Bolivia’s Gas Nationalization: A South American Affair

The diplomatic whirlwind following Evo Morales’ takeover of Bolivia’s gas fields has revealed that South American unity is far stronger than critics of the region’s progressive governments like to believe.

How ever you look at it, the surprise "nationalization" of Bolivia’s gas reserves on Monday May 1, international Labour Day, was well timed. That the date marked the hundredth day of Evo Morales’ presidency underlined how a major campaign pledge was being punctually fulfilled. With Morales’ initial honeymoon with the Bolivian electorate starting to wane, Monday’s melodramatics – which saw the army hoisting the Bolivian flag over privately owned gas installations – were in part a rallying cry to Morales’ grassroots support.

"It is a symbolic message of sovereignty," Larry Birns of the Washington-based Council on Hemispheric Affairs is quoted as saying in the Guardian. "The very fact that he sent troops in, he was heightening the sense of urgency and dash. He is reaffirming his commitment to the indigenous community. He has remained constant and he is fulfilling all of his promises."

It is, however, unlikely that the Bolivian government wants to expel multinational gas firms.  Morales doesn’t have the capital or the technical know-how to successfully exploit Bolivia’s gas and he needs, and nominally welcomes, foreign investment. The dispute is over the terms under which investors work in Bolivia and, above all, the size of the Bolivian state’s cut. This is clearly, to paraphrase Hugo Chavez, "twenty-first century nationalization" not twentieth century expropriation.

Indeed, Morales position was clearly and consistently articulated long before his election.  "We will renegotiate all contracts – they are illegal, since Congress has never ratified them. The state will recover the property of its natural resources, but we are open to foreign investment in exchange for a share of the business."

Hugo Chavez’s successful "re-nationalisation" of the Venezuelan oil firm PDVSA in 2003, and the subsequent renegotiation of contracts with foreign oil firms, provided an obvious, and attractive, example for Morales to follow. With the high price of oil allowing Chavez to finally pump millions of dollars into health, education and infrastructure projects, the Bolivarian model has never looked more attractive.  

Friend and interests

Two days before Bolivia’s decisive move, both Chavez and Morales were in Havana with Fidel Castro celebrating the first anniversary of the birth of the ALBA (Bolivarian Alternative for the Americas) and discussing the world’s first TLP (people’s free trade agreement). It was to be expected that the Venezuelan and Cuban leaders would support Morales on ideological grounds. Furthermore, Bolivia’s move has also strengthened Chavez’s geopolitical hand in South America.

More important, and more difficult to predict, than Chavez’s or Castro’s applause though, was what the reaction from the Brazilian president, Lula Da Silva, would be. The Brazilian state oil company, Petrobras, is the biggest foreign investor in Bolivia, controlling around 45 % of the country’s gas fields. Three quarters of the gas burnt in Sao Paulo – Brazil’s manufacturing nerve centre – and half of the country’s overall supply comes from Bolivia. In short; Brazil, South America’s leading economy and industrial powerhouse, is energy dependent on Bolivia, the region’s least developed country.

Moreover, as the Argentinean columnist Mario Wainfeld wrote in Página 12 last week: "Petrobras has behaved in Bolivia like foreign oil firms usually do in Latin American, with an intense rapacity which is resented by much of the population… Petrobras hasn’t acted like an ambassador from a brother country but like Shell, Standard Oil or any other multinational." 

The takeover of Petrobras’s installations in Bolivia presents President Lula with three potentially conflicting challenges. Like any head of state he needs to defend, or at least to be seen to defend, his country’s national interest. Above all, he has to avoid power cuts to Brazil’s industries and ensure increased future supplies of gas. Secondly, he will want to preserve the image he has carefully cultivated of himself internationally as the champion of third world economic rights. Lastly, he hopes to avoid any damage to South America’s struggling integration project, into which he has invested both time and political capital.

Not surprisingly, the first declarations from Brazil were ambiguous. Lula himself said, rather half-heartedly, that he "respected Bolivia’s sovereign decision" to take control of its natural resources. He left it to Sergio Gabrielli, Petrobras’s president, to play the bad cop. Gabrielli called a halt to further Petrobras investments in Bolivia, "until the situation is clarified", and mused menacingly about possible legal action. 

Next, Lula telephoned the Argentinean president Nestor Kirschner who – due to the presence of the Argentinean-Spanish energy consortium Repsol in Bolivia and to Argentina’s own energy needs – shares his interest in Bolivia’s gas. The two leaders convened an emergency summit for the following Thursday (May 4) in the triple border city of Puerto Iguazú. It was agreed that Hugo Chavez should attend and that he should go to La Paz beforehand to talk to Morales. 

Lula’s game, Kirchner’s diplomacy, Chavez’s match 

According to the Argentinean daily Clarin, Kirchner’s skilful mediation between Morales and Lula over the next forty eight hours was to prove crucial. It was agreed that the issue should be discussed within the overall framework of the integration of South America’s energy sector and that regional harmony must be preserved at all cost. It was also decided that only the four presidents (and one interpreter) would be present at Thursday’s crucial meeting.

Even more important though was the role played by Chavez.  Hours before the meeting in Iguazú, the Venezuelan leader touched down in La Paz to finalise a bilateral deal based on the "people’s free trade agreement" discussed days previously in Havana. PDVSA would build a liquid gas extraction plant and carry out extensive gas exploration in Bolivia. Furthermore, PDVSA technicians would work jointly with the Bolivian hydrocarbon ministry to ensure the smooth implementation of the nationalisation decree. La Paz would pay for these services with exports of soya.

Thanks to Chavez, Lula now had Brazil’s delivery of gas guaranteed, though the price was probably going to go up. Brazil was also going to have to live with long term Venezuelan involvement in Bolivia, a country Brasilia has long regarded as within its sphere of influence. Even with this diplomatic spadework, Thursday’s meeting started tensely with Morales telling reporters he wouldn’t be "blackmailed" by Petrobras’ threat to freeze investment.

Still, at the end of three hours alone behind closed doors four, visible relieved, presidents emerged smiling. After much fraternal backslapping and photo posing each stated his categorical commitment to regional unity. A beaming Morales said that the meeting had "cleared away any doubts or disagreements that might have existed between the four governments."

Lula said: "Brazil respects Bolivia’s sovereign right to her mineral wealth …I know about Bolivia’s socio-economic plight and invite the president’s of Venezuela and Argentina to join me in drawing up concrete plans to aid Bolivia’s development." Asked about media attempts to present the issue as a conflict between himself and Kirchner on the one side, and Morales and Chavez on the other, he said: "People who say that kind of thing are not capable of thinking in big." To questions on Petrobras he replied: "Petrobras is an independent company that invests where it can and where it deems it convenient to do so." 

Standing at Lula’s side Chavez said: "This meeting flies in the face of all the speculation from those that seek to divide us." He went on to talk of the need regional integration with human development. For his part Kirchner (who is famous for his dislike of international summitry) said it had been his best ever summit and that he "respected and paid tribute to the sovereign decision of the Bolivian people." He also said that delivery of gas to Brazil and Argentina was guaranteed, though he wouldn’t comment on how prices would be fixed, saying only that "the cost must be rational and reasonable; it has to be beneficial to both seller and buyer."

With Brazil and Argentina tacitly endorsing Bolivia’s nationalisation there was little anyone else could do. The day after the Iguazú summit the Spanish deputy Foreign Minister, Bernardino Leon, said he respected Bolivia’s decision to nationalise. He added that the Spanish-Argentinean firm Repsol would have to decide whether to stay in Bolivia under the new terms. Other European countries with investments in Bolivian gas, notable France and Britain, will probably also feel forced to accept the South American fait accompli.

United we stand

So, a week after he sent the troops in, it appears that Evo Morales has come up trumps. He so far appears to have kept everyone – restless electorate and powerful neighbouring states – on side. With the current high price of hydrocarbons it is unlikely that foreign companies will pull out of Bolivia. If they do, Morales knows there are Venezuelan and probably Chinese and Russian firms waiting to take their place.

What no-one knows, of course, is what details were actually agreed in the three hours Morales was alone with his Brazilian, Argentinean and Venezuelan counterparts. It may be that when the actual terms of the "renegotiation" with foreign investors become apparent Bolivians will feel they’ve been short changed. If that happens Morales will be in trouble, but for the time being, at least, he can enjoy being the Andean golden boy.

The other big winner last week was South American unity. Faced with a potentially divisive issue the region’s leaders pulled together impressively. Hopes, harboured by Washington and South American conservatives, that Bolivia’s gas nationalisation would hammer a wedge between Chavez and Lula have been resoundingly dashed. On the contrary, what was underlined last week was how diplomatically and economically interdependent South America is, and how well the region’s progressive leaders work together.

Justin Vogler works as a freelance journalist in Chile. He writes regularly in Diario Siete and the Santiago Times.