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