May 6, 2006

South American Leaders Back Bolivian Gas Nationalization

(Puerto Iguazu, Argentina) Leaders of four South American countries reached an agreement to negotiate prices of Bolivian gas, and also that gas supplies will keep flowing after the Bolivian reclamation of its energy industry.

After a four-hour emergency summit in this Argentine tourist city the leaders of Argentina, Brazil, Venezuela and Bolivia came up with a joint statement that pledged to avoid a regional dispute sparked by Bolivia's nationalization decision.

"In terms of price, the document is absolutely clear," said Argentine president Nestor Kirchner. "It says ... that bilateral meetings will be the means to resolve price discussion between countries."

Most importnatly for Evo Morales, Bolivia's new president, is that the document provides unequivocable support for Bolivia's right to nationalize its natural resources. Foreign companies have six months to sign new contracts with YPFB, the state energy company, giving the state 82% of production profits.

Foreign companies failing to reach agreements face the risk of expulsuion from Bolivia.

Venezuelan President Hugo Chavez said that his own country's nationalization efforts helped pave the way for Bolivia.

"We have recovered the control of our natural resources and our mineral riches in a very long and difficult process that even cost us an attempted coup," said Chavez. "I can tell you that the process in Bolivia will in no way be traumatic."

Left: Bolivian troops are now guarding oil and gas facilities

One of the chief goals of the summit - maintaining gas supplies to Bolivia's neighbors - was also achieved.

"The important thing is that gas supplies for the countries needing them have been guaranteed and that prices will be discussed in the most democratic form possible between all parties involved," said Brazilian President Luiz Inacio Lula da Silva after the meeting.

Brazil's state-owned oil company Petrobras said after the meeting that it will seek international arbitration if it cannot reach a deal with Bolivia on the price of natural gas imports within 45 days.

"The contract between Petrobras and YPFB establishes the mechanisms that should govern the negotiation and we are going to follow these procedures," said Petrobras President Jose Sergio Gabrielli.

Petrobras warned earlier in the week that it would halt all investment in Bolivia after the nationalization announcement by Morales on May Day.


Petrograde said...

The Bolivians SHOULD be able to control their own natural resources.

historymike said...

The other side of the equation, Petrograde, is the billions that have been invested in Bolivian infrastructure by foreign companies like Petrobras.

It seems to me that an 82% cut to the federal Bolivian government is quite a large hit for the private firms, unless the Bolivians are using this as the beginnings of future negotiations.

Of course, all that Petrobras has to do is juggle the books and hide profits in expenses to get around the internal tariff, thus passing along the costs to the end consumers.

BrianMaxson said...

I've heard that the cost of gas in Venezuela is about 20 cents a gallon.

Makes you wonder what is up when our country is corporate-wise majority owned by a country manipulating it's own currency to drive us deeper into the ground.

Praguetwin said...


That is true, but changing the rules of the game may lead to a lack of further investment, and lets face it, without future investment, and expertise from the private sector, Bolivian gas exports could drop dramatically in the near future.

As Mike points out, 82% is a big hit and this could scare off investors. Russia is now facing the same type of problem, and it will be interesting to see how the private sector reacts over the long term in both cases.

Nice post Mike,

I enjoyed your analysis.

Name withheld to protect the guilty said...

I should point out that although the price of gas in Venezuela may be 20 cents, 1) our price would be about $1.80 without all the taxes and 2) with their lower standard of living, it's as affordable to them as $3 gas is to us.

historymike said...

They do subsidize gas to the public, NWTPG.

But the Venezuelans have figured out that they are in a good position so long as global demand for oil increases.

They can underwrite their own development while earning hard currency and keeping much of the oil profits in their own country.

M A F said...

Che would be so proud. See what a distraction the invasion and occupation of Iraq has been. The nations of Central and South America are establishing socialist nations despite the decades of CIA assassinations, military coup d'etats, and the support of despot leaders, all in the name of US hegenomy.

Anonymous said...


You talk of U.S. hegemony like it is a bad thing. . .

Hooda Thunkit said...

"In terms of price, the document is absolutely clear," said Argentine president Nestor Kirchner. "It says ... that bilateral meetings will be the means to resolve price discussion between countries."

Sounds a lot like good old fashioned price fixing to me...

Maybe I misunderstood something though.