid indemnification that did not compensate the investment that had been made, said Bacóccoli.

Petrobras then decided to explore in neighbouring countries, investing around 1.5 billion dollars in Bolivia, where it controls 10 percent of the gas reserves, and owns two oil refineries as well as service stations that cover 20 percent of the market.

When the new hydrocarbons law, which will raise royalties and taxes paid by foreign oil companies from 18 to 50 percent, was enacted in Bolivia, Brazil's Ministry of Mines and Energy announced that it would reduce investments in that country.

That will mainly affect the development of gas industrialisation facilities on the border and a pipeline running to southern Brazil through Argentina.

Sales of gas through the pipeline that began to operate six years ago raised Bolivian exports to Brazil from 23 million dollars in 1999 to 713 million dollars last year, while imports rose from 443 to 535 million dollars in the same period.

Brazil's economic presence in Bolivia represents one-fifth of gross domestic product, including one-third of Bolivia's soy output, which is produced by Brazilian farmers who moved across the border in search of cheap land.

[Source: By Mario Osava, Terraviva Europe, IPS, 30May05]

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