April 30, 2005

Once Again, Trouble on the Horizon for Bolivia

MABB © ®

As I mentioned in other posts (here and here) troubles are coming Bolivia's way again. These are set to start up on May 2.

The reason is the same as last time. The nationalization of the natural gas resources. All this week there were news reports warning on the times approaching and, most importantly, communication between the social movements trying to coordinate the plan of action.

But, the straw that will brake the camel's back, will be today's decision by Congress to approve a new hydrocarbons law maintaining the 18/32 formula (18% royalties and 32% taxes) the government recommended. However, one significant change is that the 32% taxes are not tax deductible. This is the formula that the social movements and the MAS see as unacceptable. They will not accept nothing short of 50% royalties.

In addition, here are some more points approved in the new law:
  • The companies have 180 days to migrate to new contracts.

  • YPFB is refounded

  • Funds for YPFB will be taken from the Capitalization Fund (FCC), but Bonosol, will have to be still paid.

  • Payment of royalties and taxes are immediate.

  • The state will have to compensate the inhabitants for any lost territory to exploration or exploitation.

  • The government will have to consult the indigenous population living in the territory of interest, but this will not be binding.

  • wholesalers will be eliminated from the supply chain.

  • The unit price cannot be above 50% from the export price.

The question is if MAS will accept this new modification by the Senate or will it go ahead with plans. MAS and its allies, have already announced total war. Their argument is that neither Congress nor the government are working in favor of Bolivia. In fact, they are really working in favor of the oil companies.

There is of course, the possibility that the president will veto the law. To this, the presidents of the Senate and Deputies chamber have said that Congress is prepared to override the veto. An override needs 2/3 votes from Congress. If we take seriously some recent comments by Mr Mesa, we could come to the conclusion that he will veto the law. Of course, he really doesn't have the backing to do this. It would be a surprising move if he does.

In the end, everything will be in vain, if the social movements decide to go ahead with their plans. However, in my view, it would be pretty hard to make a case for more disturbances with this new law. As you can see, it only lacks the 50% royalties.