IHS Global Insight Perspective | |
Significance | The government has announced that it is taking full control of the capitalised oil company Chaco after failing to reach an accord with its foreign shareholders. |
Implications | The move means that the state oil company YPFB has now regained control over all of the companies that had belonged to it prior to their privatisation in the 1990s. |
Outlook | Although the nationalisation process is complete, many challenges remain—the biggest of which is fast-tracking investment in gas exploration and production in order to meet future demand from the domestic and export markets. |
The government has nationalised Empresa Petrolera Chaco, via Supreme Decree 29887 promulgated by President Evo Morales on Friday (23 January). The action was taken after Pan American Energy, a joint venture between BP and the Argentine company Bridas, which held a 50% stake in Chaco, failed to reach an accord to cede control to the government. The move will enable the state oil company YPFB to raise its stake in Chaco from 49% to 99%. According to a report in La Razón, Chaco operates 14 fields with total production of around 5,900 b/d of crude and condensate and 5.18 mmcm/d of natural gas. Chaco is also the country's largest producer of liquid petroleum gas (LPG).
The takeover of the capitalised or partially privatised energy companies Andina, Chaco, and Transredes, and the privatised Compañía Logística de Hidrocarburos de Bolivia (CLBH), was a central plank of the nationalisation decree issued by President Morales in May 2006. An accord reached with Repsol-YPF that allowed the Spanish–Argentine energy group to retain a minority stake marked the completion of the nationalisation of Andina (see Bolivia: 16 October 2008: Repsol-YPF Signs Agreement with Bolivia). The failure of the government, however, to reach accords with the shareholders of Transredes and Chaco that would give YPFB a majority stake prompted it to take full control of these companies (see Bolivia: 3 June 2008: Government Takes Control of Gas-Transportation Company in Bolivia). The government has since reached separate compensation accords with the former shareholders of Transredes, Ashmore Energy International (AIE) and Shell, and Chaco's former investors will also be entitled to compensation (see Bolivia: 20 October 2008: Bolivia Reaches Accord with Ashmore over Nationalisation of Gas Transportation Company).
Outlook and Implications
The implementation of the nationalisation decree signed by Morales on 1 May 2006 has been completed with the takeover of Chaco. In addition to the recovery of state control over the capitalised companies, new oil contracts with foreign companies were signed in late October 2006 under the nationalisation programme and, the following year, Bolivia reached an agreement with Petrobras that would allow the "return" of the two refineries it owns in Bolivia. The government is also proceeding with the re-founding of YPFB, and the government has stated its intention to nationalise the electricity sector (see Bolivia: 8 January 2009: Bolivian President Calls for Nationalisation of Electricity Sector).
The nationalisation of Chaco, along with the symbolic deployment of troops to a natural gas field operated by the company, came just two days before the holding of a referendum on a new Constitution. This is probably no coincidence as the government has shown a tendency to announce populist moves ahead of key votes, and the nationalisation of the hydrocarbons sector is an area of policy that does enjoy strong backing amongst President Morales' core supporters. The approval of the referendum has given the government the green light to proceed with the restructuring of the economy along a "socialist model". It is not clear exactly what this means for energy investors now that the nationalisation process is complete, especially as the country's Hydrocarbons Minister Saul Avalos has given assurances that the new oil and gas contracts signed under the Morales administration will not be affected by the implementation of the new Constitution. Nonetheless the approval of the Constitution does mean that there will be no backtracking in policy and that there is the potential for further regulatory uncertainty and political instability.