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The Democracy Center – Bolivia Briefing Series

President Evo Morales’ Gas and Oil
“Nationalization” Decree

What Are People Saying About the Decree?

By Aaron Luoma

Evo Morales’ historic May 1st presidential decree that ‘nationalized’ Bolivia’s oil and gas has garnered worldwide attention. In response, The Democracy Center has reviewed commentary and reaction to the decree from a wide variety of Bolivian and foreign interests and perspectives. These include the Bolivian government, its domestic political opposition, Bolivian social movements, researchers, and business leaders. From abroad it includes reactions from foreign governments, international oil and gas companies, foreign analysts and international foreign investors. Looked at as a whole, these reactions provide genuine insight into the global policy debate provoked by the decree.

Readers interested in a more in-depth review and analysis of the decree in terms of concrete policy should read the briefing written by Democracy Center gas and oil researcher Gretchen Gordon.

A second brief is a review of international press coverage of the decree, written by Aaron Luoma, the other half of The Democracy Center team researching oil and gas politics in Bolivia.

Reaction in Bolivia

The Government – Making the Case

“This is the solution to the social and economic problems of our country. Once we have recovered these natural resources, this will generate work; it is the end of the looting of our natural resources by multinational oil companies.”(from the decree, PBS News Hour, May 2nd)

"For more than 500 years, our resources have been pillaged. This has to end now…What we are looking for...are partners, not bosses to exploit our natural resources." (AP, May 11th)

Bolivian President Evo Morales

“Foreign investors will receive a reasonable profit, but the huge profits that left this country without resources, this country so poor…have ended.” (La Razon, May 6th)

''This is not an expropriation…We simply want to know what they're doing and have a greater say in what they do.” (The Miami Herald, May 2nd)

Bolivian Vice-President Alvaro García-Linera

“The decision to carry forward the process of nationalization of the hydrocarbons is part of the fulfillment of the popular will expressed in the referendum on June 18th, 2004, in addition it is complementary to the hydrocarbons law [3058] passed [in May of 2005] by the national Congress.”

Dr. Waldo Albarracin, Defensor del Pueblo (‘People’s Ombudsman’), head of the governmental human rights institution (La Prensa, May 2nd)

“They always told us we didn't know how to manage our resources and because of that we needed foreign companies. All that's finished now.”

Bolivian Energy Minister, Andres Soliz Rada (CNN-Reuters, May 4th)

"Now is the moment to recuperate our sovereignty and dignity. We want to show that Bolivians can run our hydrocarbons industry."

Jorge Alvarado, president of YPFB, the Bolivian state operated oil and gas company (New York Times, May 8th)

The Political Opposition – A Mixed Response

“The decree is a measure with political impact, during the time of the elections for the constitutional assembly, that doesn’t guarantee a viable and compatible nationalization with progress because it generates a lot of uncertainty. The measure will have radical effects on employment and the economy of the country, bringing more poverty…[Also] We can’t forget that Brazil is the most important consumer of [Bolivia’s] gas.” (La Razon, May 2nd)

“[the decree] is a political measure that seeks electoral benefits...it has quarantined Bolivia [from the international community]” (La Prensa, May 2nd)

Samuel Doria Medina, leader of the National Unity Party, who placed third in the December 2005 presidential elections

“…there is a general feeling among the state governors that this measure [the decree] gives us hope for a better future for Bolivia in terms of obtaining greater revenue for the exploitation of our natural resources.”

Mario Cassio, governor of the state of Tarija, where roughly 85% of Bolivia´s oil and gas reserves are located (El Diario, May 8th)

"This government has to guarantee that there will be no problems later on - with neighboring countries, the countries that have investments here, because we need investment. But basically we're in agreement since we can't continue with a situation in which the multi-nationals had control of all our energy resources."

Daniel Castro from the Pro-Santa Cruz Committee, the civic body that negotiates on the Santa Cruz’s behalf (BBC, May 5th)

Bolivian Social Movements – From ‘a big step forward’ to a ‘swindling’ of the Bolivian People

“...the nationalization of the hydrocarbons has been one of the fundamental demands of the mobilizations of October 2003 and May and June of 2005, so for us it is a tribute to the fallen of October. It is an historic fact that I hope, in the next months, will bring greater revenues to ease unemployment, improve job opportunities and achieve for the country more income.”

Edgar Patana, head of COR of El Alto, a regional workers’ union instrumental in the October 2003 revolts against the proposed gas sale to California via Chile (La Razon, May 2nd)

“It is a swindling of the Bolivian people, it is a distraction, therefore we are going to continue the revolutionary demands for the complete nationalization without compensation, and with complete confiscation in relation to the oil companies.”

Jaime Solares, head of COB, Bolivian largest workers’ union that was at the forefront of the October 2003 gas protests (La Razon, May 2nd)

"El Alto spilled a lot of blood... in demanding the nationalization of our hydrocarbons. Now, a big step forward has been taken."

Nestor Salinas, leader of an association representing those killed during the October 2003 ‘Gas War’ (Rueters CNN, May 4th)

Bolivian Research Institutions and Analysts – The decree is a hollow ‘nationalization’ while fears are expressed about Bolivia’s economic future.

“…The supreme decree #28701 that ‘nationalizes’ the hydrocarbons is far from the concept of nationalization Bolivians have constructed throughout their history…it does not recuperate the oil industry that was privatized in the capitalization process and by other measures taken since 1996…[however] the measure [decree] is important and expresses a significant advance in the exercise of state ownership rights over the hydrocarbons, although it is not about the nationalization of the hydrocarbon industry. Its character, in various aspects, is transitory and its execution will be subject to internal and external pressures.”

Bolivian Center for Information and Documentation (CEDIB) - “An analysis of Supreme Decree #28701 ‘Heroes of the Chaco’ Issued by the Government of Evo Morales on May 1, 2006”

“The policy of ‘nationalization’ of the Evo Morales government is based on Law 3058, passed during the administration of Carlos Mesa [in May 2005]…The implications of this measure [the decree]…have nothing to do with the social demand that emerged during the conflicts of October 2003 and May-June 2005, this is to say, nationalization understood as expropriation without indemnification [compensation] of the shares and investments made by the transnational companies in this sector…The ‘nationalization’ decree is [only] the instrument that calls for the obligatory migration of the oil contracts, pressuring the oil companies to modify their contracts within 180 days.”

Center for Labor and Agricultural Studies (CEDLA) - “Legitimizing the Neo-Liberal Order: 100 Days of the Evo Morales Government” (May 2006)

“[The decree] doesn’t nationalize…the government should have executed a nationalization rapidly and decisively because it is the easiest route that all oil producing countries follow in order to avoid obstacles and difficulties that powerful transnational companies put in place. Nationalization is the only measure in keeping with international rights (UN Declaration 1803) and the political constitution of the [Bolivian] state (Article 22) oriented to retain 100% of the gas revenue for the development of Bolivia.”

Mirko Orgaz Garcia, Editor of Hora 25 and Professor at the University of San Andres, La Paz (from Hora 25 – Vol. 39, May 11th-25th)

“Twenty years on, people see the grand deception…there has been 20 years of neo-liberalism. Twenty years is enough, we shouldn't be too surprised. (The decree) is an adjustment…It's a sort of gradual nationalisation. The next 180 days will be very difficult."

José Mirtenbaum, Santa Cruz's University Gabriel René Moreno (The Guardian, May 6th)

"We're experiencing the supremacy of emotional politics at this time. The nationalization was received with great enthusiasm, but we'll have to wait and see how the economic impact of all this plays out."

Gonzalo Chávez, economist at the Catholic University of La Paz (New York Times, May 3rd)

“The only thing the government is doing is applying Law 3058 [passed by Congress in May 2005]. There is no nationalization, its only a performance, a show to generate more votes for the elections for the constitutional assembly.”

Ronald Hurtado Paravicini, Attorney in Oil Industry Law (La Prensa, May 3rd)

''I think the companies will end up selling their assets. Who will stay here to have your capital run by someone else? Who will stay under those conditions?''

Juan Cariaga, a former Bolivian finance minister (The Miami Herald, May 2nd)

Business Community – The decree is a worrisome step that changes the rules of game and jeopardizes foreign investment.

“The current government...has taken a political measure that doesn’t consider the economic or legal aspects that could bring negative consequences for the pocketbooks of all Bolivians.” (La Razon, May 3rd)

''We're very concerned about the international repercussions. This might isolate Bolivia from the world.'' (The Miami Herald, May 3rd)

Gabriel Dabdoub, president of the Santa Cruz Chamber of Commerce and Industry

"The President has to complete his explanation. What interests us is how he is going to address the oil and gas companies...what is needed is foreign investment, not only the nationalization. We ask [President Morales] how he is going to carry this process forward..."

Roberto Mustafa, president of the Chamber of Bolivian Businesses (La Razon, May 2nd)

“The nationalization decree unilaterally, negatively and substantially alters the conditions for companies exploring for, developing, refining, transporting and commercializing hydrocarbons…Juridical stability and investment promotion are pillars to be preserved, and it's worrying that this decree hasn't taken them into account…The road ahead is difficult and complex for all. In this context, the Chamber will do its best to promote a productive dialog between the government and the companies.''

Bolivian Hydrocarbon Chamber press release (May 3rd)

"It is the point of view of the chamber that the companies will not have the incentive to continue developing hydrocarbons."

Enrique Menacho, president of the Bolivia Hydrocarbon Chamber (New York Times, May 4th)

International Reaction

Foreign Governments – A Mix of Concern and Consent

“The government of Spanish Prime Minister Jose Luis Rodriguez Zapatero expressed to Bolivia ‘their most profound concern’ about the nationalization, and warned of ‘consequences for bilateral relations.’” (La Razon, May 3rd)

“With “deep concern [about the decree]…The [Spanish] government hopes that in the 180 days period announced by the Bolivian president for foreign companies to regularize their current contracts, there is authentic negotiation and dialogue between the government and the different companies in which each other's interests are respected."

Spain’s Foreign Ministry statement (AP, May 2nd)

"Bolivia's nationalization of its gas reserves was a necessary adjustment for a suffering people seeking a greater measure of control over their own resources…There is no crisis and there will not be a crisis...I'm sure that we will come to an agreement.”

Brazilian President Luiz Inacio Lula da Silva (Reuters/ CNN, May 4th), dismissing concerns about the future operations of Petrobras, Brazil’s public-private energy company, in Bolivia. Brazil imports 50% of its gas from Bolivia

“We respect and salute sovereign decisions of all countries, and in this case, of the Bolivian people.”

President Nestor Kirchner of Argentina (Los Tiempos, May 5th)

"We had hoped there would be a process of discussion and consultation before it (Bolivia) adopted such measures."

A European Commission spokeperson (Financial Times, May 3rd)

"When the issue of privatization does come up, or renegotiating contracts, certainly our concern is that any government meet or fulfill its contractual obligations."

U.S. State Department spokesman Sean McCormack, when asked about Bolivia’s decree (AP, May 2nd)

Foreign Oil and Gas Companies – Concern Expressed with Moderation

"The decree is imprecise and is open to various interpretations about how it will be applied. We will take all possible steps to ensure that the Brazilian market is supplied with gas… There's no way that new investment in gas production with 18-percent return can be viable, these conditions make gas operations practically impossible in Bolivia." (Rueters May 2nd)

"Evo Morales' decree was a unilateral measure adopted in an unfriendly way…It obliges us to analyze very carefully our situation in the country." (AP, May 2nd)

Jose Sergio Gabrielli, president of Petrobras, whose operations account for 18 percent of Bolivia's gross domestic product and 22 percent of its tax receipts

“(The decree is) outside the norms and logic of business that should be the guides for relations between companies and governments." (New York Times, May 3rd)

“Still, there is time and I hope that in these 180 days both sides are capable of acting with intelligence…Bolivia must not be at the margin of the international political system. In the present situation it is imperative to study the decree, analyze in detail its consequences and take advantage of the 180-day period to reach agreements that are economically rational for both sides.”(La Prensa, May 3rd)

Antonio Brufau, president of Repsol, the private Spanish-Argentine oil and gas giant that has 10% of its gas reserves in Bolivia

"The government decision leaves many uncertainties…We all have Bolivia's interests at heart but also we all want jobs. Many Bolivians have to go abroad to work and if this decision frightens away foreign investment, then we'll lose more jobs."

Teresita Arandia, spokeswoman for Transredes (BBC, May 5th)

“We are early in this process. We are going to take time to find out what is in this decree. The only way things get done in this industry is for governments and companies to seek out common ground.”

Frank Chapman, CEO of British Gas, a private gas company with 4% of its gas reserves in Bolivia (Times on Line, May 4th)

Foreign Analysts – From Dire Warnings to Solid Support

"With this move, he [Morales] risks alienating natural and otherwise sympathetic partners like Brazil and Spain.”

Michael Shifter, a Latin American analyst at the Inter-American Dialogue think tank in Washington (AP, May 2nd)

"They've [Bolivia has] been conned by Castro and Chávez…They've been sold a bill of goods that's going to come back and bite them and bite them hard."

Lawrence J. Goldstein, president of the PIRA Energy Group, an industry-supported policy group in New York (New York Times, May 7th)

"This is a continuation of the trend towards increasingly aggressive resource nationalization that we have seen across many countries in Latin America, starting in Venezuela."

Antoine Halff, energy analyst for Fimat (Reuters, May 2nd)

"Ten years ago, (Bolivia) wouldn't have created a ripple because there was enough world supply. But now we're in a sellers' market. What we're seeing now is any nation with any supply is trying to cash in. It's a very dangerous trend."

Phil Flynn, vice president and energy analyst with Alaron Trading Corp. in Chicago (USA Today, May 2nd)

"Governments all over see that the oil companies are raking it in now, and they want a bigger share…We [the U.S.] don't nationalize companies, but we talk about putting in a windfall profits tax, which is essentially breaking the previous contract…[Moreover] The Latin American countries haven't been treating Bolivia generously in any sense…[While] Bolivia does have a problem with the oil companies, the solution they picked is the worst possible. The diagnosis wasn't so bad, but the treatment will leave them worse off."

Peter Hakim, president of the Inter-American Dialogue, a Washington-based center for policy analysis (Washington Post, May 4th)

“I have a feeling that the terms of the nationalisation may be negotiable - for example, the amount of profit that companies are in the end allowed to take out.”

Carol Graham, Latin America expert at the Brookings Institution, a Washington-based think-tank (The Observer, May 7th)

“…[the decree] is a way for the state to get some of the revenues that they used to have in the past…If you look at it from the Bolivian perspective, this is not so much a nationalization as a return to constitutionality. They have a very strong legal argument that the privatization that took place in the mid-'90s was not constitutional, that the contracts, for example, with these companies are supposed to be approved by Congress, according to the constitution…So, from their point of view, this isn't quite as radical as it appears on the news here [in the U.S.].”

Mark Weisbrot, Center for Economic Policy and Research (PBS News Hour, May 2nd)

“To most Bolivians, what is at stake is a matter of fairness: Should foreign oil and gas companies get a fair return on their capital, or a supernormal return? Should Bolivia be paid a fair value for its resources? And should Bolivia, or foreign companies, reap most of the windfall gains from increases in energy prices?”

Joseph Stiglitz, Nobel laureate and former World Bank chief economist and senior vice president (Daily Times, June 23rd)

International Financial Institutions (IFIs)

"The decision of the Bolivian government to nationalize the hydrocarbon sector has potentially far reaching economic consequences…In terms of how these aspects are handled, it could have an impact on the continued availability of domestic and foreign private capital to be invested in the hydrocarbon sector which is an important part of the Bolivian economy."

Masood Ahmed, International Monetary Fund (IMF) Spokesperson (Industry Week, May 19th)

“Countries can sovereignly decide if they wish to nationalize their oil industry. Our job is to help them accomplish it correctly. They must honour contracts and compensate the corporations involved...Much will depend on how the nationalization process is carried out. We hope we can help...[it’s natural thatcountries like Bolivia] should try other paths, other means.”

Paul Wolfowitz, World Bank president, in an interview with the German weekly Die Zeit (MercoPress, June 8th)

Conclusion:

In late October the 180-day negotiation period between foreign oil and gas operators and the Bolivian government will conclude. At that time there will be greater clarity on the true implications and impact of President Morales’ oil and gas policy. Negotiations with Petrobras appear to be the most tense and critical, with both sides having much to lose should talks break down. The situation with other companies does not appear to be as strained while they await the conclusion of governmental audits that will largely determine what contractual terms the Bolivian government will offer them.

The Democracy Center will continue to keep you up to date on important developments as they occur.

Credits

This briefing paper, one in a series from The Democracy Center, was written by Aaron Luoma (ALuoma@democracyctr.org) and edited by Jim Shultz (JShultz@democracyctr.org). It is based on ongoing research that Aaron is conducting in association with Gretchen Gordon (GGordon@democracyctr.org) and draws as well from research being conducted on the Bolivian gas issue by two Bolivian organizations, the Center for Higher University Studies (CESU) of San Simon University and the Center for Labor and Agricultural Studies (CEDLA), as well as research by Professor Mirko Orgaz Garcia at the University of San Andres.