Bolivia's Leader Faces Complex Task

LA PAZ, Bolivia - President Evo Morales' effort to nationalize Bolivia's natural gas industry poses major challenges for his leftist government, including where to find money to carry out the radical plan and how to deal with his worried neighbors.

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Bolivia wants to use its cash-strapped, state-owned gas company to oversee all aspects of gas production, refining and sales in the country — but it's not clear how it can come up with the money it needs to wrest control of the industry from the foreign companies now managing it.

The state-owned company, Yacimientos Petroliferos Fiscales Bolivianos, was stripped of its operational capabilities in the mid-1990s when Bolivia's gas industry was privatized, and experts say it also lacks qualified personnel and expertise to become a legitimate company.

It's even less clear what most of the foreign companies, and the governments that defend their interests, will do now that they face dramatically lower profits.

The stakes rose Wednesday when Brazil's state-owned Petroleo Brasileiro SA, a major energy sector investor, announced it was freezing all investment in Bolivia. The company has pumped $1.6 billion into Bolivia.

Spain, worried about the fate of Spanish-Argentine company Repsol SA, also said it was sending a delegation to Bolivia to discuss concerns about the nationalization. Spanish Foreign Minister Miguel Angel Moratinos said the process "does not augur well" for Repsol, another big player in Bolivia's gas industry.

On a friendlier front, Morales received his political mentor, Venezuelan President Hugo Chavez, in La Paz on Wednesday evening. Chavez said he came to offer "congratulations and learn from Bolivia's wisdom."

The two leaders will fly to a summit Thursday in the Argentine city of Puerto Iguazu, where they will join the presidents of Brazil and Argentina to discuss Morales' move. Argentina and Brazil are Bolivia's only export markets for gas, and both countries have been resisting Bolivian demands that they should pay more for the widely used fuel.

Morales, a populist who won a landslide victory in December, has long vowed to take back control of Bolivia's natural resources. While Bolivia has vast mineral and forestry wealth, the country's most valuable asset is its natural gas reserves — the continent's second-largest after Venezuela.

But taking control of all gas operations in Bolivia is a lofty proposition that analysts say YPFB is probably incapable of executing. Under Monday's decree, foreign companies must sell 51 percent of their participation to YPFB. Where the state is going to get the estimated several billion dollars needed to pay for that isn't known.

"YPBF may have the will, but it certainly doesn't have the capital or the technology to continue operating the fields in Bolivia" without the foreign companies, said Bolivia's former energy minister, Carlos Alberto Lopez.

The decree also immediately raised the tax on the production from Bolivia's two largest gas fields from 50 percent to 82 percent. This could boost government revenue from $450 million to $750 million, according to Bolivian Vice President Alvaro Garcia Linera.

The two fields are operated by Petrobras, which co-owns the fields along with France's Total SA and Repsol.

Petrobras' move to suspend investment "is not of itself a reprisal, but is a product of analyzing the conditions," its president, Sergio Gabrielli said Wednesday. Other companies doing business in Bolivia largely froze new investments last year.

The foreign petroleum companies in Bolivia find themselves in a difficult situation, said Francisco Gonzalez, assistant professor of Latin American studies at Johns Hopkins University. If they decide not to abide by nationalization they could risk "wholesale takeover" and a total loss of the estimated $3.5 billion they have invested in the country, Gonzalez said.

And with large gas reserves, Bolivia is perhaps too tempting a market for foreign companies to turn their backs on.

While Brazilian President Luiz Inacio Lula da Silva said he believes he can negotiate a solution to the matter, he insisted he will defend contracts giving Brazil rights to Bolivian gas.

"The fact that Bolivia has rights does not deny the fact that Brazil has rights in the matter, as well," Silva said.

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