Friday, July 15, 2005

Multi-Nationals Vs. Bolivia Part 20

Petroleum World has this AFP note writes that the interim Bolivian Government has been asked to enter negotiations to in a 'friendly manner' 'resolve' the present 'difficulties' the country has with the three European oil companies, after the ratification of the new Hydro-Carbons Law, that increases taxation on royalties, and invalidates existing assumed-risk contracts.

The Companies (Repsol, Total, and BP) reject the new law, saying they are bound to the 1996 law, whose contractual protections they relied on when investing the 3.5 to 5.0 Billion dollars they claim to have invested in the country the last 8 years. As I stated a couple of days ago, they are relying on reciprocal treaties protecting investments signed by the Bolivian Government with Great Britain, Spain and France.

These negotiations are more or less a six-month wait-and-see before the three companies start legal proceedings. Bolivia's claims of unconstitutionality of the contracts will probably fall short, since in contract terms the contracts were signed with the apparent authority of the Bolivian Government, and in reasonable reliance on that authority, the other side was induced to sign the agreements, and in reliance on the guarantees offered by these terms the multi-nationals spent billions of dollars to invest in production.

In the real world, this would be a welcome chance to re-negotiate the terms of the deals, and maybe get a higher chunk of royalties. I don't usually feel sorry for big corporations, these guys re-negotiate deals all the time. Asking for a deal, say an extra 10 percent in royalties might not be totally unreasonable. But, the problem is the interim government, and whatever government follows, comes in with little credibility. It is clear the governments can fall in a heartbeat. Not even Evo can not control the mobs in La Paz, and calming them dow. To effectively negotitate, you need to be in control of what is your 'threat' - namely an angry population that is capable of bringing the whole thing to the ground and going for nationalization. But there is no strong leader with enough charisma (as well as the statesmanship) to rein in the masses, and sell a compromise plan to them. The radicals' NGO-learned rhetoric has the masses chanting for 'all of the pie" i.e. nationalization. How to curb this lunacy???

In addition, Brazil is conspicuously absent, but they might be playing out a strategy to influence Bolivia's government behind the scenes, not ruffle feathers due to an uncertain future. They will make out good if the Brits/French/Spanish do happen to win, since Petrobras is in bed with all three of them in Bolivia, if the other three lose big, Petrobras from a neighboring country might suddenly find lucrative opporunities.

"Nos piden que se inicie una serie de negociaciones con el fin de encontrar soluciones amigables a los problemas originados" por la ley de hidrocarburos promulgada en mayo último por el Congreso y reglamentada hace dos semanas por la administración Rodríguez, dijo Dunn.

Las compañías rechazan la legislación, que reemplazó otra que rigió entre 1996 y el mes de mayo pasado y bajo cuyos alcances se instalaron en Bolivia, donde dicen haber invertido en los últimos ocho años entre 3.500 y 5.000 millones de dólares.

Se calcula, a precios de mercado, que la riqueza gasífera boliviana en el subsuelo tiene un valor de unos 70.000 millones de dólares.