We Want Partners, Not Bosses: Returning Oil, Gas to State Control

Susan Spronk

In the past decade, popular protests against privatization policies have contributed to the downfall of two presidents and the election of President Evo Morales, the country’s first indigenous president. Responding to popular demands, Morales announced the first so-called nationalization in the oil and gas sector in May 2006 claiming that “We want partners, not bosses.” With this change, the Morales administration has begun to lay the foundations for a new statist model of development that aims to redistribute social wealth.

By international standards, Morales’ policy is not technically ”nationalization” but a policy of joint ventures. It involved no expropriation of private companies. Instead, following the example of ally Venezuelan President Hugo Chávez, the law passed by the Bolivian Congress required multinational oil and gas companies to sign new contracts that establish public-private partnerships with the state oil company, Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). The previous contracts were not signed by Congress, a step that was bypassed in the Nineties’ privatization process although it was required by the Constitution, so the government had legal grounds to cancel the former contracts.

Under the new policy, oil and gas companies are required to pay an estimated total of 54 per cent of the profits derived from the extraction of oil and gas to the state, up from 18 per cent to 32 per cent stipulated by the previous neoliberal regime. While the new policy is clearly less favorable to corporate interests than the neoliberal one, all the foreign companies that were operating in the country decided to stay. Bolivia possesses the second largest natural gas reserves in South America and regional demand for natural gas is expected to continue to grow over the next decade. The government has also negotiated new bilateral agreements with Argentina and Brazil which raised the price of the natural gas that is exported to Bolivia’s more industrialized neighbours.

The most dramatic effect of the new policy has been a remarkable improvement in state revenues. In 2007, the Bolivian government’s income from oil and gas increased almost ten-fold from US$173 million in 2002 to an estimated US$1.57 billion. Unlike previous regimes where benefits of natural resource exploration accrued to a small elite, the government has promised to distribute these resources equitably and spur development to benefit the population. The two most visible programs invest in education and pensions. The Juancito Pinto Stipend provides families with about $25 a year for each child enrolled in primary school. The Renta Dignidad provides a small pension of about $20 per month to Bolivians over 60 years of age. While these targeted social programs do not amount to a national development plan, they do help to alleviate the worst effects of poverty amongst vulnerable populations such as young families and the elderly.

The increase of resource rents has also exacerbated regional tensions, which has complicated the government’s agenda for redistribution. About half of the funds accruing from resource rents are distributed to municipal governments, departmental governments and universities. As the government remains locked in a policy that was formulated in the politically tumultuous climate of 2005, the funding formulas for distributing rents are highly uneven. In 2007, Tarija, which produces about 68 per cent of the country’s natural gas, received just over $600 per person annually from the exploitation of natural gas deposits, while a non-producing department such as La Paz received only $31, even though La Paz’s population was among those who fought for nationalization in the “Gas Wars” of 2003 and 2005. In the resource-rich departments of Tarija and Santa Cruz, the influx of cash has been so fast that departmental governments were only able to spend a third of the money within the first year, leading the Morales administration to threaten to channel the resources elsewhere, exacerbating tensions between the central government and gas-rich departments.

The other serious challenge faced by the Morales administration has been to attract new investment into the oil and gas sector. The increase in state revenues is largely due to high international prices and changes to the tax regime, not an increase in production. Of the 44 new contracts with oil and gas companies that were signed as a result of the reforms, only seven were for exploration. At its current rate of production capacity, Bolivia cannot meet its export commitments to Brazil and Argentina nor satisfy its growing internal demand. Indeed, foreign investment in the Bolivian oil and gas sector has been dropping since the political turmoil in 2003. The government hopes that new joint ventures with the Venezuelan oil company and Russia’s Gazprom announced in February 2009 will raise the level of investment to pre-nationalization levels, but the inability to meet demand represents a lost opportunity that could contribute to Bolivia’s development.

The YPFB is also slowly rebuilding its capacity, having been stripped down to a mere regulatory institution in the 1996 privatization. As previous experience returning enterprises to public control in the water sector suggests, rebuilding a public company is no easy task. Corruption is endemic, and the YPFB appears to have its fair share. In January 2009, the Morales administration was hit with another corruption scandal involving the head of the YPFB, who was allegedly running the public company with total disregard for official Bolivian procurement rules and regulations. Santos Ramirez was replaced by Carlos Villegas, the sixth chief executive officer of the YPFB since Morales assumed office three years ago.

Many economists consider that the discovery of valuable natural resources such as oil or gas is a curse rather than a blessing for poor, developing countries such as Bolivia. Thus far, the oil and gas industry has created few jobs and the government has been criticized for its failure to implement a coherent development strategy. According to “ecological” critics of the government, it is unclear whether industrialization should even be the goal.

Focusing on installing domestic connections in each household in Bolivia to replace the more expensive canisters currently in use would be a good place to start, but the Morales administration, even with more revenue than previous governments, still has a long way to go to improve the quality of life of average Bolivians.

Susan Spronk is an assistant professor in the School of International Development and Global Studies at the University of Ottawa. She can be reached at susan.spronk@uottawa.ca.