September 1, 2008

Energy Experts Urge Bolivia Not to Threaten to Expel Oil Companies

Text of report by Bolivian newspaper El Deber website on 24 August

[Report by Rene David Moreno: "Gas: Negotiate Hard but Without Threats"]

National and foreign experts who participated in the First International Congress Bolivia Gas & Energy 2008, which took place last Thursday [ 21 August], agreed to recommend the authorities to negotiate without threatening the oil companies interested in investing in oil exploration and exploitation in the country. In addition, they demanded a clear regulation that the State will respect.

Brazilian expert Marco Aurelio Tavares, of the Gas Energy firm said that YPFB [Bolivian Government Oil Deposits] should negotiate firmly, but without resorting to pressures. "It is necessary to negotiate firmly, but we cannot negotiate by threatening: 'Unless you invest in the country, you will be expelled.' We should not drive away investors. That is not the way to attract capital," he stressed.

Tavares said that in the energy market, companies are used to strong negotiations, because they all want to make a profit. In this case he noted that the highest income Bolivia expects to obtain is by increasing the volume of production. He added that it can easily be raised to more than double of the current production; in other words, it can reach 80 to 90 million cu.m. of gas per day.

According to Jose Felix Garcia, manager of the Latin American and Caribbean Association of Oil and Gas Enterprises (Arpel), Bolivia could triple its current gas production and produce 120 million cu.m. per day, as long as the state enterprise gets stronger and reaches an agreement with all the parties involved and signs partnerships with international firms, as other countries like Cuba and Trinidad and Tobago have done.

Francesco Zaratti, former presidential delegate for capitalization review, feels that the problem the YPFB is confronting is due to its attitude in creating a climate of confidence. "Petrobras [Brazilian Petroleum Company], which is almost a state-run enterprise has managed to achieve a great development, while the one we have in our country is too bureaucratic and furthermore has been contaminated by politics," he stressed.

Garcia said that the best way to strengthen the YPFB is by issuing credible regulations "with clear rules that will allow the state enterprise to act in association with the private enterprises already operating in Bolivia."

Alvaro Rios, former hydrocarbons minister and an expert in this field, said it is necessary to establish and clarify the juridical framework for the activities of investment companies, as there are still a few things to develop. "We need commercial regulations for the internal and export markets. How are the price structures for these two sectors going to be divided? There are a number of regulations that must be clarified in writing, and they must be maintained for some time," he pointed out.

Marco Aurelio Tavares suggested that new tax regulations be drafted for the new investments arriving in the country, as it is necessary to know what taxes the companies will have to pay and also what considerations will be applied to the oil industry, given the increase in operational costs that the sector has experienced lately.

For his part, Carlos Delius, vice president of the Chamber of Hydrocarbons, said "there is no energy security without security for investments." Speaking of the importance of gas in the world, he stressed: "Only more energy will defeat poverty and energy security is everyone's concern."

What experts say:

Marco Aurelio Tavares, Gas Energy partner

Bolivian production, due to a drop in investments, is now 40 million cubic meters per day and the demand for gas in its contracts is almost 50 million. Bolivia is not honouring its contracts. We must think about the future; Bolivia can be the main player in the region.

Christian Iturri, commercial director of BG America

This congress on energy has made it possible to place the South American scheme within the international context. The problem of Bolivia and its neighbouring countries was particularly discussed. Bolivia can play a leading role in energy production in South America, as we have the reserves.

Alvaro Rios Roca, former hydrocarbons minister

First of all, I believe that the international community is asking this country to reach a political agreement. I believe we need an agreement, a political pact between the regions, the central government, and the social groups; I believe this is a fundamental step to attract more investments.

Francisco Zaratti, energy expert

The errors in the energy policy are clear. We all know about it and it has slowed down production due to the lack of investments. I believe that the drop in reserves and all this is caused by a policy that is more centred on making use of what we have, instead of planting for the future.

Argentine says his country is a bad example in energy

Pablo Givogri, economist of the RGarcia Argentine Consultants firm, stressed that his country is a bad example an shows what happens when there is not a good policy for energy supply. According to Givogri, prior to 2001, Argentina had no energy problems. He added that after that, Argentina began to have supply problems, especially with natural gas, which until then represented 50 per cent of the energy matrix, and continues to grow.

He noted that Argentina currently buys Bolivian gas at 9 dollars per thousand BTU (British Thermal Units) and sells it at 2 dollars per thousand BTU in the domestic market. "We are subsidizing it at a fiscal cost. There are two options: One, continuing with the subsidized prices, or applying a gradual adjustment, but bearing in mind, however, that this would have a social cost," he warned.

Finally, he stressed that Bolivian exports have to do with the political uncertainty.

Originally published by El Deber website, Santa Cruz de la Sierra, in Spanish 24 Aug 08.

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