PrintPopular protests in Bolivia demanding greater benefits to the population from the country’s vast natural gas reserves contributed to the resignation of two presidents, the election of President Evo Morales, and the nationalization of the country’s oil and gas industry. Rather than expropriation, the nationalization consisted of higher taxes on petroleum companies and renegotiated contracts. As such, the private companies chose to stay in the country and continue operations. As a result of the new policy and high gas prices, the Bolivian government’s income from the country’s oil and gas industry has increased dramatically, nine fold in fact between 2002 and 2007.
The new funds present an opportunity to Bolivia, the poorest country in South America, to use this income for social and economic development to benefit the population. But the revenues also present numerous challenges: developing a shared vision for the use of the revenues, determining an equitable distribution of resources, engaging the population and civil society in decision-making, investing resources wisely, and ensuring transparency and accountability – challenges which other resource rich countries have faced and failed.
This memo is the first of a three part series discussing Bolivian oil and gas policy and the challenges facing the nation with regards to distribution, investment and transparency. The series is part of an ongoing project of the Andean Information Network and Erika Weinthal from the Nicholas School of the Environment and Earth Sciences at Duke University examining Bolivia’s efforts to confront the “resource curse.” (1)
Part I: Background on Bolivian Oil and Gas Policy, Current Conflicts, and Challenges
Bolivia has a long history of an economy largely driven by exports of primary materials, from silver to tin to oil and gas. Though it has previously experienced various resource boons, the resulting revenues did not help alleviate poverty.
Bolivia has the second largest reserves of natural gas in South America after Venezuela and exports most of its natural gas to Brazil and Argentina. A little less than 80 percent of the dollar value of Bolivia’s production from the oil and gas industry comes from natural gas, 20 percent from petroleum, and 1 percent from butane and propane. Natural gas exportation requires long term contracts with purchasers and significant investment in pipeline infrastructure.
Privatization spurs protests and re-nationalization
State involvement in the petroleum industry has fluctuated drastically, including two previous nationalizations of the industry, in 1937 and again in 1969. In 1996, President Gonzalo Sanchez de Lozada privatized the oil and gas industry in accordance with dominant neoliberal policies. The privatization law set the Bolivian government’s share of revenues at 50 percent for existing wells and 18 percent for new wells. Since new wells represented 94 percent of production, (2) this meant that the Bolivian government’s share was much closer to 18 than 50 percent. (3)
This new structure brought a large amount of foreign investment in exploration, which identified vast additional natural gas reserves.
The discovery of new reserves led to an idea for a project to sell liquid natural gas (LNG) through a port in Chile, which could then be exported to international markets beyond Bolivia’s immediate neighbors.
This proposal to sell gas through Bolivia’s traditional enemy, which had taken Bolivia’s only coastline though war in the late 1800s, angered the population and resentment over a lack of transparency in oil and gas policy grew. The perception that government policy benefited transnational companies over the Bolivian populace, as well as a myriad o
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