BOLIVIAN GAS: THE STATE COMPANY IN CHAOS

C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 000614 SIPDIS SIPDIS E.O. 12958: DECL: 03/18/2018 TAGS: ECON PGOV PREL ENRG EPET EINV BL SUBJECT: BOLIVIAN GAS: THE STATE COMPANY IN CHAOS REF: LA PAZ 313 Classified By: Acting EcoPol Chief Joe Relk for reasons 1.4 (b) and (d) . -------------- Summary -------------- ¶1. (C) While the Bolivian government publicly presses the gas companies to increase investments, ironically the biggest obstacle may be the government itself in the form of the national hydrocarbon company YPFB. The company is involved in all aspects of the Bolivian gas industry, yet it enjoys little institutional capacity and is in a state of constant reorganization. The latest move is to name ex-Senate President and MAS ideologue Santos Ramirez as YPFB president. The move will increase the political attention given to YPFB and may signal significant institutional changes to come. Ramirez's plans to reorganize are as yet unclear, but given the company's opaque financial situation and its inability to manage the hydrocarbon sector, his call to increase YPFB's "social role" is troubling and his initial moves to create additional state agencies and deal separately with each of the operating gas companies are not very promising. End Summary. -------------- The Promises of the New YPFB President -------------- ¶2. (U) Senator Santos Ramirez was appointed YPFB President on March 12 in a break with a Morales promise not to appoint elected officials to executive positions. This is the fifth change of YPFB presidents in two years. Ramirez was the MAS legislator most involved in the elaboration of the current hydrocarbon law. He is a lawyer, ruling Movement Toward Socialism (MAS) party ideologue, and has no technical training in the hydrocarbon sector. In fact, he has said that "if there is no political vision (at the state company),the technocrats will end up destroying it." It appears that he intends to give YPFB an even broader social mandate. That said, Ramirez also brings the political clout necessary to both break through bureaucratic logjams that have held back further investments and to effectively push for necessary changes at the company. Ramirez is scheduled to meet with the heads of all of the gas companies operating in Bolivia this week and promises up to a dozen new decrees in the weeks ahead to "deepen the process of nationalization" and "relaunch" YPFB as a holding company. ¶3. (C) Ramirez appears ready to advance ON an exception for YPFB from the salary cap ON all government workers. No one in government may earn more than the president and at the beginning of his term Morales cut his own salary in half, to less than US$2,000 a month. As the general manager of British Gas Jose Magela told EconOff, "in the hydrocarbon industry even my secretary earns close to that amount." As a result, YPFB has been unable to attract quality people. Moreover, YPFB Export Manager Rolando Vidaurre reports that YPFB has lost most of its technical people. If Ramirez can deliver a decree freeing YPFB from this limitation, it will be a positive step for the company. -------------- -- New Companies, Old Promises, and Local Pressure -------------- -- ¶4. (SBU) Ramirez plans to create a new state entity called The Bolivian Company for the Industrialization of Hydrocarbons (EBIH). At first, YPFB will help structure the company, but eventually Ramirez envisions that the EBIH will LA PAZ 00000614 002 OF 003 operate separately and will spearhead the Bolivian effort to build a gas separation facility. This project was announced with much fanfare last August in the meeting between the presidents of Bolivia, Argentina, and Venezuela. To date, no concrete actions have been taken to actually build or finance the plant. (Note: A Petrobras affiliate had planned ON building a petrochemical hub in Bolivia, but gave up ON its investment plans in favor of Peru. However, it lost the bid in Peru and has not announced if it intends to find an additional location. End note). ¶5. (SBU) Pressure for gas projects is being applied ON the government from all sides. ON March 17, the community of Camiri in Southern Santa Cruz, blocked roads for 24 hours to protest the lack of activity in the sector. They protested that nothing has been done to build a separation facility and that two local gas fields are not being developed by the gas company Andina, majority owned by Repsol, which controls the rights to the fields. -------------- Will Another New Management Department Help? -------------- ¶6. (C) Ramirez also announced that he would create a new planning department (GNP) within YPFB. This new department will monitor the operating contracts and help realize investment plans across the sector. If he succeeds in creating a department that can effectively work with the hydrocarbon companies, it would be a great help. Many of the companies have said that they would like to make additional investment plans, but they have lacked a partner in YPFB to formalize their operations. Jana Drakic, Vicepresident of Chaco (majority owned by Pan American Energy),said the company hopes to invest some $120 million this year, but getting answers about the myriad of permit requirements and even receipts from YPFB takes forever. Field development is a constant negotiation. Marginal costs rise as more wells are added to a given field and more gas is pumped. Before field development begins, agreements need to be made between the government and the field operators as to how thoroughly to develop a field. These decisions require open negotiations, but YPFB is unresponsive. According to Raul Kieffner, General Manager of the Bolivian Hydrocarbon Chamber (CBH),the creation of a GNP could be a positive step if it creates a team of technicians available to work with individual companies, but even that optimistic forecast would take time. Currently, there simply aren't the qualified technicians at YPFB to make it work. ¶7. (C) Both Chaco's Jana Drakic and Jose Magela of British Gas thought that the entire sector should sit down together with government officials and a neutral arbiter in order to hash out what needs to be done to increase production. While Ramirez's meetings with company executives this week may be a step in the right direction, it is a bad sign that he is meeting with each set of executives separately. It has been a consistent Morales Administration strategy to insist that all negotiations take place individually with companies; that doesn't seem to have changed with Ramirez. -------------- $170 Million Gone Missing -------------- ¶8. (C) At the START of 2008, it had become apparent to the CBH that a number of companies were not being fully compensated for their gas deliveries. Each company reported their individual shortfalls to the CBH and the total came out to be around $170 million. When the figure was shared with then YPFB President Aruquipa (now Vice-President),he was genuinely shocked according to industry figures present and said that he thought the total was only around $2 million. LA PAZ 00000614 003 OF 003 The incident is illustrative for two reasons. First, as a follow up, Aruquipa reacted by sending a letter to CBH denouncing its attempts to act as a voice for the industry; YPFB would only negotiate individually with each company. Second, it shows the complete lack of financial accounting at the company. No one (even the YPFB manager we talked to) thinks that YPFB knows how much money it takes in and pays out. Jose Magela noted that each of the companies operating in Bolivia had 10-15 people working ON finances; he thought that YPFB had maybe 50 total, of which only a small number were actually qualified for the job. ¶9. (C) The frustration for the companies is amplified by the refusal of YPFB to accept any help. Many companies have offered to help train YPFB personnel. Indeed, Petrobras put an offer in their investment agreements this year to send YPFB employees to their training universities in Rio de Janeiro and Buenos Aires, but no one from YPFB accepted the offer. YPFB has also given the cold shoulder to offers of help from European governments (Reftel). ¶10. (C) Lack of financial openness at the company is also drawing the ire of the department (state) governments who depend ON YPFB for the delivery of gas royalties and tax revenues (IDH). The secretaries of hydrocarbons from the departments of Tarija, Santa Cruz, Chuquisaca, and Cochabamba have all agreed to push for a law requiring YPFB to disclose the total amounts of revenue (and thus payments due to the departments) that it receives. Moreover, they are initiating a lawsuit for royalties and taxes owed to the department governments. -------------- Comment -------------- ¶11. (C) Very few competent managers and technicians remain at YPFB. From the perspective of the private sector it is a black hole into which their attempts to advance toward new production goals disappear. While a probable change in the law to raise salaries at YPFB is a good step, the appointment of a clearly political new president is a negative sign. YPFB's mandate is likely to expand further to support the political goals of the MAS. There is considerable pressure on the government to expand production, but it is unclear if they understand the steps that are necessary to advance towards this goal. Pushing YPFB into the social sector work is certainly not one of them. In the meantime, the private sector will again seek clear rules, a competent and responsive partner in YPFB, and legal protection for their investments. In any event, significantly higher levels of production are at least two years away. GOLDBERG