Last Chance for Gas in Bolivia

Foreign Companies Are Grabbing for Every Last Cubic Meter

By Amber Howard and Natalia Viana
2004 Narco News Authentic Journalism Scholars

October 28, 2004

Since the mid-1990s, a group of foreign corporations has essentially controlled the development of Bolivia’s greatest current natural resource: natural gas. A year has now passed since tensions over the gas issue exploded into what soon became known as the “Gas War” – a month-long popular revolt that left nearly a hundred dead and ended in the president’s resignation and flight to the United States. The activists and social leaders of the Gas War are now focused on bringing new proposals to the National Congress to move toward their ultimate goal: the nationalization of Bolivia’s gas.

But for the last eight years the government has followed a strategy of simply exporting the gas as quickly as possible. It has granted rights and generous concessions to multinational corporations rather than look at the gas as an opportunity to build up native Bolivian industry and bring the nation out of its extreme poverty and underdevelopment.

The full-scale foreign corporate takeover of Bolivian industry began in March 1994, with the Capitalization Law. This was aimed at the privatization of Bolivia’s major public companies: hydrocarbons, electricity, railways, the national airlines and telecommunications. In this exchange, the private companies were awarded 50 percent of the company’s shares, with the other 50 percent of the shares reserved for the Bolivian people. However, full administrative control was granted to the private investor.

At the same time, huge natural gas reserves were being discovered in Bolivia, and major foreign gas corporations eagerly bought their way into the Bolivian economy. In April 1996, then- president Gonzalo Sanchez de Lozada passed the Hydrocarbons Law, which created the legal framework for changing this sector from the government to ownership by private companies. Because of this law, the gas is considered property of the transnational companies at the wellhead. Companies are obliged to pay 18 percent royalties on their profits to the state, keeping the remaining 82 percent. The transnationals themselves declare what their profits are, and likely often under-report them. Unfortunately, Bolivia does not have the power or resources to demand a full audit of these companies to find out what it truly deserves. As soon as the law was passed, the interest of many foreign companies peaked. This was particularly true in the United States, where investment in Bolivia skyrocketed shortly after the bill’s passing.

The same year, the state-owned oil company YPBF (Yacimientos Petroliferos Bolivianos Fiscales) was divided into Empresa Petrolera Andina and Empresa Petrolera Chaco, and quickly became divided among a few big companies. Pan-American Energy (a joint venture of the British BP and Argentinian Bridas) soon acquired a 50 percent stake in Chaco, while Repsol YPF acquired half of Andina.

A t the time the Hydrocarbon Law was signed, the natural gas reserves of Bolivia were worth $100 billion dollars. The government of Bolivia freely gave the oil companies who were interested all the information about the existing oil and gas fields – where they are, their depth, and their capacity. Typically, this data is not easy to get. The government spent many years and $1 billion dollars in public funds on the research.

Pipeline Projects

A year later, in 1997, the process continued when Bolivia privatized Transredes, the state hydrocarbon transport company. TR Holdings, a consortium of Shell Gas and the infamous Enron, bought their 50 percent stake in Transredes for $263.5 million. The contracts gave the companies control over gas pipelines in Bolivia for forty years. Transredes has 391 employees, nearly all locally hired, and employs approximately 1,200 contractors.

Bolivia has not yet begun to export gas on the massive scale that its reserves would allow, and more foreign companies are moving in to fill the void. This represents the largest investment ever in Bolivia. The pipelines being planned will do little to bring gas to Bolivian citizens, who currently have little access to the fuel. Rather, the gas will go mainly to industrial uses and consumers in other countries, so the pipelines serve mainly to keep other transnationals in business.

The most high-profile project would take gas from the Margarita field in Tarija, a southern Bolivian department on the border with Argentina that has more than 13 trillion cubic feet of gas reserves, to the Pacific coast to be shipped to Mexico and the United States. The $5 billion dollar project is headed by Pacific LNG, a consortium of Repsol, BG and Pan-American Energy, formed specifically to exploit Bolivian gas.

The gas will go through a liquefaction process and then be loaded on boats and shipped out of the Peruvian coastal city of Ilo all the way to the Sempra Energy/CMS Energy receiving terminal in Mexico. This was a monumental decision made by President Mesa to choose the Peruvian port instead of the Chilean port city of Patillos. Sanchez de Lozada’s plan to strike a deal with Bolivia’s historical enemy Chile – whose capture of the Bolivian coast in the 1879-1884 War of the Pacific is still resented as a cause of Bolivia’s economic stagnation – was one of the major factors leading to the outbreak of the Gas War last fall.

Another direction the gas is being piped out of Bolivia is toward Brazil. A new pipeline project begun in 1996 will bring Bolivian gas southeast to Porto Alegre. A second pipeline will branch off and go to Cuiabá, Brazil. The Brazilian state oil company Petrobras, Repsol-YPF, and multinational TotalFinaElf, operators of the Transierra consortium, were the companies who received the environmental license to build the 268-mile Bolivia-Brasil pipeline. Transredes will also be involved in the transportation. Several international financial institutions have contributed to the project, predominantly the Inter-American Bank and the International Bank for Reconstruction and Development. Other sources of financing include the World Bank, the Andean Development Corporation, and the European Investment Bank, with Enron as the lead sponsor. The total cost of the project is $1.67 billion

Many are concerned about the environmental impact of these projects. According to the World Rainforest Movement, the pipeline “will cut through 200 km of primary tropical forest and 100 km of pristine wetlands in the Bolivian Amazon…. It will bisect the world’s largest intact tropical dry forest.” In the past year, the sponsors of the project have made numerous promises that this project will bring great economic benefits to local communities (jobs, revenues, etc.) and will exemplify strict and “unprecedented environmental safeguards” to minimize its harmful impacts.

“From many eyewitness accounts, in the case of the Cuiabá pipeline, what local communities have so far experienced has been pollution of local water resources, degradation of local roads, soil and air pollution, and grave social impacts such as increase in crime, prostitution, and disruption of local towns associated with workers’ camps. The local impacts on the globally important Chiquitano forest region and on the local populations have been significant and are likely to continue into the future,” says the Amazon Watch Network.

The Players

Following is a look at the corporations now involved in Bolivian natural gas.

Repsol-YPF has operations in 30 countries, most notably Spain and Argentina. Repsol YPF is the largest producer and a market leader in Argentina as well as being a very significant player through the Southern Cone. The company has 11 Tcf (trillion cubic feet) of gas reserves in Bolivia (more than 23-percent of the nation’s total reserves) and has a strong presence in Chile, Peru and Brazil. In addition, the company has a strong presence in Mexico’s gas distribution sector through Gas Natural SDG, which has the concession to distribute gas to eight state, including the federal district of Mexico City. Overall, Repsol produces the equivalent of more than 1.1 million barrels of petroleum per day and its reserves of oil and gas are more than 5.4 billion barrels, located predominantly in Latin America and Northern Africa. Repsol serves more than 8.7 million clients in Spain and Latin America (four million in Latin America alone), distributing natural gas directly or through its subsidiaries.

Now Repsol is focusing on constructing the gas pipeline to run from Bolivia to export gas to Mexico and the United States. This is being done through the consortorium Pacific LNG made up of BG Group, and Pan-American Energy (which is made up of 60 percent BP, 40 percent Bridas) and Repsol-YPF. On the receiving end in Mexico and through to California, are the American oil companies Sempra and CMS Energy Corp.

Pan-American Energy LLC is the joint venture owned by British Petroleum (60 percent) and Bridas (40 percent) for their oil and gas activities in the Southern Cone of South America. The company currently produces over 80,000 barrels of oil per day and 440 million cubic feet of natural gas per day and has interests in various portions of the oil and gas value chain, including pipelines, oil terminals, gas distribution and power generation. With certified reserves of 929 million barrels of oil and 7.1 Tcf of natural gas, Pan American Energy is one of only two companies with oil and gas operations in all four of Argentina’s major production areas and Bolivia. The company is an owner of 50 percent of Empresa Petrolera Chaco, a Bolivian oil and gas producer. The interests of BP in the Margarita Field are in the process of being transferred to Pan American Energy.

Petrobras is a Brazilian state-owned company. Last year, their production reached 1.7 million barrels per day of oil and liquefied natural gas (LNG), and 53 million cubic meters a day of natural gas. Petrobras did business in eight countries last year (Angola, Argentine, Bolivia, Colombia, US, Equatorial Guinea, Nigeria and Trinidad & Tobago). It has worked in Bolivia since July 1996 to get the gas pipeline to Brazil working. Petrobras has began construction on a 431 kilometer gas pipeling from Yacuiba, Bolivia to Rio Grande, Brazil in January, 2002. Petrobras has concessions in the Bolivian departments of Tarija, Chuquisaca, Cochabamba, Beni and La Paz. Its own oil and LNG production in Bolivia is about 5,000 barrels per day, and its natural gas production in Bolivia is about 5 million cubic meters per day. Natural gas reserves in Bolivia are estimated to be about 49.2 billion cubic meters.

TR Holdings: made up of Enron and Shell.

Enron was, prior to filing for bankruptcy, one of the world’s leading energy, commodities and services companies. Revenues were $101 billion in 2000. Enron has international interests in more than thirty countries in Central and South America, Europe and Asia. The company’s assets total over $47.3 billion with 9,000 miles of pipeline in operation worldwide. They employ 10,100 people with a headquarters office in Houston, Texas USA. Just to give an idea of their expansive growth, in 1985 they had one power project in construction and one in operation. However in the year 2000 they had 51 power projects in operation in 15 different countries, and 14 power projects in construction in 11 different countries. Even though Enron recently filed for bankruptcy, due to being caught for fraud in the United States, it did so “to preserve and strengthen our business so that we can best meet our financial obligations to our creditors” and its executives say they expect the company to make a full comeback. Enron is deeply embedded in the political system of the United States, making multi-million dollar contributions to the Republican Party. Enron CEO Kenneth Lay has been a friend of Bush and the Bush family for years. When Vice President Dick Cheney drafted a new energy policy, he met with Lay and other Enron executives. Enron was reportedly the only company to be granted such a meeting.

Shell began in 1892 when it commissioned the first special oil tanker and subsequently delivered 4,000 tons of Russian kerosene to Singapore and Bangkok. Now Shell operates in over 145 countries, and employs more than 119,000 people. Approximately 3 percent of the world’s oil and approximately 3.5 percent of the world’s gas is produced by Shell companies, similar to other major private oil and gas companies. Every four seconds, a plane is refueled by Shell Aviation. In that time 1,200 cars visit a Shell service station.

BG Group, based in England, is active on four continents and some 20 countries. In South America, BG Group holds controlling interests in the two major gas distribution hubs of Metrogas in Buenos Aires, Argentina and Comgas in Sao Paolo, Brazil. BG Group also holds equity and capacity in the Bolivia-Brazil pipeline and delivers equity gas to Comgas from its significant Bolivian gas reserves – where it is the second largest gas reserve owner. In addition to its participation in Pacific LNG, it is a 26 percent shareholder in Atlantic LNG (Trinidad and Tobago), and participant in the newly formed Egyptian LNG project. In May 2001, BG Group took a long-term contract for all available capacity at CMS Energy’s LNG importation Terminal in Lake Charles, Louisiana, USA.

Sempra Energy (NYSE: SRE), based in San Diego, is a Fortune 500 energy services holding company with annualized 2001 revenues of about $9.4 billion. Sempra Energy has an existing presence in northwestern Mexico, where it owns and operates three natural gas distribution systems and one gas transmission pipeline. Sempra Energy also is building a 135-mile natural gas pipeline and a 600 megawatt power plant in the region. Through its eight principal subsidiaries—Southern California Gas Company, San Diego Gas & Electric, Sempra Energy Solutions, Sempra Energy Trading, Sempra Energy International, Sempra Energy Resources, Sempra Communications and Sempra Energy Financial—the Sempra Energy companies’ 12,000 employees serve more than 9 million customers in the United States, Europe, Canada, Mexico, South America and Asia.

CMS Energy Corporation has annual sales of $14 billion and assets of $16 billion throughout the U.S. and in selected foreign markets with businesses in electric and natural gas utility operations, independent power production, natural gas pipelines, gathering, processing and storage, LNG importation, oil and gas exploration and production, and energy marketing, services, and trading.

Olivera: “A Matter of Survival for Bolivia”

“Recovering the hydrocarbons and establishing new rules of the game is a matter of survival for this country,” says Oscar Olivera, the veteran Bolivian social and labor activist who now heads the umbrella organization the Coordinating Committee for the Defense of Gas. “We have no other alternative to reach new economic conditions.”

One of the alternatives to continual exportation is industrialization of gas within Bolivia. As it currently stands, Bolivia exports its gas in crude form, only to send it across the border to Brasil, Argentina, Peru or even Mexico to convert it into the many forms in which the natural gas can be sold. Until Bolivia builds factories within its own borders that do this processing, it will consistently lose money on any pipeline deal. The key is to convert the gas into something lucrative, or at least that other countries will look to Bolivia to buy. This could include fertilizers, other compounds which are important in making plastics or synthetic diesel, not to mention the uses of household gas for stoves and natural gas for vehicles. The same natural gas could also be used to produce electric energy, iron, and steel.

“We sell natural gas to Argentina but Argentina sells us the gas and gasoline. We export petrol to Chile and it sells us fertilizers with much added cost,” says Olivera. This is because the gas in its crude form is sold for only 98 cents per thousand cubic feet. Incredibly, Bolivians have to pay $5 for same amount of gas to fuel their stoves in their homes. The problem is that the conversion occurs in other countries, and the resulting products are worth more than the raw gas itself.

Is the industrialization possible in a country that has so few financial resources? One of the ways local economists have claimed it could work is by returning to state control all of the commercially owned plots that don’t currently have wells extracting gas. In this way, the country would recover 60 percent of their hydrocarbon property. This would bring about another advantage: the prices of gas within the internal market would have to be in accordance with the costs of production.

“Yes”, says Olivera. “There are many proposals to build plants for little money made by Bolivian technicians, and also there are proposals for financing made by some countries, mainly of Europe.” For him, changing the “rules of the game” will not compromise the Bolivia’s potential. “Do you think that a company that pays $1.40 to produce a barrel of petrol to be sold in the international market for $44 dollars will not want to invest here? They will all stay, no question on that.”

Changing the Rules of the Game

Currently, the most critical item on the people’s agenda is a bill designed to combat the Hydrocarbons Law. Many see this bill, developed by the Congressional Economic Development Commission – headed by congressman Santos Ramírez of Evo Morales’s Movement Toward Socialism (MAS) party – as the best chance for the change they demand. The first page of the proposal states that the law is necessary because “until now, only a few so-called bosses of the political parties have spoken for us, have decided for us, compromising not only the well-being of the present and future of all men and women of Bolivia, but also even more grave is that they have put in serious risk the very existence of our native country….We present this law as a product of dialogue with simple people, the workers of the city and countryside…The gas is ours and the decisions are too!”

The key points of the bill are:

1. Establish the recovery of the property right of the hydrocarbons to the Bolivian State and the reinstatement of the State oil company.
   
   
2. Establish an audit of all financial, operation, legal, environmental, and technical sides of the oil companies that operate in Bolivia.
   
   
3. Establish that the industrialization of the gas, within the territory of Bolivia, is a national necessity.
   
   
4. Establish royalties of 50 percent (this point has still not been agreed upon within the Commission)

With the aim of addressing financial issues, create a National Hydrocarbons Agency, avoiding the political interference of the operator of the previous state oil company –YPFB (Yacimientos Petroliferos Bolivianos Fiscales). This agency would be the fusion of the Vice President of International Negotiations and Contracts of YPFB, the Superintendent of Hydrocarbons, and part of the Minister of Mining and Hydrocarbons.

October 6th began the Agenda of October, an ambitious schedule of mobilizations and marches throughout the country to demand the government take this Bill seriously and act on it promptly. Many people from Cochabamba have been traveling to La Paz to put the necessary pressure on the government. They will not give up, yet this will not be an easy battle. As many have noted, President Carlos Mesa is very obviously on the side of the transnational corporations and in favor the continuation of the privatization model they promote. Since the parliament remains paralyzed with division, the real hope lies in the strength and unity of the social movements.

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