BOLIVIA: WHITHER NATIONALIZATION?

Still Waiting for Public Control of Hydrocarbons

by Gretchen Gordon, Upside Down World

On May 1, the day the Bolivian government announced the "nationalization" of the country's vast oil and gas reserves, I went out to witness the symbolic takeover of a former Bolivian refinery that was privatized in the late 1990s.

A cheering crowd looked on as a young employee of Bolivia's state oil and gas company, Yacimientos Petroliferos Fiscales Bolivianos (YPFB), strung a YPFB banner over the metal letters spelling out the name of the Brazilian company Petrobras. Another banner hung on the front gate proclaimed "Nationalized: Property of Bolivia."

The Gualberto Villaroel refinery on the outskirts of the city of Cochabamba is emblematic of Bolivia's radical oil and gas privatization a decade past, and the recent faltering attempts of the current government to recover state control of this its most valuable resource.

Last week, five months after President Evo Morales' nationalization decree, I went back to the refinery to see how things have progressed.

Standing on the entrance road of the refinery complex, David Zambrana, a worker in YPFB's industrialization division, gives me the lay of the land. Surrounding us are the massive round tanks where unprocessed gas and liquid materials are stored, a building where gas for household cooking is bottled in small yellow tanks, various administrative offices and the heart of the complex—a giant fuels and lubricants plant.

"This is YPFB's, this swath here," says Zambrana, pointing to a cluster of offices and the gas bottling facility. "All the storage tanks back there and this part here belong to another company, CLHB." Turning to face what looks like a small city of metal ducts and steam, he points to the massive fuels and lubricants plant. "That over the fence, that's Petrobras."

We're standing in the middle of three different entities that before Bolivia's oil and gas privatization were all part of YPFB, the country's most profitable public enterprise. The boundaries are visibly awkward, having no logic in the industrial landscape of a refinery where the functions of storage, refining and bottling are all inter-dependent.

As we walk up to take a picture through the metal fence around Petrobras' fuels plant, a worker from across the drive whistles and waves us away. Zambrana calls to him. "They‚re just taking a picture of the sign. The 'access restricted' caught their attention," he says, a hint of defiance in his voice.

The privatization of Bolivia's oil and gas industry during the 1990s was part of an ambitious economic overhaul, a condition of World Bank and International Monetary Fund (IMF) restructuring plans implemented by the government of then-President Gonzalo Sánchez de Lozada. Along with five other key state industries, YPFB's exploration, drilling and transportation operations were turned over to private foreign control. A few years later, the subsequent government of Hugo Banzer completed the dissolution of YPFB by selling off the country's refineries and pipelines at bargain prices. Brazilian Petrobras paid $114 million for the Cochabamba refinery and an additional refinery in Santa Cruz. Zambrana argues that if you subtract the millions of dollars in materials, gas and derivatives thrown in for free, Petrobras actually only paid $50 million to control 90% of Bolivia's refining capacity—the rights, the land, the machinery, even YPFB staff.

"The land alone is worth more than that," says Zambrana. "Basically, we gave it away."

When Sánchez de Lozada sold his privatization plan to the people of Bolivia, they were promised a road to prosperity and were assured that the Bolivian government would remain in the driver's seat. Instead, through a series of backroom deals with foreign corporations, Bolivians watched as someone else drove off with their gas.

It was this clash between promises and reality that ignited the explosive popular demand for nationalization that brought down two Bolivian governments in the last three years and made possible Evo Morales' historic election victory last December.

Morales' nationalization decree promised to rewrite history, to use the second-largest natural gas reserves in South America to flip the fortunes of this, its poorest country.

Functionally, the decree includes several components: an industry-wide audit of oil and gas companies operating in Bolivia; the re-negotiation of export prices with Argentina and Brazil; increased production taxes on the country's two most productive gas fields; and the re-negotiation of all foreign oil and gas contracts. The crux of the decree, however, is the rebuilding of YPFB into a functioning company active in all aspects of the chain of production, from exploration to commercialization. YPFB's rebirth is to be made possible by purchasing a majority shareholding in the five different consortiums that once made up the state company, but which are now under private control.

In Bolivia's nationalization media show back on May 1, soldiers marched in to secure oil and gas fields, and "Nationalized" banners were unraveled. The government was quick to claim victory: "This is the third and definitive nationalization of oil and gas," announced President Morales. "We've completed what we promised."

"From today onward the oil and gas will belong to all Bolivians. Never again will it be in the hands of the transnational corporations," assured Vice President Alvaro García Linera.

The international media was more than willing to corroborate the government's story with reports of the "seizure" of oil and gas fields and corporate assets—and warnings of mass capital flight.

As I watched outside the refinery that May Day, a Bolivian brass band played while Saul Escalera, an YPFB engineer, calmly closed out the evening and dispatched the crowd. "We have now recovered this refinery—You may now all return home."

Five months later, the soldiers have left the gas fields. The YPFB directors overseeing the "nationalized" companies have gone back to their offices. The government has not been able to reach an agreement with private investors to buy back majority control of any of the former YPFB entities. Government regulators have had difficulty inspecting private oil and gas facilities and gaining access to financial records necessary for the audits. YPFB suffered a political scandal, and the oil and gas minister resigned, citing frustration with the lack of progress in implementing the decree.

With the October 27 deadline for the re-negotiation of contracts fast approaching, the Achilles heal of the government's policy has been laid bare. Rather than expropriate the privatized industry, the government tried to negotiate its "nationalization." And those negotiations have not gone very well.

Critics on the Bolivian left attribute the lack of progress to the moderate nature of the government's approach, which technically isn't a nationalization at all. They argue that without an expropriation, YPFB is left without capital or infrastructure and is therefore unable to be a producer, or even an effective regulator. It has no real control, and must haggle for every inch of change. From the most critical viewpoint, the country's most valuable resource is just as firmly in the hands of foreign corporations as before, and the desperate hope of many Bolivians—that they might finally benefit from the wealth beneath their feet—remains unfulfilled.

Driving around the perimeter of the refinery along a dusty unpaved road, we approach the back of Petrobras‚ territory to take a photo of several holding tanks on the other side of the fence, Zambrana exchanges glances with the driver. He reaches up and removes the YPFB sign from the front window, placing it on the floor of the van. "You can take a picture, but take it through the window," he says. "They've got a guard out."

Though it's been rough going, the struggle to implement Bolivia's nationalization decree has not been entirely without successes. Despite the initial warnings of imminent capital flight or international arbitration, the government has been able to keep foreign investors engaged and even win some significant gains: a higher gas export price negotiated with Argentina will bring in an extra $110 million this year; the increased tax rate on two gas fields has generated an additional $32 million a month; and YPFB has attracted a range of new investors for several large-scale industrialization projects. But in terms of the reconstruction of YPFB, the key to the dramatic change Bolivians were promised, the government is stuck at the negotiating table.

The Cochabamba sun beats down brightly as we finish up the tour of the refinery grounds. Zambrana remains optimistic and eager about the promised changes. "When do you think the government will be able to purchase the shares from Petrobras?" I ask.

"The end of this month," he replies, referring to the October 27 deadline in the nationalization decree. "We're ready when the takeover comes," he adds firmly. "We've got the information and the technical capacity. Almost all the workers are Bolivian, and most are ex-YPFB employees; they're proud about the refinery returning to Bolivia."

But negotiations with Brazil have been put on hold. Brazilian President Inacio Lula da Silva faces a runoff election October 29, and politically can't be seen caving in to Bolivia. Waiting until after the election has stalled negotiations for four weeks, by which time the nationalization decree will have reached its six-month expiration date.

"Yeah, I read about that. But I haven't heard anything more," says Zambrana. "Now we're just waiting."

As we drive out past the refinery entrance, the bright metal letters of Petrobras glint in the afternoon sun; the YPFB sign has been removed. On the front gate, the other now somewhat disheveled banner still proclaims, "Nationalized: Property of Bolivia."

Several feet in front of it, a Petrobras security guard stands watch.

———

Gretchen Gordon is an oil and gas researcher at the Cochabamba-based Democracy Center and a contributor to a forthcoming Democracy Center book on Bolivia and globalization.

This story first appeared Oct. 19 on Upside Down World
http://upsidedownworld.org/main/content/view/466/1/ [4]