In what has become a seemingly popular heavy-handed tactic in South America, the government of Bolivia has been attempting to take control of their energy fields. But apparently that idea hasn’t been going over real well with the Brazilian company that does a great deal of the work in Bolivia. From Dr. Joe Duarte’s Market IQ today:
As the Non Aligned Nations (NAM) hatched plans to oppose the U.S. and support Iran’s nuclear future, Bolivia’s nationalization of their domestic oil industry took a major blow as Brazil’s Petrobras flexed its muscles. The result of the aggressive response by Brazil’s President Lula da Silva, was that Bolivia rescinded the order to control the country’s refinery sector.
The little reported story suggests that as the price of oil has fallen, so has the potential for further success of NAM and other oil based economies.
According to Bloomberg: “Bolivian Energy Minister Andres Soliz resigned after the government suspended plans to take control of Petroleo Brasileiro SA’s refining and fuels businesses.”
What makes the resignation important is that Soliz was the “architect of Bolivia’s plans to seize control of the country’s oil and gas operations since President Evo Morales took office in January.”
The row started last week when Bolivia passed a decree which set limits to the profit margins gained from Bolivian oil and natural gas by foreign oil companies. Specifically, the order, according to Bloomberg would have given “YPF Bolivianos, the state-owned energy company, the power to set prices and profit on refined products and follows other moves by Bolivian President Evo Morales that have undermined Petrobras’ control of $1.5 billion of investment in the country.”
Bloomberg summarized the order as follows:
1. The Bolivian order, which was dated Sept. 12, and has since been rescinded, was “posted to the Energy Ministry’s Web site, means concessions of foreign oil companies, including Petrobras, will have to operate as service contracts with YPFB.”
2. If and when the order is implemented it would mean that “Refineries will be able to sell only to YPFB, which will set the price, said Gilberto Pereira de Souza, an oil analyst at Bes Securities in Sao Paulo.”
Brazil’s Petrobras is the largest oil company doing business in Bolivia, and according to Bloomberg “refines 100 percent of Bolivia’s gasoline and jet fuel, as well as 70 percent of the diesel oil.”
Apparently, Petrobras didn’t really embrace the idea of the government of Bolivia dictating their prices and profit margins. From the AP via Yahoo:
Brazil’s state-run oil giant Petroleo Brasileiro SA, or Petrobras, has two refineries that process 90 percent of Bolivia’s fuel for domestic consumption and is the biggest investor in what amounts to South America’s second-largest gas reserves after Venezuela’s.
Word emerged Wednesday that Bolivia had decided its state-owned oil company alone would deem how much Petrobras would profit from its services in commercializing Bolivian gas.
Petrobras responded angrily Thursday, saying the measure made “inviable” its business in Bolivia.
“It means we lose our cash flow,” said chief executive Sergio Gabrielli, who had earlier in the day canceled a trip to Bolivia for high-level meetings aimed at resolving the escalating dispute.
Gabrielli said Petrobras will use all legal means to defend its Bolivian interests.
“We won’t surrender our assets, we’ll fight for them,” Gabrielli said. “We want a fair price” in compensation, he said.
This all leaves Bolivia’s government in a bit of a mess, one of their own making of course. Back to Dr. Duarte:
Although this is for now a regional situation, it is important to study its current course, as it may serve as a source of guidance with what may happen in other countries with similar situations, such as Venezuela where a populist, left leaning government is nationalizing the oil industry.
According to Stratfor.com: “President Evo Morales’ government must now face the same choice as nearly every Bolivian government before it: Engage in pragmatism that threatens the government’s existence, or engage in populism that threatens the country’s existence.”
In other words, in a short period of time Morales’ government has gone from riding a wave of popularity to its first major crisis. And ironically, the cause is the same issue that got him elected, the nationalization of Bolivia’s energy supplies.
