Bolivian Natural Gas Crisis Amit Thorat

Winds of change are blowing in Bolivia at present, and probably not without reason. The country is witnessing political and social unrest of a nature and intensity unlike anything seen earlier. This crisis ridden nation has the distinction of being the poorest country in Latin America, with poverty levels as high as 70 percent. 6 out of every 10 persons in the country and 9 out of every 10 in the country side live in poverty! Unemployment rates are expected to reach 10%, whereas 13% of the employed are thought to be actually underemployed.  The economy, which is currently in recession, is barely growing at a rate of 0.16 percent at last count by the IMF (Mar-Jan 2002)[1]. The poorest 10 percent of the country’s 9 million people earned 0.3 percent of total per capita income in 1999, while the richest 10 percent received 42.3 percent

Such disparities are the root cause behind the general discontent among the masses towards the governing classes. Bolivians recently forced out their newly elected president- the pro free-market and anti- drugs campaigner for the US, Gonzalo Sanchez de Lozada out of office after he announced plans of exporting Bolivian natural gas to North America via Chile. This came in the wake of unprecedented protests and demonstrations by the civil society following the announcement, by student groups and unions which left at least 70 person dead and countless injured.

The massive public protests and the deaths following the announcement to export gas using Chile’s ports caused the leader of the ‘New Republican Force” Manfred Reyes Villa a socialist, to withdraw support from the newly elected government, which forced Lozada to resign and flee the country and the subsequent selection of Carlos Mesa to the post of president.

These demonstrations have been dominantly spear headed by the indigenous Quechua and the Aymara Indians led by their leaders Evo Morales of the ‘Movement towards Socialism, joined by the native Indian guerrilla leader Felipe Quispe. The elections saw Lozada winning by a slight margin over Morales. Morales had already emerged as a force to reckon with since last year, when he came a close second to Lozada, who gained 22.5 percent of the votes, while Morales came a close second with 20.94 percent.

The last government lead by Jorge Quiroga had submitted a report making an offer of selling gas to the Californian market. This multi-million dollar project required the joint collaboration of four nations, two in North America and two in the South. The demand side would involve Mexico and the U.S whereas the supply side, Bolivia and one other Pacific nation, either Peru or Chile. The project would involve the drilling of 16 wells up to 5000 meter deep. The drilling alone requires a US $480 million investment, with the total project investment reaching US $ 1.7 billion[2]. The government had left the decision on the choice of country for the proposed pipeline for the next incoming government.

Lozada’s announcement meant that the natural gas would be exported to Mexico and US via a pipeline trough Chile which is cheaper option by about $600 millions as against the Peruvian option. Chile is seen as a rival after 1875 when it won Bolivia’s only accesses to the Pacific Ocean in war. Bolivians see the lack of access to the sea as the main reason for the nation’s impoverishment and economic backwardness. Diplomatic relations between the two countries were cut off in 1978. Moreover the gas deal would completely privatize the sector with foreign firms drilling, pumping and buying the gas, thus the major chunk of the revenue going to the private firms, where as a mere 18% of the returns falling into the hands of the Bolivians.

The announcement by Lozada of his plans sparked off widespread and intense protests across the country. The reservations of the people with the proposed deal drove the peasant groups, the student unions and the Indians, who have been opposing all forms of foreign interventions, to react violently, leading to the country wide road blocks and protests. Thousands of people took to the streets and demanded Lozada’s resignation. Protests in many regions resulted in foreign tourists being stuck in their vehicles for days, which invited police to come in to secure their safe passage. The clashes which followed between the police and the protesters saw police using excessive force sparking of violence and rioting, leading finally to the deaths of 70 people1. Such a repressive move by Lozada not only fueled the fire of mass discontent but also led to the withdrawal of support by key members in the Lozada coalition.

The Indians, the unions and the students all want the gas industry to be nationalized for employment and income generation of the locals first. They demand that the future of Bolivia’s natural gas be decided by its people and not be controlled by a few transnational oil companies robbing the Bolivians of their natural wealth.

However, many observers feel that Bolivia may miss the boat on natural gas. Bolivia has the second largest natural gas reserves in Latin America after Venezuela, totaling some 55 trillion cubic feet. If Bolivia could successfully export its gas internationally, it would bring in much needed and substantially large foreign exchange inflows and boost the economy like Venezuela, Argentina and Brazil.

Neighboring Peru is leading the natural gas race and is already putting finishing touches to its end of an 18 year deal to sell 2.7 million tons of gas annually to Mexico from its Camisea field.

“Peru has shown the North American market that it has the capacity, the will and the political backing to deliver natural gas while in Bolivia we’re stuck in existential angst that is giving Camisea a big advantage,” said Carlos Alberto Lopez, Bolivia’s former deputy minister of hydrocarbons[3].

“There has only ever been a market for one project, never for a joint project and still less for two projects. Bolivia is about to miss the boat,” he told Reuters in a phone interview.

With Mexican markets under its belt, Peru is certainly eyeing the big US market. Meanwhile Bolivia is still undecided about the fate of its gas reserves in the face of intense debate among the free market proponents who favor exports and the socialists who want to nationalize the industry.

Thus there is mounting pressure, both economic and political for any government in power to reach a decision soon on the choice of the route the pipeline should take. This is especially so if it hopes to comply with the timetable outlined for the plan to export gas to the US and reap much needed economic benefits from the abundant natural reserves. The Bolivians also need to beat the Peruvians to the race before the latter establishes itself as the sole provider of natural gas from South America. According to a recently submitted report by the US department of energy to the congress, the US and its oil companies are eyeing the Latin American reserves as the second most important source after the Gulf region and view Bolivia among eight other nations as a potential supplier.[4]

Besides the US, the British and the French too are interested in the world’s biggest source of clean fuel. British energy secretary Brian Wilson met the foreign minister and the hydrocarbons minister last year to talk about the offer made by the Pacific LNG consortium made up of British Gas, British Petroleum and Spain’s Repsol-YPF- who favor the Chilean option. On the other hand, the Belgian Transnational and French Total E&P Norge As are backing the Peruvian option.

The privatization option is the quickest option of an early exploitation and sale of the countries gas but not necessarily the populist one. The nation and its people have rightly taken the decision making power in their own hand, however they would have to decide soon if they hope to reap any economic gains at all from their largest natural resource.

To add to their worries concerning the natural gas sector, Brazil is demanding a renegotiation of prices and volumes of its natural gas imports from Bolivia. Brazil’s federal gas company Petrobras has a contract with the Bolivian state gas supplier Yacimientos Petroliferos Fiscales Bolivianos, under which a 3,150-kilometer pipeline has been built between to two nations in which the Petrobras has 51% stake and is committed to import at least 24 million cubic meters of gas daily from 2004 onwards.

However the market conditions which were foreseen since when the deal was signed have changed for the worse. The 1999 currency crisis hit Brazil’s economy hard, making investors flee the electricity industry. As a consequence the development of the gas fired electricity industry has been much below expectation, thus envisaged levels of sale of natural gas were never reached.

As a fall out, the Brazilian officials have been demanding a revision of the prices and volumes in the contract due to a slump in local demand as well as the removal of the “take or pay” clause under which Petrobras must pay for a certain volume of natural gas even if it does not use it. Petrobras currently imports about 13 million cubic meters of Bolivian gas per day.

Amidst widespread opposition and protests against the decision to export the countries gas to North America, the newly elected president Carlos Mesa has announced that he will call for a public referendum on the fate of the nation’s gas reserves. While on the one hand the increasingly popular Evo Morales and his followers totally oppose any exports before the nationalization of the industry and fulfillment of domestic needs, one the other hand civil leaders and businessmen in the southern Bolivian state of Tarija, which is home to most of the nations gas reserves, are against the public referendum   and want the gas to be exported for economic gains of all and favour the cheaper Chilean option.

The left parties and the extreme leftist like guerrilla leader Felipe Quispe are of the opposing opinion that the high level of corruption in the government would never let the benefits of such sale reach down to the masses.

Evo Morales the Indian coca proponent, who has gained unprecedented popularity among the two-third Indian population of Bolivia after leading a bloody protest against the US backed coca eradication campaign, is now seen as a potential savior of the people. Son of a peasant himself, this ex-miner has become the voice of the Indian majority in Bolivia, who have lost all trust in the politicians and the two decade old economic reform progress which they feel has done nothing to improve their lot. To top it all, the US backed ban on coca cultivation has severely hit the farmers. Morales wants the lifting of the ban on coca and legalization of cultivation. He also wants the nationalization of all natural resources like natural gas which Lozada wanted to export through foreign consortiums. He views the coca ban and the new economic policy as imperialist interventions of the US in Bolivia calling for an anti-capitalist, local, indigenous and socialist future for his country[5]. The response he has received has been overwhelming[6].

The new president Mesa and thus Bolivia is faced with the tricky task of balancing on one hand the view of the majority of the much impoverished and impatient indigenous population who are against gas exports, especially to the imperialist US and the view of the economists and the orthodox right wing political elite who see the countries natural gas reserves and its export as the difference between the nation’s economic recovery and persistent recession. The decision now rightly lies with the people, who however will need to reach a decision quickly.








Peter Beaumont, foreign affairs editor, Sunday October 26, 2003 The Observer