Energy takeover puts Bolivia in a not-very exclusive club

Energy markets shrugged off Bolivian President Evo Morales' decision Monday to take control of the country's large natural gas industry.

But the political implications may be far more troubling and harder to ignore.

Latin America is witnessing an ideological sea-change that is redrawing the political map. Morales, who took office earlier this year, appears to be moving into a steadily closer alliance with Cuban leader Fidel Castro and Venezuelan President Hugo Chavez. Elections in three more countries this year - Peru, Mexico and Nicaragua - could further bolster that new left-wing axis.

An indigenous Aymara Indian, Morales won election in part on a pledge to increase state control over the country's natural resources, which he says have been "looted" by foreigners since the days of silver mining under the Spanish empire.

"Bolivians want to take control of their future and their resources," said Harry E. Vanden, founder of the Latin American studies center at the University of South Florida, who visited Bolivia last summer. "It's a feeling that runs wide and deep."

Bolivia has South America's second-largest natural gas reserves after Venezuela. But Bolivian control of its resources could come at a huge price if Morales is not careful.

Industry experts warn that the decree could have disastrous consequences for Bolivian natural gas production. Bolivia is Latin America's poorest country, and foreign companies have invested about $3.5-billion in the natural gas industry there over the last decade. New investment dried up last year due to concern over Morales' election. Experts also doubt Bolivia has the ability to run the gas fields on its own.

But political analysts point out that Monday's announcement did not go anywhere near as far as some of the famous revolutionary nationalizations of the past, and largely adhered to a hydrocarbons law passed last year.

Rather than kick out the foreign companies, Morales ordered them to hand over a 51 percent controlling interest in their Bolivian subsidiaries to the state-run oil company, Yacimientos Petroliferos Fiscales Bolivianos, or YPFB.

Morales gave the companies six months to agree to new contracts or leave Bolivia. He sent troops to surround one company's installation.

"There's a lot of nationalist drama involved in the decision," said Peter DeShazo, director of the Americas Program at the Washington-based Center for Strategic & International Studies. "It's political fuel."

A former diplomat who served much of his career in Latin America, DeShazo noted that Morales has little to show for his first few months in office and has watched his domestic approval rating slip. A prior six-month deadline for renegotiating natural gas contracts had already expired.

"Now he's turning up the heat," said DeShazo.

Morales also has his eye on new elections for a constituent assembly this summer, which are key to his plans to empower the country's indigenous majority.

Morales is following a similar playbook to Chavez in Venezuela, who last year forced foreign oil companies to accept his terms. It remains to be seen how the companies in Bolivia react.

The markets aren't too worried because natural gas, unlike oil, is largely consumed regionally. Bolivia's gas is shipped by pipe, mostly to Brazil and Argentina.

U.S. consumers also have less to fear as they are not big regional natural gas players. Exxon Mobil is the only U.S. company invested in Bolivia, with a 34 percent stake in one of the foreign companies.

Brazil's Petroleo Brasileiro SA, or Petrobras, on the other hand, is Bolivia's largest energy client. Brazil relies heavily on Bolivian natural gas for power generation.

Brazil and Spain reacted quickly to the news Monday with statements of displeasure.

U.S. officials had little to say. Washington has other fish to fry in Bolivia, chiefly a counternarcotics policy pegged to eradicating Bolivia's cultivation of coca, the plant used to produce cocaine. To Washington's chagrin, Morales has threatened to expand legal coca cultivation in honor of Bolivian indigenous traditions.

Increasingly the Bush administration may find it difficult to stay out of the political debate.

Nationalization of the hydrocarbons sector "was just the beginning," Morales said Tuesday. "Tomorrow it will be the mines, the forest resources and the land."