Bolivia chief signals some easing of tough talk

Rio de Janeiro (Platts)--23Jan2006

Bolivian President Evo Morales, a leftist Aymara Indian whose protests
against foreign oil majors and Bolivia's economic elite helped force the
resignation of two presidents over the past 28 months, has sent signals of
reconciliation to foreign oil companies and governments that have poured in
almost $4-bil to tap the country's gas reserves since 1997.

     Morales assumed the presidency Sunday. In his inauguration speech,
Morales said Bolivia "must recover its natural resources," a reference to his
plan to "nationalize" the country's gas reserves that are largely now
controlled by foreign companyies, including Repsol YPF, Petrobras and Total.
But Morales said he plans to "renegotiate" contracts with oil majors who "do
business that is good for the country," and "allow (foreign) investors that
are partners of Bolivia."

     Those statements, analysts said, signal that Morales does not plan to
seize foreign assets outright or completely cancel the country's gas sector
privatization. Yet even if Morales plans to negotiate with oil majors, he will
remain under pressure from the left wing of his base of supporters, many of
whom voted for Morales because he pledged to send oil majors packing.

     Yet Bolivia's new government on Monday made statements likely to
discourage foreign oil companies. In a renewed threat to ban direct foreign
ownership of Bolivia's 53 Tcf of gas reserves, Andres Soliz Rada, the new
hydrocarbons minister, suggested that Bolivia register on international
markets all the country's gas reserves as the "property" of Bolivia, according
to local press reports. The move could prove a shock to such companies as
Repsol YPF, which books 19 Tcf in Bolivian reserves, more than half of its gas
holdings throughout Latin America and the Caribbean region.

     On Sunday, however, Morales distanced himself from statements in December
that he would be the US' "worst nightmare." Morales, a former coca leaf
farmer, pledged Sunday to protect private investment in Bolivia, study
prospective trade accords and help fight drug trafficking to the US. The
statements came after Morales met over the weekend with several foreign
presidents and dignitaries who traveled to La Paz for his inauguration,
dividing his attentions between such visitors as Venezuelan President Hugo
Chavez, and Thomas Shannon, US deputy secretary of state for hemispheric
affairs Shannon, speaking to reporters after meeting Morales on Saturday, said
the US plans to begin "a process of dialog" with Bolivia's new government. The
US is the largest provider of aid funds to Bolivia.

     Separately, local press reports Friday cited Carlos Villegas, Bolivia's
new development minister, as saying that companies including Repsol YPF and
Total, two of the top holders of Bolivian gas reserves, have dropped a threat
to sue Bolivia for breach of contract, and now favor pursuing gas contract
negotiations with the new government. Neither company was immediately
available to comment on the reports, which cited an interview with Villegas.

     Foreign oil companies have been up in arms over Bolivian gas contracts
since the country passed a Gas Law in May that more than doubled the
tax/royalty burden on foreign producers. 

     Morales on Sunday said the scope of "nationalization" of the gas reserves
will be examined by a constituent assembly, set to be installed in July to
rewrite the country's constitution. However, the government has pledged first
to renegotiate about six dozen gas contracts held by private companies in the
country, and it is as yet unclear whether a new constitution could affect
those renegotiated contracts.

     Bolivia's state-run oil company, YPFB, does not have the funds to carry
out any major development of Bolivian reserves or upkeep of existing oil and
gas infrastructure in the country. With its small $9.5-bil economy, Bolivia
has little money to contribute to YPFB.

     Among other proposals, Morales has been considering partnerships with
Venezuelan state oil company PDVSA, which already provides Bolivia with
shipments of diesel fuel, often in shortage in the Andean country. Rafael
Ramizez, Venezuelan's Energy Minister, announced Monday in La Paz the founding
of a Bolivian branch of PDVSA.

		--Josh Schneyer; newsdesk@platts.com

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