Bolivia’s new business model: Custom laws for foreign investors

At last November’s Investing in the New Bolivia event, the Evo Morales government rolled out the red carpet for foreign corporations, with a little help from the Financial Times. Standing before an audience of executives and investment managers (no officials below the Chief Officer level allowed) at the Four Seasons Hotel in Manhattan, President Morales made a personal plea for the need for foreign investment:

We are accelerating our investment—the big problem that we have is with [our] private companies … Bolivian private companies are very small, and not even the state has the companies to build [on the scale we need]. This is what obliges us to come here and propose to you to see how you can be of service, how you can be our partners.

Y estamos acelerando en tema de inversión—el gran problema que tenemos es con las empresas privadas,  … nuestros empresarios bolivianos son muy pequeños, ni el estado tiene empresas para construir. Este es lo que nos obliga venir acá plantearles a ver como pueden prestar servicio, pero pueden ser socios.

Development Minister Rene Orellana took it from there. In addition to a secure investment environment, secured by three new laws protecting investors, the Bolivian government offered direct support for investors. Orellana proposed that the government’s legislative and executive powers would be put at the disposal of foreign investors. Working together with investors, the state could “define or approve concrete norms, let me say laws or even Supreme Decrees, to support the initiatives to invest in Bolivia. So we are open to have a bilateral dialogue with those who are interested in investing in Bolivia” (originally in English).

At the center of this push is energy: generating electricity (mostly from large dams) and extracting fossil fuels. While exporting gas is the largest contributor to Bolivia’s trade surplus and the country has nearly doubled production since 2006, the sector has long struggled to find new gas resources and has been hard hit by falling prices. The state-owned gas producer YPFB has not found a major new field since the 1990s. For long- and short-term reasons, the Evo Morales government has declared attracting new investment in hydrocarbons a strategic priority.

In newly published interviews with Erbol, two experts on the oil and gas sector, Francesco Zaratti and Hugo del Granado argue that the Bolivian government is custom-tailoring laws to the needs of foreign corporations. In December 2015, Bolivia passed an Incentives Law (Law 767: Ley de Promoción de inversión en exploración y explotación hidrocarburifera, full text) that transfers 12% of hydrocarbon tax revenue to a special fund to reward companies that make large investments in the sector. State incentives total US$2.89 billion. Zaratti argues the law had one particular company in mind:

“Mi criterio particular es que estas dos leyes son trajes hechos a la medida de algunas empresas. Por ejemplo, la primera ley de incentivos de diciembre del año pasado parecería estar hecha a medida de Total, con el fin de que pueda desarrollar el campo Incahuasi y Aquío, reservas conocidas, pero que no se volvían comerciales porque había algo que impedía a Total hacer la inversión necesaria para adecuar al campo.”

“My personal view is that these two laws are suits made to the measure of certain companies. For example, the first Incentives Law of December of last year seems to be made to fit Total, with the goal of it developing the Incahuasi and Aquío Field, whose [gas] reserves are already known but which has not been commercialized because something prevented Total from making the necessary investment to prepare the field.”

In May 2016, the government proposed amending the Incentives Law to extend the  production contracts of oil and gas corporations willing to commit at least $350 million to exploratory drilling or at least $500 million to exploration and production. Potential beneficiaries of this amendment include Repsol, Total, Pluspetrol, Panamerican, Petrobras, YPFB Andina, and British Gas. The amendment passed last week.

By returning tax funds guaranteed to regional and local governments, universities, and the Indigenous Fund, the Incentives Law rolls back one of the major gains of Bolivia’s partial nationalization of gas, demanded by the 2003 protests and delivered in 2006. However, the Morales government insists any short term losses will be made up when new investment produces a larger pie of gas export revenues beginning in 2017.

For now, a precedent has been set: even plurinational Bolivia will modify its domestic laws to attract and subsidize foreign corporate investment. The slide from 21st-century socialism to 21st-century capitalism continues.

Bolivian government tells investors: “The era of nationalization has already finished.”

“We have now finished the legal framework in order to invite foreign investment to come to Bolivia. This legal framework is mainly composed by three things, the Law of Investments, the Law of Public Companies, and the Law of Conciliation and Arbitrage. These three laws have been already finished. They have been also conciliated, elaborated […]

Blogging from Bolivia…

I’ll be in Bolivia for at least the next four weeks, and Ecuador after that. I’m flying to the Andes to get an up-close look at the very remarkable social changes that have been going down here since 2000. I’m feeling very curious and optimistic, and here’s a bit of why…

In January 2000, with many of us freshly back from the WTO protests in Seattle, we were still thinking in terms of cracks in a monolith of corporate-backed power. A “Washington Consensus” imposed policies on Latin America that would be unthinkable in the U.S.–rolling back guaranteed social services, accelerating the growing extraction of oil, gas and timber, privatizing resources like water, and assigning the costs largely to the poor. It was called structural adjustment, because it was negotiated to make the debts owed by the countries of the South payable, but with everyone selling off their country at lower and lower bids, it never even balanced the books.

Ecuador’s January 2000 national uprising was the first of many to topple a neoliberal government, even if only for a few days. It wouldn’t be the last time mass unarmed movements succeeded in doing so. A few months later, tens of thousands in Cochabamba, Bolivia occupied the center of their own town in the culmination of a months-long conflict with Aguas de Tunari (owned by San Francisco’s Bechtel), who had assumed private control over the cities water supplies and proceeded to double (or more) the bill. The privatization was reversed and the city’s water system is now a massive experiment in a community controlled utility.

Life in both countries has simply gotten a lot more interesting each year since. Stay tuned for the latest.