Natural Resources and Bolivia: The Populist’s Predicament

Salar de Uyuni, Bolivia: COMIBOL
In a speech at the United Nations General Assembly this past September, Bolivian President Evo Morales spoke out against capitalism in the context of climate change:
“The origin of this (climate change and financial) crisis is the exaggerated accumulation of capital in too few hands. It is the permanent removal of natural resources and the commercialization of Mother Earth. The origins come from the system and an economic model of capitalism” (Butler, 2009).
The underlying problem with this anti-capitalist methodology is that Bolivia will indelibly partake in the “commercialization of Mother Earth,” whether it is the national government or foreign companies in control, as the country develops its primary commodity: natural gas. To that end, the Ministry of Hydrocarbons and Energy has recognized that further development of hydrocarbons will engender environmental concerns, as outlined in the September 2008, Estrategia Boliviana de Hidrocarburos. With 710 billion cubic metres (bcm), Bolivia has the second largest natural gas reserves in Latin America. Annually, Bolivia produces about 11.3 bcm for export, of which Brazil takes the lion’s share, at 10 bcm.

Ashwini Srinivasamohan
BA Candidate, Environmental Studies, minor in Anthropology and Latin American Studies

In 2005, Morales campaigned assiduously on the promise of nationalizing hydrocarbons because of the unbalanced geographical distribution of reserves and subsequent regional tensions over the revenue generated. Figure 1 depicts the extent of the imbalance in reserves. Within four months of assuming office on the 1st of May, .2006, Morales succeeded in the nationalization measure. Subsequently, 56 natural gas fields were occupied by troops, shocking large shareholders, in particular, Petrobras of Brazil and Repsol YPF of Spain. The government gave companies an ultimatum of either restructuring – including a 32% increase in taxes and royalties on the production of gas and the transfer of total authority to YPFB – or evacuating the country within 180 days. Regardless of political motivations, the nationalization was economically advantageous; following the nationalization, $1.3 billion was generated in revenue (Beeton, 2009). Still, the economic growth of the country was minimal.
The explanation for this stagnation is primarily because of the scant amount of funds left to the national government (25%) and YPFB (25%), after sub-national governments absorbed their share of the revenue. In this vein, Daniel Beeton, the International Communications Coordinator at the Centre for Economic Policy and Research (CEPR), posits that “the Bolivian government is probably distributing too much hydrocarbons revenue to departmental and provincial governments – more than any other government in the world” (Beeton, 2009). Due in large part to the Media Luna alliance – the lowland provinces of Beni, Tarija, Pando, and Santa Cruz – but also other regional governments, there is stark imbalance in revenue distribution. For instance, in 2007 Tarija made $237 million, 60% of the revenue generated by the national government that year (Weisbrot and Sandoval, 2008).
Figure 1: Business Monitor International, Oct 2009
It is important to note that these nationalizations, did not effect a complete dissolution of ties between foreign companies and Bolivia. For instance, the former owner of the Chaco gas fields Pan-American Energy, a JV between British Petroleum and Argentina’s Bridas, relayed soon after the January 2009 decision that “it will defend at all levels…the objectives and interests of the Republic of Bolivia” (Reuters 2009). In May 2008, an agreement between Repsol and YPFB transferred majority stake in the hitherto subsidiary of Repsol, Andina. Repsol received $6.3 million for this transfer of power and continued to support the exploration of oil wells and production operations. Notably, in October 2009, Repsol invested $1.6 billion, with an emphasis on improving the plant in the Caipipendi fields to produce about 18 million cubic metres of natural gas per day (YPFB 2009). Further, plans are underway for the formation of a Joint Venture between Total, Russia’s state-owned Gazprom, and YPFB, to continue exploration and possibly finance a trans-continental pipeline. Currently, major foreign oil operators include Brazil’s Petrobras, Repsol YP Spain, British Gas Group UK, Total (France), and Pluspetrol Argentina. The Bolivian government agrees that it needs to acquire from outside US$7 billion to meet $11 billion investment target for 2009-2013 (Economist Intelligence Unit, 2009).
Adam Robert Green, Editor of Exploration and Production: Oil and Gas Review points out that “oil companies are thick-skinned” and have been accustomed to yo-yo politics and the dramatic political dynamic of still developing countries grappling with how best to harness their resources (Green, 2009). Therefore, in the case of Bolivia, the populism does not so much work to the detriment of the international investors, as it does to the sub-national governments themselves. Green emphasizes that it is the populist aspect of the nationalization that “clouds the judgment of the leaders,” and, given the volatility of commodities like oil and gas, it is wise to reinvest the revenue in other sectors instead of solely fuelling “populist programs” (Green, 2009). Venezuela’s PdVSA, for instance, has been lauded for achievement of development goals using the revenue from the oil company; however, there have also been charges of corruption and inefficiency. Thus, Green posits that the primary weakness in the Chavezian model of controlling all operations of PdVSA lies in the innate volatility of oil and gas, which simply creates additional responsibilities that the state-owned PdVSA must balance. On the other hand, semi-privatized Petrobras has the “operational independence” that PdVSA lacks; thus, although Brazil is “still very nationalist on how they conceive their oil, they want to make sure that…some contracts will go to local Brazilian companies” (Green, 2009). In this vein, Petrobras would be superior to PdVSA as a paradigm after which YPFB can model itself.
A Note on Lithium
The public declaration by Morales and the MAS party to industrialise its wealth of lithium reserves raised eyebrows. For instance, a New York Times article by Simon Romero in February 2009 carried the polemical headline, “Bolivia has lithium, and the president intends to make world pay for it.” Romero’s piece, like several other articles in the latter part of 2008 and early 2009, expressed that, due to Morales’ socialist leadership, Bolivia would be unable to successfully exploit the lithium. However, despite the scepticism centred around how a state-owned initiative could properly exploit the lithium, plans are coming to fruition as an increased number of private investors become interested in assisting exploration and are willing to comply with the ownership regulations. While a consensus has yet to be reached on the true potential – that is, how much can actually be extracted and converted to usable lithium metal from the reported 5.5 million tonnes of lithium in the reserve base – investors, especially those looking to expand their electric car sectors, have turned a keen eye to Bolivia (United States Geographical Survey, 2009). To date, South Korea and Brazil have signed agreements with Bolivia and negotiations are underway with the French company Bolloré.
Polls and Beyond
Daniel Beeton observes that the “Morales’s government has had success in regards to economic growth, fiscal balances, balance of payments, and international reserves” (Beeton, 2009).This success is in large part due to the government’s reclaiming of control “over the hydrocarbons sector and increasing hydrocarbons revenue from 5 percent of GDP in 2004 to 13.3 percent in 2006” (Beeton, 2009). Beeton adds, “Bolivia has also weathered the global downturn much better than many other countries, partly due to a relative lack of foreign involvement in its banking sector – meaning it avoided toxic contamination – and largely due to its control over hydrocarbons” (Beeton, 2009). The incoming administration will inherit an economically intact country, which will allow for a more immediate focus on addressing the issues of land reform and continued growth of natural resources, namely gas and lithium.
While it would be quixotic to expect Morales to renounce his anti-capitalist rhetoric, it would be wise for his administration, if re-elected, to cease the vilifying of capitalism, in terms of development. For, let it be lithium – in which Morales invested $400 million in September – or natural gas, the development of an entire country, where 60% of the population is impoverished, demands the expenditure of money – and carbon (Instituto Nacional de Estadística, 2007). An 8,000 km trans-continental pipeline snaking through Bolivia and connecting with Argentina, Brazil, Venezuela, Paraguay, and Uruguay, is unlikely to be the greenest of endeavours; the environmental costs, whether the mode of production is capitalist or socialist, are likely to be high. Hence, the best a leader- especially that of the single-commodity, developing nation – can do is determine how to harness the various strengths of the nation to keep the process as low-impact as possible. Low-impact, environmentally, and politically, that is. For, Morales has had motley cultural, social, and political issues to take into consideration. Needless to say, calming the storm of ideologically charged locutions, from both ends of the spectrum, will provide for a more stable landscape on which the incoming administration can effectively embody the change it wishes to see in its country.
Works Cited
Beeton, Daniel. Personal Correspondence. 1 Oct 2009.
Butler, Simon. “To save planet, end capitalism, Morales says.” Bolivia Rising. 23 Sept. 2009.
Economist Intelligence Unit. “Bolivia.” 2009.
Green Robert, Adam. Personal Correspondence. 2 Oct 2009.
Instituto Nacional de Estadística. “Bolivia; Indicadores de Pobreza Moderada, Según Área Geográfica, 1999-2007.” 2007.
“REG-Pan American Energy LLC, Argentine Branch Pan American Energy LLC and the nationalization of Empresa Petrolera Chaco SA.” Reuters. 26 Jan 2009. .
United States Geographical Survey. “Lithium.” Jan 2009. .
Weisbrot Mark and Luis Sandoval, “The Distribution of Bolivia’s Most Important Natural Resources and the Autonomy Conflicts.” Center for Economic Policy Research. Jul 2008.
YPFB. “Repsol Invertiré $1.600 Millones En Bolivia.” 16 Sept. 2009.

2 thoughts on “Natural Resources and Bolivia: The Populist’s Predicament

  1. Very thoughtful analysis and a balanced view. It is a reality that progress will have some environmental and social impact.
    I feel Bolivia needs to make value added products and reduce its dependence on selling the commodity be it hydrocarbon or Lithium. May that will give an opening to bring investment and accelerate the development of its people.

  2. Topic well researched.
    Seems like Bolivia has abundance of resources and yes they should reduce their dependencies. How can we achieve this?
    My thoughts are, implementing good eductional and governmant supported programs for a start, will help the locals understand the value of their resources. And then they can start producing their own products.
    Yes, with any type of change there wll be environmental and social impact.
    Investing time in educating and providing support to locals pays dividends.

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