More than a week after the announcement of the nationalization of the energy company, Transportadora de Eletricidade (TDE), the Bolivian government said it reached an agreement about a fair compensation to the Spanish company, Rede Elétrica (REE), responsible for TDE. The matter will still be submitted, however, to a series of assessments.

 

Last week, Bolivian President, Evo Morales, met with the representative of the Ministry of Foreign Affairs from Spain, Jesus Manuel Gracia, to negotiate the agreement. Talks between the Bolivian authorities, Spanish entrepreneurs and representatives lasted three days.

 

Morales decision to nationalize the electricity company surprised the Spaniards, who threatened to retaliate against the measure. In the last days however, the Bolivian foreign minister tried to minimize the tension.

 

On Feb. 1, Morales announced the nationalization of TDE. He said the decision was made due to low investment in the expansion of the National Interconnected System (SIN) of the energy supply in the country, and because it is government policy to recover the strategic enterprises that were privatized in the 1990s.

Polls indicate that the ballot box “Yes” won the “No” constitutional referendum in Bolivia. The result was expected, based on the results that President Evo Morales`s popularity indicated.

According to the polls, the victory is around 60% against 40% . However, some mass media reported that the result was tighter: 51% to 49%. This last result is less reliable. 

The “yes” won in the provinces of Cochabamba, La Paz, Oruro and Potosi while “no” won in Beni, Pando, Tarija and Santa Cruz de la Sierra. 

With this result we can expect a scenario of institutional difficulties, since it needs to approve the arrangements for implementation of the new Constitution in the National Congress, as well as political instability among the winners and political opponents. 

Controversial points of the new Constitution will be posted soon in this blog. 

P.S.: Comments are welcome.

The US House of Representatives approved the extension of the Andean Trade Promotion and Drug Eradication Act (ATPDEA) to Colombia, Ecuador, Peru and Bolivia, despite demands by President George W. Bush that benefits to Bolivians be suspended.

 

The ATPDEA allows tax-free Bolivian exports into the US market. It is part of American incentives aimed at Andean nations cooperating in the war on drug trafficking.

 

Bush’s request to exclude any benefits to Bolivia came as a response to the expulsion of the US ambassador to La Paz, Philip Goldberg, at the summit of the institutional crisis, three weeks ago.

 

According to the local press, the benefits will be suspended regardless of the House approval. Sources from the US Embassy in La Paz said that the situation will not change unless the US president issues a resolution to the contrary. Faced with this imminent loss of economic benefits, the government headed by Evo Morales will probably intensify dialogue with Venezuela, Mexico and Brazil, which are all potential markets in the region. 

n partnership with Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), Petróleos de Venezuela S.A. (PDVSA) has confirmed that it will explore 12 oil blocks to check on the existence of hydrocarbons. US$ 887 million will be invested.
 
In case of positive findings, Bolivia will be capable of increasing its natural gas reserves. It is currently estimated that the country has 48.7 trillion cubic feet of natural gas. However, most of it is exported to Brazil and Argentina. Drilling teams are working in the town of Patamaya.
 
Increasing natural gas reserves is paramount for the nation to secure domestic supply. Ever since the hydrocarbon industry was nationalized, investment dropped because of legal insecurity.

Published in 2006

South America’s poorest country is back at the centre of attention in the region. Evo Morales’ historic electoral victory has signaled the onset of a government that combines indigenous nationalism and a typically Latin American left-wing populism. Bolivia has always been tightly dependent on foreign investments to compensate for its managerial ineptitude and an inability to take advantage of its own natural resources. This has fostered an influx of foreign capital which has contributed significantly to the maintenance of the country, albeit in a precarious fashion.

 

During Morales’ electoral campaign against Jorge Quiroga (former President and representative of the Santa Cruz business elite), the indigenous candidate, leader of coca farmers and head of the Movement Toward Socialism (“MAS”), based his agenda upon two pledges in order to secure the election.

 

The first was to nationalise the extraction process of Bolivian natural resources and “hand it back” to State control. This process includes natural gas and oil fields, mines, and plantations, especially of soybeans.

 

The second pledge was to retake the path to the Pacific Ocean, lost to Chile during the Pacific War at the end of the 19th Century. An ancient Bolivian dream, this access to the sea is the solution envisaged by Morales for Bolivia’s need to export to other countries swiftly and easily. Also worth bearing in mind is that Evo Morales’ electoral conquest was openly financed by Venezuela’s President Hugo Chávez and made relatively transparent to the media based on Chávez’s addresses to Venezuelan newspapers.

 

The first electoral promise was put into effect with the occupation of natural gas fields operated by Petrobras, a Brazilian company which alone invested the equivalent of 18% of Bolivia’s GDP. The occupation, marked by nationalist speeches and actions, represented an enormous defeat for Brazilian foreign policy and an immense political conquest for Venezuela’s President Hugo Chávez.

 

As his hand in the episode became widely known to both Latin American society and media, Chávez began to be recognised as the continent’s chief political strategist and the true regional “leader”, instead of “virtual leader” Luís Inácio Lula da Silva. Besides Petrobras’ operations, fields operated by YPF Repsol (Argentina-Spain), Total (France), and British Gas (UK) are also being targeted for Evo Morales’ nationalisation policy.

 

The decision of the Bolivian president may have the following impacts on Bolivia:

 

1. Impoverishing Bolivia’s economy, and consequently its population, due to the flight of capital backing up the internal economy;

 

2. Undermining foreign confidence in Bolivia during Morales’ government and any subsequent administration, in case an ideologically-aligned successor is elected;

 

3. Obsolescence of the technology employed in gas exploration due to lack of equipment maintenance;

 

4. Severance of stable relationships with the following governments: Brazil, Argentina, Paraguay and Chile.

 

As regards South America, Morales’ actions may lead to the following negative consequences:

 

1. Political turmoil in the region, causing polarisation between those supporting and those rejecting Morales’ stance;

 

2. Energy issues emerging from a failure to transport Bolivian gas (in Brazil, 51% of natural gas comes from Bolivia and 5.1% of Brazil’s energy grid is dependent upon Bolivian gas);

 

3. Economic issues emerging from a lack of gas supply in the continent. Ceramic, glass, food and beverage industries are those more heavily dependent on gas for production;

 

4. A lack of confidence in the region as a whole on the part of foreign investors, due to feeble responses by the main South American governments towards Morales’ breach of contracts. Such weakness may represent to investors that South American governments are unreliable and do not have the commitment to abide by their own contracts.

 

In order to grasp a better understanding of the scenario, it is essential to understand the previous situation, and how it has changed, for companies exploiting natural gas in Bolivia. In May 2005, the Bolivian Congress passed a bill to tax prospecting companies 32%, in addition to the current duty of 18% charged in the form of royalties. Arguing that the contracts had been closed “illegally” and in an “unfair” way, Morales’ decree of nationalisation raised duty on gas from 50% to 82%. It was also declared that companies not complying with the new regime will have to leave the country within 180 days.

 

In addition to this, there is another event worth noting to understand on some forecasts for the continent. A week prior to the nationalisation decree, the Bolivian President announced that his government did not have the technical capability to occupy foreign companies in order to nationalise them. However, upon fulfilling his decree, Morales made it known that the technical portion of the process would be carried out by Venezuelan specialists from PDVSA (Venezuela’s state-owned oil company).

 

Venezuela’s Involvement

 

The attitudes adopted in by the Presidents of Bolivia and Venezuela clearly show that Morales was only capable of taking such steps under the auspices of Hugo Chávez. Since taking office as President in 1998, the latter has cultivated an obsession with disseminating the thoughts of Simon Bolívar (the liberator of several South American countries in their struggles for independence) throughout the continent. Bolívar, and likewise Chávez, had dreams of a strong, united Latin America, representing a single Latin American homeland.

 

Owing to current oil prices on the international market, Chávez relies on a significant budget to sponsor his foreign policy. In addition to several populist measures put into effect in his homeland, the Venezuelan leader has been using the same rhetoric elsewhere in the continent. To forge an ideological coalition around this ideal, he has openly supported the electoral campaigns of certain like-minded candidates in the continent. Morales’ victory in Bolivia was the result of intense involvement by Chávez, and the same support was afforded to the losing candidate in last week’s Presidential election in Peru, nationalist candidate Ollanta Humala.

 

Hugo Chávez seeks to unify the continent by means of an energetic coalition, merging Venezuela’s oil and Bolivia’s gas into an expensive network of oil and gas refineries and pipelines throughout the whole continent. Part of this agenda has already been put into action with the construction of refineries in Bolivia, Argentina and Uruguay. The current scenario in Bolivia stands as a major victory for Chávez, who intends to fill the vacuum left by foreign companies as they depart Bolivia or reduce investment in the country.

 

Morales’ second pledge

 

The (partial) fulfillment of the first of Morales’ pledges raises yet more concerns with respect to the second banner of his campaign. The whole continent dreads that, incensed by the national passion of the Bolivian people and Chávez’s support, Morales will engage in a more drastic attitude while seeking to secure access to the sea.

 

It is very clear today that Chile will not relinquish the northern region of the country, and is thus in opposition to Bolivian intentions. However, the odds of military conflict remain low. Chile has one of the best-trained and best-equipped armies in South America, having purchased eleven F-16 fighters during the last days of Ricardo Lago’s administration, now strategically and significantly stationed at Iquique military base, 200 km from the Bolivian border. At the time of the purchase of these aircraft, the country’s Minister of Defense was current President Michelle Bachelet.

 

It is likely that in order to ward off tense entanglements with Chile, Morales will adopt measures even more populist in his own country to offset a failure to recover the area lost to Chile. This will imply greater involvement for Chávez, as Morales does not have the budget to carry out significant reforms.

 
Welcome! Latin America is becoming consistently more important for the world. As the region becomes more stable, the world sees Latin America as a potential business area. In order to understand te potential Latin America has to offer, the world must understand the unique dynamics that the local politics function. This blog already exists in Portuguese since 2005 and is widely read. I believe it can be an important instrument to understand this amazing region. Suggestions, criticisms and opinions are welcome. + learn more

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