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Paraguay: Oil Monopolies Win Under Energy Exploration Law

Posted on: Friday, 4 November 2005, 21:00 CST

By Alejandro Sciscioli

ASUNCION, Nov. 4, 2005 (IPS/GIN) -- After six decades of inactivity, the search for oil in Paraguay has exploded, with a 700- fold increase in the amount of land approved for prospecting.

But critics say Paraguay is giving up too much in its quest to join its South American neighbors as an oil producer.

The total area granted for prospecting has skyrocketed from 40,000 hectares in 2003 to more than 27 million hectares today, reported the director of Energy Resources at the Ministry of Public Works, Favio Lucantonio.

Nine companies now hold licenses for oil and natural gas prospecting, exploration and mining in Paraguay.

The only energy sources produced in Paraguay today are hydropower and biomass. The country does not currently produce hydrocarbons and imports all of the crude oil and petroleum derivatives it consumes from Argentina, which costs the state roughly $240 million a year, according to official figures.

Lucantonio attributed the current interest in oil exploration to "a suitable political framework, the existence of a new regulatory foundation, and transparency in the handling of the information gathered."

He was referring to the arrival in power in August 2003 of President Nicanor Duarte, the adoption in 1995 of the Hydrocarbons Law, and the government pledge to share all available data with the oil companies.

But the government's push for oil revenues has drawn criticism from Ricardo Franco Lanzetta, a lawyer and economist specializing in the oil industry who maintains that the law passed by Paraguay in 1995 is "outrageous."

Lanzetta, who has a doctorate in law from the University of La Plata in Argentina and another in economy from the National Autonomous University of Mexico, told IPS that the legislation "is linked to the monopolies that carry out hydrocarbon prospecting, mining and marketing and was tailor-made to serve the interests of the big monopolies."

He identified a specific interest behind the passing of the 1995 law, which "in this case is the Pure Oil Company."

Lanzetta stressed that no other country has established royalties comparable to those stipulated in the Paraguayan law, which grants the country only 14 percent of the revenue in the case of oil and 11 percent for natural gas.

In Bolivia, he noted, 50 percent of the revenue from all hydrocarbons produced now goes to the state, while "the companies still win" even in Venezuela, where the ratio is 75 (percent) for the state and 25 for the oil companies.

Moreover, said Lanzetta, Paraguay allows oil companies to accumulate losses for up to seven years for the periods when they begin to turn a profit. This means that when a company begins to extract oil, it can deduct this risk capital from the share that corresponds to the state.

"No other country offers the advantages established by the current law. Just one look at it and any company would want to come here," he said.

To correct what it considers the legislation's shortcomings, the non-governmental organization headed by Lanzetta, the National Thesis Institute, is drafting a bill for a new law, which will be presented to Congress before the end of the year.

Efforts to find oil in this South American nation have been carried out intermittently since 1944. The first well was drilled that year by the U.S. company Union Oil, authorized by a decree-law issued by then-dictator Higinio Morinigo (1940-1948).

Then came a string of other companies, such as Pure Oil, Placid Oil, Pennzoil, Victory Oil, Esso Standard and Texaco, which undertook similar projects.

In all, 48 wells were drilled in the departments (provinces) of Boqueron and Alto Paraguay, which together with Presidente Hayes form the western region of Paraguay. This is also the Paraguayan portion of the South American Chaco region, which was speculated to be rich in hydrocarbons.

According to official documents from the Ministry of Public Works and Communications, evidence of oil was discovered in all of the wells drilled.

But most of the information gathered by the companies was taken back to their home offices in the United States, leaving no documentation of their findings in Paraguay. As a result, in 2000, the government of then-president Luis Gonzalez Macchi (1999-2003) contracted the U.S. firm RDI Consulting to recover the studies.

As payment, RDI was authorized to commercially use the information obtained from seven of the companies in question. The documents were supposed to be handed over in 2004, coinciding with expiration of a 60-year confidentiality agreement signed by Morinigo.

"RDI recovered the documents and processed them, but now they're ignoring the agreement and refusing to turn over all of the information, alleging that it belongs to them," Lucantonio told IPS.

In July, an official mission traveled to the United States to meet with RDI and bring back the documentation. The negotiators succeeded in obtaining the raw data, which accounts for about 80 percent of the documents. "But we still don't have the reprocessed data," said Lucantonio.

Legal proceedings will soon begin to secure all of the studies conducted decades ago. The situation was described by analyst and researcher Felix Lugo as "one more episode in the sad comedy in which this country has been starring for ages."

Lugo believes that legal action should have been taken before any negotiations were begun. "Now, while time is being lost, RDI is able to continue profiting from the information," he noted.

For the moment, the companies that have advanced the furthest in their exploration efforts are Primo Cano Martinez, a Paraguayan corporation, and Britain's CDS Oil & Gas Group PLC.

Primo Cano Martinez discovered natural gas in the department of Boqueron, not far from the border with Bolivia, and is waiting for the certification of its studies of the reserves to determine whether exploiting them is commercially viable.

For its part, CDS Oil & Gas Group PLC reported in a communique that it "has identified several prospects and leads" and is planning to drill twin wells 200 meters from selected existing wells drilled by others in the past, where evidence of hydrocarbons has been found.

As these and other projects move forward, government technicians are simply waiting to hear of oil and gas discoveries, based on a report prepared by a transnational oil company.

The document states that "in the subsoil of the department of Boqueron there are approximate reserves of between 8 and 9 billion barrels of oil/gas equivalent," a Ministry of Public Works expert told IPS.

He also pointed to deposits in Argentina and Bolivia close to the Paraguayan border that produce abundant hydrocarbons.

In the northern Argentine province of Formosa, which borders on Paraguay, there are eight active oil wells. The closest is located in Selva Maria, a mere 8 kilometers from the border, while the farthest, in Puesto La Entrada, is 45 kilometers away.

Much the same is true in the case of Bolivia. The deposit closest to Paraguay is a natural gas field called Algarrobilla, located 73 kilometers from the border, while the farthest, on the outskirts of the city of Villamontes, produces natural gas and oil just 95 kilometers from the border.

Between 1932 and 1936, Paraguay and Bolivia engaged in a fierce war over control of the Chaco region.

Most historians contend that the so-called Chaco War was fought for control of the Paraguay River that runs through the region and would have given one of the two land-locked countries access to the Atlantic Ocean.

But others maintain that the true motive behind the conflict was the region's potential as a rich source of hydrocarbons, a fact that was known to British and U.S. oil companies.

The U.S. company "Standard Oil operated out of Bolivia, and there was no mining at the time in Paraguay," Argentine historian and journalist Ruben Dario Lugo told IPS, noting that Paraguay received British support through Argentina.

When the war ended and borders were established by the truce signed in 1938, the lands that were of interest to Standard Oil ended up on the Bolivian side, he added.

Source: Global Information Network

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