Bolivia to forge ahead with nationalisation

BOLIVIA: Bolivia's leftist government said on Tuesday it would forge ahead with its sweeping energy nationalisation despite international concern over the move by President Evo Morales.

Former coca farmer Morales was making good on election promises to reassert state control over Bolivia's natural resources, which he says have been exploited by foreign companies with little benefit to the country's poor majority.

But the extent of the decree to wrest control of energy fields from foreign oil companies and hand them to a state-owned company stunned analysts and rattled investors, though many ordinary Bolivians welcomed the decision. The Brazilian government announced that the presidents of Brazil, Venezuela and Argentina will meet with Morales in Puerto Iguazu, Argentina on Thursday, to negotiate the fallout from the decision.

Bolivian officials said troops were guarding about 50 gas and oil facilities to ensure normal operations, a day after Morales sent them into the production fields and threatened to evict companies within six months if they do not recognize the nationalization.

Gas is a sensitive topic Bolivia, South America's poorest country and home to the region's second-largest natural gas reserves. Popular revolts over how to manage the industry toppled two governments between 2003 and 2005.

"For me, this is a very good move and something very positive," said Jaime Cossio, 29, who runs two small companies in La Paz. "The foreign companies have put in minimal capital, taken the raw materials and too much profit."

Bolivia's energy minister, Andres Soliz, shrugged off a chorus of complaint from European governments and energy investors such as Spain's Repsol YPF, whose chairman, Antonio Brufau, said the nationalization defied "business logic."

"It was obvious Brufau would express his sadness in the same way as the Bolivian people express their joy," Soliz told reporters.

"If (the companies) aren't in agreement, they can just go." Brazil's Petrobras is the leading investor in Bolivian natural gas and after some angry words the Brazilian government said it respected the "sovereign" Bolivian decision, while a government source said the oil firm was still intent on operating in the neighboring country.

The European Union echoed earlier comments by Spain's foreign ministry over the Bolivian nationalization, which added to bullish oil market sentiment with prices already above $74 per barrel on supply worries. Wall Street was skeptical too.

Christian Stracke, emerging markets analyst at research firm CreditSights, said there was no doubt the nationalization would be unsuccessful in the long term. "But if in the short term he is able to nationalize an asset that has a lot of value and then turn that into redistribution value ... then that is going to prove an example that is going to be difficult to resist in other Latin American countries," he said. Morales' election in December reflected a popular backlash against free markets and foreign investment in Latin America.

Since taking office three months ago, Morales has forged close ties with Washington's leading Latin American antagonists, Cuba's Fidel Castro and Venezuela's Hugo Chavez, who applauded the nationalization.

"Bolivia will recover its sovereignty," Chavez said in Caracas. Over the weekend, the three leaders launched a "people's trade agreement," which they call an alternative to U.S.-led free trade talks with other Latin American countries.

Morales' decision to limit foreign companies' profits follows similar moves in Ecuador and Venezuela, where Chavez has forced a rewriting of contracts and imposed retroactive tax hikes in the world's fifth-largest oil exporter - conditions that oil majors largely accepted.

Bolivia has gas reserves of about 48.7 trillion cubic feet, with most of its exports going to Brazil and Argentina. Foreign companies have invested more than $3 billion in Bolivia over the last decade, much of it in exploration.

Some industry analysts think oil companies will agree to renegotiate in Bolivia, despite the prospect of lower profits. Under the decree, state oil company YPFB will pay foreign companies for their services, offering about 50 percent of the value of production, although the decree indicated that companies at the country's two largest gas fields would get just 18 percent.

Announcing the nationalization decree, Morales said it was "just the start," vowing to extend state control over all the country's natural resources.

Lapaz,Wednesday, Reuters.