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.

Lliquimuni drillsite arises out of a cleared area in a cloud-shrouded forest

Lliquimuni test well in Bolivian Amazon fails

The joint Bolivian-Venezuela state oil company Petroandina has announced that its exploratory drilling well Lliquimuni Centro X1 failed to find commercially viable quantities of oil after 440 days of drilling. As previously covered here, the Lliquimuni oil block is among those posing the greatest future environmental risk in Bolivia due to its location in the fragile Amazon rainforest and the lack of any reliable infrastructure to pump oil and gas extracted at the site to outside markets.

The government of Evo Morales has made extravagant claims about the potential of the block, located in northern La Paz department, suggesting that as many as 50 million barrels of oil and 1 trillion cubic feet of natural gas may be lie beneath the ground there. However, the $170-million dollar effort to find this oil has yet to produce a successful result. While oil and gas exist below the site, the quantities found would not be profitable to extract.

Undaunted, Minister of Hydrocarbons and Energy Luis Alberto Sánchez pledged to La Razón:

We will continue exploratory activities in the north of La Paz. We will not rest in the search for hydrocarbons; if the first well was not successful, the news isn’t discouraging since will will continue exploration in other wells until we find the reservoir that we know is there.

“Seguiremos las actividades exploratorias en el norte de La Paz. No vamos a descansar en la búsqueda de hidrocarburos; si bien el primer pozo no fue exitoso, la noticia no es desalentadora porque continuaremos la actividad exploratoria en otros pozos hasta encontrar el reservorio que sabemos que se encuentra ahí”

Despite his perseverance, the odds against a major oil complex in Lliquimuni have just gotten longer.

Bolivia’s climate pledge triples down on fossil fuels, megadams

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Last month, Bolivia submitted its pledge (English|Spanish) on addressing climate change to the UN FCCC, the body charged with overseeing global negotiations to prevent dangerous global warming. While much of the document is addressed towards global issues, the quantitative details show just how committed the Evo Morales government is to accelerated, and environmentally destructive, development.

The document follows  ambitious government announcements this year about expanding agribusiness, gas and oil exports, and electricity generation. I isolated the electricity numbers, with help filling in the details from this October 2015 report covering the Ministry of Energy and Hydrocarbons.

As you can see from the graph above, there are two big stories to be told about Bolivia’s electricity production plans. First, over the next five years, the country plans to massively expand its domestic burning of natural gas, more than tripling the 947 megawatts (MW) supplied by gas in 2013. Second, in a series of larger-scale projects, the country plans to bring 9,450 MW of hydroelectric power on line by 2025. This enormous expansion would require megadams at Rositas, El Bala, Miguillas, Río Grande, and Cachuela Esperanza (to name just a few of the sixteen proposed). These dams are likely to have severely damaging environmental consequences, particularly since some are located in fragile or protected natural areas. A third story is just as important: the government predicts that domestic power demand will only reach 3,000 MW in 2025, meaning that the vast bulk of the new electricity is intended for foreign consumers, mostly in Brazil and Argentina.

Bolivia’s climate pledge or Intended Nationally Determined Contribution manages to misrepresent this shift as a green move in two ways. First, it deals only in percentages: “Increased participation of renewable energy to 79% by 2030 from 39% in 2010.” In fact, the smaller percentage of nonrenewable energy reflects a massive increase. Second, it counts large-scale hydroelectricity as renewable and the carbon emissions numbers seems to treat these dams as zero emissions, despite the fact that entire biomass flooded by new dams is gradually converted into methane and released to the atmosphere.

Other unlikely claims are advanced in the area of land use change and forestry, including a unexplained promise to reduce illegal deforestation to zero, and to somehow reforest 4.5 million hectares of the country. These pledges coexist with a government plan to expand agricultural land by 10 million hectares over the coming decade, with the most coveted land for planting located squarely in the Amazon rainforest.

On Allegra: Can a gas pipeline heal Bolivia’s wounded geo-body?

Screen Shot 2015-09-11 at 8.41.42 PMMy latest essay on Bolivia was published by Allegra Laboratory. It looks at the deeply felt woundedness around Bolivia’s loss of coastal territory to Chile, and the surprising notion that exporting natural gas from a Peruvian port could heal that wound.

Allegra is a fascinating site dedicated to the anthropology of politics, law, and art. You can read about them here, and check out their Academic Slow Food Manifesto on the same page.

Plurinational Bolivia cultivates new image as oil and gas state (in videos)

The Bolivian government of Evo Morales is enthusiastically celebrating two new finds of petroleum and gas this month, at the Boquerón-Norte well in the east and in the Lliquimuni block in the Bolivian Amazon. These findings come just as new presidential decrees have opened parks and environmentally protected areas to oil and gas drilling.  You can get a flavor of the government’s excitement by seeing some of its image production around these finds.

First is this wordless video produced by Petroandina (the Bolivian-Venezuelan consortium of state-run oil companies) celebrating the construction of the test well LQC-X1, which began operation last December. Preliminary results presented this week place this block as the place where large-scale oil drilling could come to the northern Bolivian Amazon. The soundtrack befits a cinematic drama, and the intent is clearly to make drilling for oil into a national heroic endeavor.Read More »