Sunday, May 16, 2010

BOLIVIA - - Evo Morales' Industrialization Schemes FAIL, while Peru laughs all the way to the bank

Remember the Gas War? October, 2003, many Bolivians had a meltdown over a proposed 1.5 billion dollar project to export Liquid National Gas; a pipeline would send Bolivian gas to a new liquification plant and port complex to be built in Chile.   The outcry, in the context of a full mobilization by angry Cocaleros and disafection over economic recession (among many factors), ended with dead protestors and the forced ouster of the Constitutionally elected President.    Evo Morales a vociferous opponent of the project and guiding force behind many of the mobilizations that had paralyzed the country since 2000, was elected President in 05 to recover Bolivia's national resources from ugly multinationals, and to industrialize the mineral wealth of the country instead of exporting only raw materials.  

Build It And They Will....Nationalize It....

Evo, to the acclaim of some and the hope of many, signs a contract with Jindal Steel, a very large Indian Steel Company to mine an enormous iron ore deposit near the Brazilian border.      Jindal in a joint venture with the Bolivian State, agreed to invest over 2 billion dollars to not only mine the ore, but to build production facilities for steel and iron production.    Regardless of whether you like Evo or not,  it actually seemed at the time to be a win for Bolivia,.   The mineral rich Mutun, had been eyed for decades by past Bolivian governments for its potential, but nothing had gone through, now seemed as good a time as any.

Three years after the signing and approval of the whole deal.     The project is paralyzed, with Jindal ready to bail out.  Some of it seems to be due to Evo's dubious choices to run the Bolivian side of the deal, who were political appointees - labor leaders to be more precise.   Bolivia did not provide all the land (arguably it did provide most), but failed to build the roads needed and other infraestructure.   The company was supposed to invest at least 600 million, instead it spend about 20 million to build some offices, and to mine the ore for export as raw materials.   Morales' record of further "nationalizations" of foreign companies, constant rants against capitalism and the private sector, and the rather confusing Constitution might also have made the Indian conglomerate nervous, to the point where they would forfeit a 20 million dollar bond to get out of the deal.   Some common sense and direction, and the thing can probably be restarted, as of now its in limbo.

Where The Air Is Rarerified

While this entire process went from courtship to failure, in next-door Peru, a consortium to build a large LNG plant connected via a pipeline to Peru's largest gas fields, was taking shape.    It was started around the same time that Bolivia was having its massive meltdown over gas in 2003, the original concept was to be an alternative to Chilean ports for transporting Bolivian gas. But then it evolved more into exporting Peruvian production.    The project was approved and financed and the decision to go ahead was made in late 2006 - more or less while Evo was finalizing gthe deal with Jindal.

Well, as of April 2010, the full project - the largest single foreign investment in Peruvian history at close to $4 billion dollars - is almost ready.  The pipeline that runs through the Andes and desert is done, the docking facilities for the tankers and the processing plants and storage facilities are almost finished.    That is the speed with which private and public projects with backing, know-how, and leadership advance.    

Evo Cumplido

   Bolivians should take a look at what is being finished in Peru - they could have had something similar.  Arguably the Chile LNG plant would have been finished and exporting gas by now.   Ironically, the proposed project facilities in Chile - partly-owned by the Bolivian government - included a petrochemical facility.  It would have meant  Industrialization.  Bolivian natural gas used as raw material for Industrial goods.  Instead they have Evo whose four years in power have consisted of dramatic media spectacles like nationalization, constant political campaigning and propaganda, while living off the bounty produced by record world prices for things like hyrdrocarbons, in industries whose very existence is mostly due to the sectoral policies of  previous governments.

The Morales' governments socialist ideology and mania for centralization gives increasingly larger responsibilities for the State in the economy.   However, the only "nationalized"sector it runs well seems to be  mass media,  as it keeps on buying newspapers and other media to proselitize further.   What that media won't be reporting are things like the fact that in four  years of Evo's nationalized State Oil Company, YPFB, not one new discovery has been made,  only three wells were drilled last year (versus 64 in 2000, and more than 100 in Peru), and the country has to import gasoline for the first time in decades.   Blame a MAS government whose strident rhetoric and erratic behavior have chased away foreign investors.   A government that follows discredited economic policies,  places party-line over competence, values ideology more than technical or managerial know-how,  whose regulations have made its administration less transparent and accountable,  is prone to corruption, and is just plain inept.   To put it bluntly, it can't run a damn thing even with money in the bank. 

Evo's government takes it further; the MAS administration is incapable of even delegating and overseeing projects, where friendly investors do most of the actual work and spend most of the investment money.   Mutun is an example of four years of doing, absolutely nothing, except speeches about how great it is,   During that same time period the Peruvian government happily enabled a mega-consortium to build a huge export facility, port facility, and not to mention a large pipleine that crossed over mountains and deserts.  And that the project has spurred billions of dollars in investments in natural gas production, raising Peru's proven reserves - still nowhere near Bolivia's.   Considering the fact that at least one of the investors was involved in the Bolivia LNG project it is not farfetched to say that Peru LNG money originally was destined to be invested in  Bolivia, but ended up next-door, as have billions in exploration and production investments.   End score - Bolivia does not have a pipeline to the Pacific and a LNG processing plant and port on the Pacific, and neither does it have an operational steel plant making steel for domestic industry or export using Mutun iron ore.  Thats a lose-lose situation.

What could have been.?..

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