As Bolivia Nationalizes Oil & Gas, is Mining Next?

Bolivian President Evo Morales campaigned on a platform of nationalizing the country's natural resources. This week, Morales demonstrated the seriousness of his commitment by nationalizing the nation's oil and gas fields.

RENO--(Mineweb.com) As troops occupied Bolivia's natural gas and oil fields Monday on the orders of a presidential decree of nationalization, Bolivian President Evo Morales vowed that "this is just the start ...tomorrow or the day after it will be mining, then the forestry sector, and eventually all of the natural resources for which our ancestors fought."

In a May Day announcement, Morales declared all hydrocarbons in Bolivia were nationalized. Foreign companies have six months to grant Bolivia 51% control of their national gas operations, renegotiate contracts, or leave the country.

Morales ordered the military to occupy energy fields throughout the country Monday as he announced the nationalization as an end to "the pillage of our natural resources by foreign companies." Bolivia has an estimated 54 trillion cubic feet of proven and probable gas reserves valued at $70 billion.

Brazil's Petrobas, which controls more than 45% of Bolivia's gas fields, Spain's Repsol YPF (which controls 25.7% of Bolivian gas production), France's Total, and British firm BG Group are the largest investors in the Bolivian natural gas sector.

Brazil's Energy Minister Silas Rondeau told a television network that Brazil considered Morales' decree an "unfriendly action" from an individual who was supposed to be a loyal ally. Brazilian officials had long negotiated with Bolivian authorities to protect $1.5 billion in investments by Petrobas in Bolivia. In a statement published on its website, Petrobas said it was analyzing the Bolivian government's action "in order to adopt the suitable measures, on all levels, to guarantee the gas supply to the Brazilian market and preserve the company's rights."

However, Bolivia's Vice President Alvaro Garcia Linera declared on Bolivian television Tuesday that oil and gas fields were still operating normally, but under the direction of the government. During the 180-day transition period, 82% of their profits will go to the Bolivian government and 18% to the corporations.

Linera said the decree was necessary to help state-owned Yacimentos Petroliferos Fiscales Bolivianos (YPFB) make a profit as the majority shareholder in the newly revised operations. However, the chief spokesman of European Commission said Tuesday that the EU had hoped "there would be a process of discussion and consultation before it adopted such measures."

Meanwhile, the Bolivian Vice President also explained that his country would assume greater control of the mining sector, but wouldn't resort to expropriations. He insisted that big foreign mining companies must pay more taxes in Bolivia.

The Times of London declared that while "some Bolivians may cheer this petulant display of nationalism; most will find that all Senor Morales has done is to anger his neighbours, undermine foreign confidence, cripple a vital industry and set back Bolivia's development by 10 years or so. ...Other left-wing Latin American leaders have also felt the pressure to spread national income more evenly; few have been as reckless."

"Even Hugo Chavez, the egotistic Venezuelan leader whom President Morales sees as a role model, has trodden with great skill," the Times proclaimed.

Investor's Business Daily called Chavez, Morales and Cuba's Fidel Castro the "Axis of Idiocy. ...For Castro, Chavez, Morales & Co., it's pretty clear oil is only the start. By working together to disrupt struggling democracies in the region, they will bring back socialism in a big way--creating, potentially, a new national security nightmare for the U.S."

Meanwhile, several news media stories claim there are already more than 5,000 Cuban and Venezuelan advisors in Bolivia.

However, Peruvian Presidential Candidate Ollanta Humala, who previously vowed to force foreign mining and gas companies to renegotiate contracts, declared "we respect the sovereign decisions of our brother nation Bolivia. But what I what to say emphatically is this: We never talked about either state takeovers or expropriation."

POSSIBLE MINING IMPACTS

U.S. mining companies with substantial investments in Bolivia were quick to try to minimize the potential damage to their stock Tuesday. In a news release, Denver-based Apex Silver insisted "the company is not aware of any plan by the government of Bolivia to follow a similar policy in mining."

"Apex Silver was particularly encouraged by recent statements made by the Bolivian Minister of Mines and Metallurgy in which he emphasized that the mining policy does not contemplate nationalization and even less incorporation of private companies such as San Cristobal.'" However, Apex--whose future relies heavily on its flagship $600 million San Cristobal silver, zinc, and lead project in southwestern Bolivia--had not returned Mineweb's request for comment by deadline Tuesday. Wholly owned by Apex Silver, San Cristobal is believed to contain proven and probable reserves of 470 million ounces of silver, 8 billion pounds of zinc and 3 billion pounds of lead. Mineweb was unable to determine if the project carries political risk insurance. Apex Silver (SIL) stock ended Tuesday at $17.70 per share on the AMEX, dropped $3.30.

In a news release issued Tuesday, Idaho-based Coeur d'Alene Mines noted that the Bolivian national mining company, Corporacion Minera Bolivia (Comibol) is the "underlying owner of all of the mineral rights relating to the San Bartolome project (with the exception of the Thuru property, which is owned by the Cooperative Reserva Fiscal, a local miners' cooperative. In essence, Comibol already owns virtually all of the mining rights for the associated land package at Coeur's San Bartolome project."

While Coeur has invested $35 million thus far in the San Bartolome project, the company has OPIC political risk insurance for $155 million, which covers 85% of any loss pertaining to expropriation, political violence, or forex problems. Coeur has stated that the project has total proven and probable reserves of more than 150 million ounces of silver with an anticipated silver production of 8 million ounces annually. Coeur stock (CDE) closed down to $6.35 on the NYSE Tuesday, a drop of 8.28%.

The Center on Global Prosperity at the Independent Institute in Oakland, California, noted Tuesday that Morales has stopped the tender process for the development of Mutun, a large iron ore reserve in the separatist region of Santa Cruz. The strongly business oriented region favors globalization. However, the Bolivian government said it is considering a joint venture with a Venezuelan government company to develop the iron ore body.

The center's director Alvaro Vargas Llosa also reported that Morales has announced his government will take control of the energy prices and the export volumes of foreign companies.

MIXED OUTLOOK

U.S. foreign policy analysts tried to assure the news media Tuesday that Bolivia's nationalization move is not as dire as it may appear. A spokesman for the U.S. State Department told Mineweb Tuesday that Morales' Presidential decree is still being analyzed by its experts, mainly to determine its potential effect on the atmosphere for private investment in Bolivia. The U.S. Embassy in La Paz had not replied to Mineweb's request for comment by deadline Tuesday night.

Ecuador, Argentina and Venezuela have all taken actions these past few years to diminish the power of the United States and foreign institutions in their respective nations. For instance, Mark Weibrot, Co-Director of The Center for Economic and Policy Research (CEPR), a Washington, D.C.-based think tank, explained that three years ago, Argentina took a very hard line against foreign creditors, had a confrontation with foreign utility companies and "did all the things they are supposed to be punished for, and they've had 9% annual growth for three years now.

Weisbrot noted that "Bolivia's new government took office in January with a strong mandate for reform--to increase economic growth and alleviate poverty."

"The need for new economic policies can be seen from the severe economic failure over the last quarter-century," declared Weisbrot. "Bolivia is also the poorest country in South America, with a per capita income of $2,800, as compared to an average of $8,200 for Latin America and $42,000 for the United States. About 64% of the population lives below the poverty line." In the meantime, the International Monetary Fund is losing its influence in middle-income developing nations. Meanwhile, the United States doesn't have much direct leverage in a number of Latin American nations.

Venezuela has been lending money to Argentina and has bought government bonds from Ecuador. Therefore, Weisbrot believes Bolivia could have access to other sources of foreign financing. Basically, he declared, Latin American nations, such as Bolivia, are "trying to find a way to make capitalism work" for them.

Weisbort also noted that Bolivia need more funds to provide clean water for all Bolivians. Meanwhile, contracts which had been granted by prior Bolivian governments to foreign companies, were supposed to be ratified by Congress. Apparently, this was not the case in several situations. However, Morales did violate Bolivia's foreign investment laws, according Enrique Alvarez Latin American strategist for IDEAglobal, the parent company of the U.S. equity research firm StreetAdvisor.com.

Alvarez suggested Tuesday that the global rally in commodities prices is "motivating this pull or push for renegotiated terms on contracts [throughout Latin America] that were already in existence.

In an interview with PBS Tuesday, Alvarez asserted that Morales' actions do not constitute "a classic nationalization" or expropriation of assets because foreign companies have been given a period of time to renegotiate their contracts with the Bolivian government. He suggested Morales is trying to ensure that foreign companies will not make "super profits" from Bolivia's natural resources. He noted that Venezuela, Ecuador, and Argentina have successfully reasserted their national control of natural resources in their respective nations.

Alvarez suggested that "the point here is that higher commodity prices throughout the world have essentially motivated domestic governments to attempt to gain further participation in what had been basically a business dedicated or run by foreign firms, due to the high need for investment in the sector, which really hadn't been something that the governments throughout the region could afford."