Major foreign investors in Bolivia’s oil and gas sector have vowed to continue their operations in the country, at least in the short term. These assurances come despite the passage of constitutional changes that will strengthen the power of president Evo Morales to intervene in the economy.
Neil Burrows, a spokesperson for UK-based BG Group, said the Bolivian government and state-owned energy firm Yacimientos Petrolíferos Fiscales Bolivianos (YPBF) had imposed “tough terms” in contract negotiations completed in late 2006. But his company has no plans to halt its activities in Bolivia.
“We are an oil and gas producer in Bolivia and will continue to be so. Future investment would depend on a lot of economic and technical evaluation and assessment and that still remains the case,” Burrows told Emerging Markets.
This view was echoed by French hydrocarbons extractor Total and Spain’s Repsol YPF. William Garland, a spokesman for Repsol, said the firm was keen to move forward and begin exploiting a gas field discovered at Huacaya last week, which has an estimated capacity of 800,000 cubic metres per day.
Supporters of left-wing head of state Morales passed over 400 changes to Bolivia’s constitution in a national assembly meeting on Sunday that was boycotted by all major opposition leaders.
These changes, which will still have to be ratified by a series of referendums, include allowing two consecutive five-year terms for presidents, creating more autonomy for indigenous groups and increasing the state’s hold over the economy. In May, Morales began a 12-month project to bring the energy sector under government control. His strategy appears to parallel those carried out by other leading Latin American hydrocarbons exporters Venezuela and Ecuador, which have in some cases expropriated foreign-held oil and gas assets.
Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research, which seeks to encourage greater debate on international economic policies, said these constitutional changes had been clearly flagged by Morales for some time.
“Foreign investors know the rules of the game, as they have done for years now, so the new constitution isn’t going to scare them off any more than they have been already,” he told Emerging Markets.
Although the nationalisation of the energy industry and proposed amendments to the constitution were among Morales’s 2005 election promises, the country is deeply divided over his policies. Last month, six of Bolivia’s nine government departments held one-day strikes in protest against Morales’ radical reforms and the recent national assembly meeting was forced to move to Oruro after riots in Sucre left three people dead.
And Lisa Schineller, a sovereign credit analyst for ratings agency Standard & Poor’s, warned that continued political noise would eventually erode investment and economic performance. She told Emerging Markets that S&P may revise down its 4.25%-4.5% GDP growth forecast for 2008 if deep political divisions persist in Bolivia.
“Whether the president can be re-elected, the issue of land reform, sharing of oil revenues, issues of autonomy for the different regions, and the definition of private property – the longer these key issues remain unresolved, the more uncertainty this creates in the investment climate,” she said.