GOB ACHIEVES KEY GOAL: NEW GAS CONTRACTS

UNCLAS LA PAZ 002943 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/AND TREASURY FOR SGOOCH ENERGY FOR CDAY AND SLADISLAW E.O. 12958: N/A TAGS: ECON EINV ENRG EPET BL SUBJECT: GOB ACHIEVES KEY GOAL: NEW GAS CONTRACTS ¶1. (SBU) Summary: All of the private hydrocarbons exploration and production companies operating in Bolivia signed new service contracts on October 27 and 28 prior to the deadline imposed by the GOB's May 1 nationalization decree. According to the president of Bolivia's state oil company, YPFB, the contracts range from 23 to 30 years, and the companies committed to invest at least USD 2 billion. The contracts must be approved by congress now. Although the companies have signed contracts, details remain to be resolved. In addition, YPFB is still conducting separate negotiations with five companies to acquire majority ownership, as mandated by the nationalization decree, and with Brazil to determine a price for Bolivian gas exports. The Bolivian Hydrocarbons Chamber is hopeful that the new contracts will provide the legal security needed to reactivate the sector. The GOB is touting the signing of new contracts as a victory for the Bolivian people, while social sector leaders have declared that the agenda of October 2003, which brought down two presidents, has been fulfilled. (Septel will report on the growing debate on how increased revenues will be divided.) End summary. Upstream Companies Sign New Contracts -------------- ¶2. (SBU) The GOB's May 1 nationalization decree required hydrocarbons producers to sign new contracts within 180 days. U.S.-owned Vintage Petroleum and French-owned Total were the first companies to sign new production contracts on the evening of October 27. The remaining eight production companies, including partially U.S.-owned Chaco, Brazilian-owned Petrobras, Spanish/Argentine-owned Repsol, and British Gas, signed new contracts just before the migration deadline late on October 28. According to statements made by Hydrocarbons Minister Carlos Villegas and YPFB President Juan Carlos Ortiz to the press, the companies agreed to provide services for which they would be compensated by YPFB. The contracts range from 23 to 30 years, and the companies committed to invest USD 2 billion in exploration and exploitation under the contract terms, according to the GOB. The actual contracts have not been made public. Ortiz said that this investment would enable Bolivia to meet its contractual commitments of 30 million cubic meters per day of gas exports to Brazil and 27.7 million cubic meters per day to Argentina (within three years). Producers operating large fields must pay up to 82 percent in taxes and royalties, while producers in small fields will pay less. The contracts must now be approved by congress. Vintage Pleased with Deal -------------- ¶3. (SBU) The President of U.S.-owned Vintage Petroleum told Econoff on October 30 that Vintage had signed a final contract, containing all details, on October 27. Vintage gave up its rights to pursue international arbitration in the contract. He said that Vintage, as a producer with small fields, would pay significantly less in taxes and royalties than producers with large fields and would also be provided incentives that would be detailed in a GOB decree. He said that agreed upon tax rates would enable the company to profit. Vintage's contract is for 30 years. He added that he believed Bolivia would be able to meet its ambitious contracted gas export commitments to Argentina now and avoid paying the hefty penalties that would result from failing to deliver. Pending Issues -------------- ¶4. (SBU) Chaco President Ricardo Srebernic told the press that the contract was a preliminary agreement and several details remain to be resolved. In addition, separate negotiations are ongoing between YPFB and the five companies that were destined for GOB take-over in the May 1 nationalization decree -- three partially-privatized companies: Chaco, Transredes, and Repsol/Andina; and two fully private companies: Petrobras' refineries and the Bolivian Hydrocarbons Logistics Company. The decree mandated that YPFB acquire 50 percent plus one of the shares of the companies within an unspecified timeframe, but YPFB's lack of capital and legal impediments have hindered the take-overs thus far. YPFB and Petrobras have not yet agreed on the price of natural gas exports from Bolivia to Brazil. Negotiations are scheduled to continue November 6 - 10 in Rio de Janeiro. Hydrocarbons Chamber Hopeful -------------- ¶5. (SBU) The President of the Bolivian Hydrocarbons Chamber told the press that the chamber was hopeful that the new contracts would provide the legal security needed for sector development. He added that the sector's biggest worry was the lack of investment due to uncertainty, but that the reactivation of the sector was certain with these new contracts. Political Victory for GOB -------------- ¶6. (SBU) The GOB has touted the signing of new contracts as a victory for the state and the Bolivian people, saying Bolivia now owns hydrocarbons production and commercialization rights, YPFB will participate (eventually) in all aspects of the productive chain, and the state will recoup more hydrocarbons revenue. The government has already announced plans for the windfall in the press, such as universal healthcare (septel). A social sector leader from El Alto declared that the agenda of October 2003 -- an agenda which ousted two presidents from power -- has been fulfilled. The leader added that the people are satisfied, because Bolivians can now decide how to use their own resources. ¶7. (SBU) Comment: The signing of new contracts one year after the original deadline imposed by the May 2005 law, albeit with several details remaining to be resolved, is a true accomplishment for the GOB, which has averted international arbitration and guaranteed billions in revenue for the state. It will no doubt boost President Morales' approval ratings, which were down to 51 percent prior to the signing of contracts. Morales, who struggles as an administrator, has proven himself to be an able political tactician, and the glowing press he received over the weekend -- including praise from opposition politicians -- has improved his battered image. The investment commitments agreed upon are also of vital importance for Bolivia, as they may enable it to meet its recently contracted, ambitious supply commitments to Argentina. End comment. GOLDBERG