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Eva Morales complete victory over big oil

The Progress in Bolivia

by Newton Garver
(edited for space considerations) 1/8/07

I have previously argued that Evo Morales might best be described as a genius rather than put into any of the ready-made political categories that so regularly distort both news and policy.

One main reason for this is his combination of principle and pragmatism, leading him into confrontations in which he does not attack opposing persons or institutions but instead invites them to join him in a struggle for justice. The media regularly associate Morales with Chavez, but Chavez is more bully than genius, and it is impossible to imagine Morales denouncing Bush as a devil, as Chavez did at the United Nations. The other main reason is his extraordinary ability to exploit the moment, as he did after his election with his famous striped alpaca sweater and late this past summer by waving a coca leaf during his speech at the United Nations. Another example, was his use of troops in the nationalization of oil and gas reserves on May 1, 2006, which of course garnered world-wide press attention, even though he knew full well that there was no opposing armed force and that the nationalization could as well have been accomplished by signing decrees in his office in La Paz.

At the time of the nationalization there was a near-consensus among analysts that the nationalization would fail. There were two reasons for this belief. One was that the opposing parties were the Brazilian government and very powerful and well-connected international cartels, who had plenty of other assets and were powerful enough to just leave Bolivia rather than renegotiate contracts that would give the lion’s share of revenues to a desperate country that had few alternatives. The other reason was that neither the Bolivian ministry of mines nor the national petroleum company, YPFB, had the expertise required to run the operation that the renegotiated contracts envisaged.

Both reasons were based on solid knowledge of the details of the industry, so the skepticism was well founded.

The decree of May 1 gave the parties exploiting the hydrocarbon resources of Bolivia six months in which to renegotiate contracts with the government, after which they would have to leave and their property would be subject to confiscation. Bolivia’s position in the negotiation was that a return on investment of 15 to 18 percent would be fair and just for the drilling and exporting companies, and that the balance of profits and revenues should revert to the Bolivian people through the Bolivian government.

At the time of the decree and the announcement of this demand, the popular cry was that the looting must end, and Morales himself referred to the process by which mineral resources of Bolivia had been extracted and exported for the previous four hundred years as “looting.”

The slogan was very popular, especially among the Indigenous people of Bolivia. Thus populism and a call for justice were added to the power play of nationalization and the threat of confiscation. The stakes were high and the outcome uncertain.

Negotiations proceed slowly over the summer, and intransigent statements from Brazil darkened the prospects for a favorable outcome. This sentiment encouraged the opposition to the government of Evo Morales, which seemed likely to suffer a setback in its most significant initiative.

The main challenge to the government remained the gas and oil contracts.

November 1, the end of the six-month period, was a make-or-break day for the government. The first hint of a solution came early in October, when Argentina signed an agreement to buy natural gas on terms much more favorable to Bolivia, and in much greater quantity than before. But Argentina is not among the producers or explorers. The result was finally known at the very end of October, and it was a complete victory for the government. Petrobras of Brazil, the largest explorer/producer in Bolivia, broke the news, and the agreement of all the others was nearly simultaneous. The new contracts give Bolivia between 50 and 82 percent of the net revenues, they commit Brazil to investing $1.5 billion in new infrastructure and exploration, and they require that a portion of the profits of the international consortiums be invested in other industries in Bolivia.

So Evo Morales achieved what most of the analysts thought would be impossible, a complete victory in his struggle against the foreign companies exploiting Bolivia’s natural resources. In his remarks hailing the agreements Morales stressed that this is a favorable outcome for everyone and noted that it had been achieved without the expropriation of the property or assets of the foreign companies. He looks forward to years of continued cooperation.

Having achieved what seemed to many impossible, Evo Morales now enjoys greater political strength and credibility with which to proceed with other steps on his agenda. The three most pressing and exciting are nationalization of the mining industry on terms similar to those of the petroleum industry, an agreement with Chile, and redistribution to peasants of huge tracts of land in the Amazonian provinces of Santa Cruz and Beni.

All of them involve technical and legal difficulties as well as overcoming entrenched opposition.

The new natural gas contracts are an enormous achievement for Morales, for they strengthen him both domestically and internationally. It will be interesting to see what happens next. Morales continues to impress, and to make his little nation fascinating to watch.

Newton Garver is SUNY Distinguished Service Professor Emeritus at University at Buffalo.