Nationalisation - threat or promise?

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."

That was the ringing 2006 May Day declaration, made by president Evo Morales to the Bolivian people and encompassed in a Decree. on nationalisation. As the only indigenous head of state in Latin America - and one acutely conscious of his obligations to those who brought him to power - his words have provoked a flurry of contradictory speculation.

Yes, he had sent troops into the oil fields to "repossess them" and, shortly before, had expelled a businessman trying to set up charcoal blast furnaces in Santa Cruz, seat of Bolivia's richest extractive operators. But would he really implement his threat to nationalise? And would Venezuela's Hugo Chavez and Peru's president elect, Ollanta Humala, follow suit?

After all, recent experience in Venezuela shows that the mining indstry, far from being eased out, is actually being offered more concessions. The president of one US mining company operating in the country on May 3 declared that "Venezuelan officials aren't going to do anything too terribly radical" and may actually provide opportunities to develop additional properties in the country. Phil Baker, President and CEO of Idaho's Hecla Mining, commented that "nothing has really changed politically for mining during the first quarter of this year; Hecla had increased gold production in Venezuela by 16,000 ounces during that time, although having to sell a modest 15% of production to the local market as required by Venezuelan law (Mineweb May 4 2006) .

As for the contention that this new breed of Latin American leaders would follow Fidel Castro's anti-American lead, in fact the Cuban autocrat, desperate for foreign investment, granted US company Sherritt International a 49% equity in the island's nickel and coablt resource, as long ago as 1990.

Doubt has also been expressed by some observers that Morales is really proposing the type of nationalisation characteristic of the 1950's and sixties, especially in Africa and Latin America. The relicts of state-owned Comibol still have a commanding share in some of Bolivia's major mines, without this appearing to faze foreign investors too much. Another U.S. mining company, Denver-based Apex Silver, in early May asserted that "the company is not aware of any plan by the government of Bolivia to follow a [nationalisation] 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."

When state-owned companies ruled the roost, many failed in terms of their obligations to the health and safety of workforces, environmental oversight, and returning income to the people at large. Nonetheless, some clearly provided well for workers (like Brazil's CVRD) while others - as at India's Neyveli lignite mine - cultivated townships with consistent, if not vibrant, community particpation. These may be enclaves, but they are
enclaves with a civil purpose, and far removed from today's many dissolute, upstart, ventures which rely on cheapened, sub-contracted labour. Vedanta's bauxite mines in the Indian state of Chhattisgarh provide graphic evidence of the deleterious consequences of privatisation.

Where there is unbroken state ownership, with social services and employment benefits built in from the start, there may still be much to commend it. But, where national companies have been forced to privatise under the World Bank's "structural adjustment programmes". we have sometimes seen the worst of both worlds. In Zambia during the late nineties, the privatisation of Zambia Copper Consolidated Copper Mines (ZCCM) stripped workers of various rights (including the right to sue for compensation) and exempted the new owners from environmental regulations. Worse still, Anglo American pulled out of ZCCM only a couple of years after taking it over, claiming it couldn't make the enterprise profitable. In 2004, Vedanta took over ZCCM's key mine at Konkola at a price that opposition politicians have claimed was derisory.

Would a new wave of nationalisation recoup the social advantages of the past, without replicating the undoubted environmental damage? As the large state-owned enterprises have been broken up, so their management expertise has been dissipated. Many thousands of workers skilled in operating underground mines have been laid off, or moved to other occupations (such as those who dug Britain's deep coal pits until Thacherism eviserated the industry in the mid-eighties). Every time a national leader promises to turn back the clock, mining companies say they will sue for breach of contract, or withdraw from the country. Considering the many other countries which are ready to welcome them with open arms, these are not idle threats.

But, perhaps most important, these purportedly "radical" heads of state rule domains which have been irrevocably locked, not just into mineral dependency, but reliance on international markets they cannot control. The commodity trading pacts of thirty years ago have inexorably given way to the rules of the WTO. With the likely accession to those regulations of NAMA (Non Agriculture Marketing Access) and GATS (General Agreement on Trade in Services), calls for nationalisation look to be merely symbolic gestures. Meanwhile, the power of communities, to claim sovereignty over what lies beneath the land, remains as chimerical as ever.

Ironically, reactions to Mugabe's threats to nationalise mines in Zimbabwe have met with somewhat more industry alarm than those recent announcements from Latin America. No doubt there's apprehension that the renegade leader is capable of anything - even driving the country's nation (literally) into the ground. The irony lies in the fact that it was Mugabe who, on coming to power in 1980, declared that foreign mining companies would be ejected from the country, but soon pleaded with them to stay. Now, if they were to leave, there's hardly a hope in hell that the industry could survive.

Or, as a recent Zimbabwean commentator pointed out, there's a likelihood that South African companies - which have themselves seen the ANC government retreat on its "black empowerment" minerals ownership strategy - would move in swiftly to pick up and exploit the pieces. [Comment by Nostromo Research, May 14 2006].


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How Morales took on the oil giants - and won his people back

Stand-off after Chávez-inspired leader sends troops into gas fields

Dan Glaister in Santa Cruz, The Guardian

6th May 2006

The lady behind the reception desk at the Palmasola refinery smiled sweetly. "We're just carrying on here as normal," she said. "There's nothing to report."

Horses ambled by on the dusty road outside. A few oil tankers stood idly, their drivers asleep. Only the presence of half-a-dozen soldiers, guns at their sides, revealed there was, indeed, something to report.

For Palmasola, a Brazilian-owned refinery 15 miles west of Santa Cruz de la Sierra, the most prosperous city in Latin America's poorest nation, was at the centre of an international storm this week that saw the country nationalise in all but name its foreign-owned gas and oil industry, pitting neighbouring countries against each other and wrongfooting foreign investors.

On May 1, Bolivia's recently elected president, Evo Morales, the country's first indigenous leader, put on a tin hat and made the declaration that much of the country had been waiting to hear. "The time has come," he said, announcing "a historic day in which Bolivia retakes absolute control of our natural resources". Mr Morales spoke of "looting by foreign companies" and said it was time the armed forces "occupy all the energy fields in Bolivia". But he was off pace. The army had already moved into Bolivia's foreign-owned energy fields, refineries and distribution depots.

International capital did not like what it saw. Even Bolivia's allies, such as Brazilian president Luiz Inacio Lula da Silva, looked displeased. But on the streets of Bolivia, it was a different story. "It's been up and down," says José López, a Santa Cruz native. "For the first 100 days of his rule, Evo didn't do the things he said he would. But this was much better. Now everyone is behind him again."

Such was the swing of popular support behind Mr Morales this week that a general strike planned for Thursday in the Santa Cruz region was called off. Sitting on a dusty traffic island outside the gates to the refinery, Eduardo González was charged with militant fervour and a sense of economic injustice. "It's good they want something for us," says Mr González, who services the tankers outside the gates. "If Bolivia owns the refinery it means there will be more jobs for Bolivians. Most of the people working in there," he nods at the distance, "are foreigners - Brazilians and Peruvians. We should have 100% ownership of it as a resource to help build the country."

Private and public

While foreign governments and the 25 foreign energy companies in Bolivia - including BP and BG from the UK, France's Total, Spain's Repsol, Brazil's Petrobras and ExxonMobil from the US - expressed their "consternation" at Mr Morales' "sad and worrying" decision, really only the timing should have taken them by surprise. For the president was doing that most unfashionable of things, delivering on a campaign promise.

Throughout the campaign, Mr Morales and his running mate said they wanted to renegotiate foreign ownership of Bolivia's natural resources. This would not be appropriation, they said, it would not be nationalisation, it would be a renegotiation of existing contracts on terms that would provide a greater share of the revenues for the state.

Throughout the campaign, hydrocarbons were the most frequently mentioned natural resources. Bolivians have long been sensitive about foreigners exploiting their resources, and not without reason. First came the Spanish, to rid the country of its silver, starting at Potosí in 1545. By the 20th century, tin mining had taken over. Today, Bolivia has the second largest reserves of natural gas in Latin America after Venezuela; 45% of it is exported to Brazil at a low price. But in the late 1970s, faced with crippling debt, Bolivia began to place its public assets in private hands: the mines, the railways, electricity, water, the state airline, hydrocarbons all went through a process delicately termed "capitalisation" in order to avoid the word "privatisation".

But the economic rigour demanded by the neo-liberal orthodoxy failed to produce the expected results. Poverty remained rampant, as did political instability. By the end of the 1990s, popular protests became the preferred method of political engagement. Mr Morales and his Movement Towards Socialism party proved adept at harnessing these pressures. "Twenty years on, people see the grand deception," said José Mirtenbaum, sitting in his tiny office in a dismal building in Santa Cruz's University Gabriel René Moreno.

"After all the great promises of the 1980s, what sort of planet do we have? It's also cyclical: there has been 20 years of neo-liberalism. Twenty years is enough, we shouldn't be too surprised."

But what is taking the place of neo-liberalism and privatisation? Is it the good old-fashioned leftist thirst for nationalisation and state control reasserting itself, as many feared this week? "It's an adjustment," says Mr Mirtenbaum. "It's a sort of gradual nationalisation. The next 180 days will be very difficult."

Capital values

The decree announcing the army would seize control of the gas installations gave foreign firms 180 days to renegotiate their contracts. "They're still going to get a decent return," says Mr Mirtenbaum. "It's a good business. These are irrational fears on the part of shareholders who think Bolivia cannot be a good partner, a good capitalist."

The vice-president, Alvaro García, speaking the day after the announcement, sought to assuage investors' fears: "The decree doesn't confiscate or annul the production capacity of the companies, what it does is reduce the extraordinary profits." Mr Morales, however, had already signalled his next move: "This is just the start," he said on Monday. "Tomorrow or the day after it will be mining, then forestry and eventually all the natural resources for which our ancestors fought."

For some, Mr Morales is reasserting the Bolivian state, a state that all but disappeared under the strains of financial policies imposed from afar. The notion that the state was ill-suited to running anything took deep root in Bolivia. For others, it is not the might of the state that is being asserted but the might of Hugo Chávez of Venezuela. His hands were all over the hydrocarbons announcement: presidents Morales and Chávez were in Havana last weekend to meet Fidel Castro and sign up to the latest instrument of hemispheric influence, the Alba trade agreement. Then Mr Chávez popped up in La Paz to, in the words of the Santa Cruz paper El Nuevo Día, hold the president's hand as he travelled to a summit meeting with the leaders of Brazil and Argentina.

For the US it could mark the fulfilment of another of Mr Morales' pledges, to be "Washington's worst nightmare". After a lot of bellicose comment during the campaign, the Bush administration has adopted an unexpectedly conciliatory tone.

"The US never had much confidence in Morales," says Peter Hakim, president of the Washington-based Inter-American Dialogue. "Some were prepared to give him a chance, but when he starts behaving like this it strengthens the hardline groups who think he's an ally of Chávez. I don't think Venezuela can be unhappy about this because the more the region is unsettled, the more they look like the leader."

Indeed Mr Chávez is not averse to stirring things up in the region. He has intervened in the forthcoming Peruvian and Mexican elections; his presence at the Mar del Plata summit was almost as divisive as that of President Bush; and his efforts to spread his munificence has sometimes been counterproductive.

But others wonder if presidents Castro or Chávez did have a hand in Mr Morales' move. The announcement that he is obliging foreign investors to renegotiate the terms of their business certainly echoes moves made by Mr Chávez with foreign oil companies, but Venezuela has a lot of valuable assets: it sends 1.5m barrels of oil a day to the US. Bolivia, on the other hand, has two clients for its natural gas: Brazil and Argentina, and some see naivety in Mr Morales' failure to balance the interests of his domestic base with the demands of foreign policy to maintain good relations with his neighbours.

Those differences seemed to be partly healed at Thursday's summit. The four leaders - of Argentina, Bolivia, Brazil and Venezuela - managed to move beyond the minor scuffle over gas prices. Indeed, they came close to enacting much of Mr Chávez's rhetoric: they all agreed to get behind Bolivia and support it as it tried to correct the woes of neo-liberalism and build a new country.

They also agreed to join in the "gasoducto del sur" which, as Mr Chávez grandly declared, "will bring cheap, clean gas to all the people of South America for the next century".

But Larry Birns, of the Washington-based Council on Hemispheric Affairs, believes the rhetoric and the reality might herald some sort of shift in the region. Alba, the gasoducto, Mr Morales taking on the energy companies, suggest, he says, that "a lethal threat is being posed by the school of thought that says development is not merely a matter for the economists. "Social issues have to be considered too. There is a direct challenge to the notion that what is private is good and what is public is bad. Enron put an end to that. If Morales has a successful administration, it will bring up some very heavy questions for Washington.

"It's going to be difficult for the Republicans to resist saying, what are we going to do now? The commies are running amok in Latin America. But the truth now is that the US has run out of options. There's not much it can do, short of killing the leaders."

Back at the refinery, the nice lady shrugs when I ask what the soldiers are doing. "They're guarding things," she says, helpfully. "Making sure everything's in order. That's all we know. "Network of 'Hugo's friends' links politics from Mexico to Brazil


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The Chávez effect and the reshaping of a continent

Duncan Campbell, The Guardian

6th May 2006

The "Chávez effect", which started when Hugo Chávez was elected as Venezuelan president in 1998, has made waves across the continent, with the "pink tide" now lapping as far as Mexico to the north and Brazil to the south.

The effect is twofold: first, Mr Chávez has been a key player in establishing a network of leftist politicians in the region who can give each other moral and economic support and, second, his use of Venezuela's oil has caused his fellow leaders to examine how they can shift control of their own natural resources from private to public ownership.

The most recent example of the Chávez effect has been Evo Morales' action in Bolivia, but upcoming elections in Mexico and Peru could also lead to a situation in which more countries are involved in a leftwards move which would shift the balance of power away from Washington and challenge foreign ownership.

Currently at the heart of the changes are Mr Chávez, his close ally, Fidel Castro, and Mr Morales, the "three amigos" who espouse the most radical policies in the region. The relationship between presidents Chávez and Castro is strong, and has led to the deployment of 20,000 Cuban doctors in the poorest areas of Venezuela. Cuba has benefited from Venezuelan oil at cheaper prices. Their aims in terms of the economy are considerably to the left of centre-left leaders such as the newly elected Michelle Bachelet in Chile, Néstor Kirchner in Argentina and Luiz Inacio Lula da Silva in Brazil. The next two months will show whether the "pink tide" is washing further inland or receding.

On June 4 in Peru, Ollanta Humala, the former army commander, who is supported by Mr Chávez and who has pledged to redistribute wealth, faces the centre-left former president, Alan García, in the runoff presidential elections. Mr Humala has said he will rewrite contracts with mining companies and "put Peru's natural resources to the service of its people". In April, he took 31% of the vote in the first round to Mr García's 24%, and together they squeezed out the conservative Lourdes Flores. But Mr Humala, whose populist style and background echoes that of Mr Chávez, may not succeed in the runoff, with the latest polls showing him trailing Mr García by 8%.

Mexico will vote on July 2 in what is another key test for the leftist network. A month ago, the leftist former mayor of Mexico City, Andrés Manuel López Obrador, appeared to be headed for victory but his substantial lead has slipped and he is now trailing the conservative, Felipe Calderón. Mr López Obrador, who has made no secret of his plans to shake up and radicalise the Mexican economy with the aim of redistributing wealth, has recaptured some of his lost ground.

The results in Peru and Mexico could determine whether there will really be a major shift in the relationship between the US and its southern neighbours or merely a slight realignment.

Another part of the Chávez effect has been the launch in Caracas of pan-Latin American TV channel Telesur, which aims to challenge CNN as a source of news. It was formed with the backing of Argentina, Brazil, Cuba and Uruguay, but the impetus came from Venezuela.