Study proposes “urgent” reforms in Bolivia’s hydrocarbons area

The study is by former Minister of Hydrocarbons, Mauricio Medinaceli, who recalled that the Bolivia-Brazil gas pipeline was one of the "largest in the world" and that "half of Bolivia's economic growth" in recent years was due precisely to the sale of gas to Brazil.

RIO DE JANEIRO, BRAZIL – A study presented this Wednesday proposes “urgent” reforms at different levels of the hydrocarbons area in Bolivia, which in recent times has experienced a decline in natural gas reserves and little success in export tasks.

The “Brief analysis and perspective of the Bolivian natural gas industry: 1980-2021”, by an expert, who was the country’s Minister of Hydrocarbons, presents an overview of gas export negotiations, the boom period between 2006-2015, and recommendations for this sector.

Read also: Check out our coverage on Bolivia

During a telematic presentation, Medinaceli mentioned that Bolivia has an “institutional problem” and that a “legal reengineering” or the “change of the rules of the game” is necessary to revert Bolivia’s weakness as a supplier of energy.

The study proposes that YPFB should be efficient and corporate, without this meaning privatization, but rather that the state-owned company should be able to “turn to the international financial markets” instead of the Central Bank of Bolivia (BCB), former Minister Maurício Meinaceli said (Photo internet reproduction)

25 YEARS OF WORK

The study highlights the period from 1974 to 1999. Five Bolivian presidents and the state-owned Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) were the “guiding thread of negotiations” that consolidated the Bolivia-Brazil gas pipeline.

Medinaceli explained that in the 1980s, Bolivian natural gas “was discarded” and even “burned” at a time when only liquids were extracted, and there was no infrastructure or market for its sale.

The former minister recalled that the gas pipeline was one of the “largest in the world”, some 3,000 kilometers long. This meant that “half of Bolivia’s economic growth” in recent years was due precisely to the sale of gas to Brazil.

Those negotiations during the administrations of Hugo Bánzer, Hernán Siles, Víctor Paz, Jaime Paz Zamora, and the first government of Gonzalo Sánchez de Lozada were a “great job” despite political differences, Medinaceli mentioned.

FROM BOOM TO BUST

Medinaceli pointed out that Bolivia sold around 6 trillion cubic feet (TCF) in these years, something that made Bolivia go from being a “low income” country to a “middle income” one thanks to “extraordinarily high” prices that from costing one dollar a BTU surpassed nine at the best moment.

That boom was until 2015, the year in which “production (of gas) begins to decline” along with the drop in international prices and with it the decline in royalties assigned by a 2005 “Hydrocarbons Law” that established a new tax regime for foreign companies in favor of the Bolivian State.

“The country’s royalties are falling, from receiving almost 4,500 million (dollars) to receiving more or less 1,000”, Medinaceli pointed out.

In the former minister’s opinion, the tax system derived from the aforementioned regulation “does not work now”.

To this must be added that in previous years the operators dedicated themselves to “exploitation” while the recovery capacity of the deposits “has not been as expected” due to a regulation which is “a harvesting law and not a sowing law”, he said.

URGENT MEASURES

Medinaceli referred that the study shows “decline curves” and that they are still maintained if the new projects announced by the Government are incorporated. For that reason, “the reforms that have to be made at the moment are urgent”.

“Even with the new projects, in 2033, we will no longer be able to send volumes to Argentina, and in 2040 we will no longer be able to send to Brazil,” warned Medinaceli.

The study proposes that YPFB should be efficient and corporate without this meaning privatization, but rather that the state-owned company should be able to “turn to the international financial markets” instead of the Central Bank of Bolivia (BCB) said.

On the other hand, there is the “creation of a more flexible tax system” with variable tax percentages and the opening of areas of adjudication for foreign companies in which there is a bidding system.

There is also the modification of the Hydrocarbons Law to encourage exploration and make it “a sowing law” as opposed to the current law, together with the “adjustment of prices in the domestic market”.

On this last point, Medinaceli considered that “it is necessary to remove the fuel subsidy progressively,” something that “must be discussed” with sectors such as housewives, transport unions so that it is a “consensual” measure.

In his explanation of the study, Medinaceli also mentioned the “weakness” of Bolivia’s negotiating position with Brazil and Argentina, the main markets for Bolivian natural gas, due to the discovery in those countries of new deposits and new suppliers of the energy.

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