opinion

It was an almost theatrical strategic move. On May 1, his 100th day in office, Bolivian president Evo Morales decreed the nationalization of the country’s natural gas industry. Morales, elected in December by mainly appealing to Bolivia’s poor and his fellow indigenous, repeatedly had pledged to assert national sovereignty over the gas resource, although this promise was dismissed by many as merely political shenanigans. At other times in his career, Morales had proven to be more pragmatic than ideological and more manipulative than righteous, and as such there had been much speculation about what shape the eventual nationalization would take. By assertively ordering army units to occupy gas facilities, however, Morales not only demonstrated a firm vision for the country’s future, but also underscored the symbolic importance of the act.

Making such a public display was crucial for Morales, whose term in office has been --- as predicted --- less than smooth, with work stoppages and sectoral protests already breaking out. But the May 1 decree was not a hollow charade for simple political gain, and the design of Morales’s nationalization reveals a great deal about his personal bona fides, as well as his likely political future, and perhaps will help place him in a position of particular prominence within the regional “pink tide” populist movement.

Forging a leader

As Morales came into office, it was uncertain how fluidly he would navigate the path between Washington and other international financial powerbrokers, some of whom, like the white and mestizo dominated middle class, had sought to gently guide his policies towards a position of Lula-esque moderation. Meanwhile, Morales’ chief confederates sought to push him towards a more Chávez-type populist model. While Morales has resisted some of the demands of his more radical backers, the nationalization is a clear move towards the desires of his support base. Despite the elements of pageantry, the decree was a fundamental statement of political ideology, and a clear step in Morales’s ongoing move towards the left of Latin America’s political spectrum and greater alignment with Venezuelan president Hugo Chávez and Fidel Castro.

Fulfilling a promise

Morales swept into office on what amounted to two explicit pledges: the legalization of coca leaf production and the nationalization of the country’s gas industry. While a third, less programmatic plank --- his indigenous identity which represented a rejection of traditional politics and politicians --- was crucial to his success, it was the gas issue that provided him the largest groundswell of nationwide support for a policy position he had adopted as his flagship issue. Nationalization seemed to offer the possibility of redistributing the wealth generated by Bolivia’s natural resources to an impoverished population, particularly when his deeply needy people were taking to the streets in order to pressure the government for wage increases. As South America’s poorest nation, the general population had an easy case to make.

In fact, Morales’s campaign promises had been deliberately vague, and it appeared as though the candidate’s potent rhetoric belied what was likely to be a moderate stance subject to negotiation. Some observers were concerned that Morales had raised expectations among his central constituencies with talk of nationalization and that anything short of outright expropriation would have most likely been seen as a betrayal --- which would have had ominous repercussions for his presidency.

The nationalization decree was delivered from the San Alberto gas field near Tarija with all the ceremony of a national holiday, and indeed that was the intended effect. Street celebrations erupted as many Bolivians celebrated the rare instance when a president actually followed through on a campaign promise. Adding to the show, military units, accompanied by teams of government engineers, occupied a total of 56 gas facilities in the country.

The nationalization decree was sweeping, and held true to Morales’s long-running assertion that the gas belonged to the Bolivian people, not the companies that extracted it. The details made public included an announced hike in royalties on production from the two major gas fields from 50 percent to 82 percent, with other fields being increased to 60 percent. According to Vice President Alvaro Garcia Linera, this will up the government’s take from $460 million in 2005 to $780 million by 2007.

As part of the nationalization, the Bolivian government will also assume complete control over the country’s natural gas production, including commercialization and distribution of gas by means of the state company YPFB (Yacimientos Petroliferos Fiscales Bolivianos). As with the Venezuelan oil industry, YPFB will take a management role and majority (51 percent) stake in all gas-related operations including pipelines. This strategy seemed to be something that Morales has long been planning: in January, when Jorge Alvarado was appointed to head YPFB, hydrocarbons minister Andrés Soliz Rada commented that the move would help YPFB “raise itself from the ashes to found a company similar to [Brazil's state oil company] Petrobras or [Venezuela's state oil company] PDVSA,” according to a BNAmericas report. In this effort, Bolivia will undoubtedly receive the assistance of highly trained PDVSA engineers and production managers provided by Chávez.

Gas companies and international markets

The gas companies currently operating in Bolivia, among them Spain’s Repsol-YPF, British Gas (BG), British Petroleum (BP), France’s Total, and Petrobras, now face a six month semester to renegotiate their contracts under the terms of the decree, or, however unlikely, be summarily expelled. Repsol is clearly the company most affected by the nationalization, as it had previously claimed 18 percent of its total reserves and 9 percent of its production in Bolivia. While US-based Exxon-Mobile is active in Bolivia, its holdings are relatively small. Even Petrobras, which is the most active player in the Bolivian gas industry (responsible for around 45 percent of the country’s gas production), claims only 2.8 percent of its reserves and 2.4 percent of its production in Bolivia. Petrobras does, however, have around $1.5 billion invested in Bolivia, as well as two major refineries. Most analysts feel that despite the initial shockwaves over the nationalization, the gas corporations will continue to operate in Bolivia, and at the very least Petrobras will continue to have a strong presence among them.

Tensions with Repsol, however, are likely to remain high. The company has been consistently wary of Morales, downgrading its projections for the country shortly after he took office, and putting a halt on further investment. The decision by Bolivian officials to prosecute two Repsol officials for allegedly smuggling gas out of the country only has further frayed nerves. Madrid’s response, which has been rather blustery and has included a vague but likely empty threat by Prime Minister Zapatero to reduce aid to Bolivia, is highly influenced by that relationship. Petrobras has also expressed a degree of displeasure with the nationalization, backing up its verbal parries by putting a hold on further investment in Bolivia, and canceling plans to expand an existing pipeline between Brazil and the Bolivian gas fields.

While Morales had made non-committal references to changes in the country’s gas management regime in recent weeks, clearly the industry was caught off guard by Monday’s decision. Repsol officials have complained that they expected to be consulted prior to any change in the industry’s management. If a critique is to be made about the nationalization process, it is that in its execution Morales did not display a deft touch for the international markets. This is somewhat unlike Chávez, who despite driving a hard line on terms of investment, has maintained a consistent position regarding the levels involved and thus he is viewed as being predictable. Yet simultaneously, the nationalization decree was not altogether unexpected and future assertions of Bolivian sovereignty should not provoke the sort of gusty international reaction now being witnessed.

A rough ride

Ultimately, what was particularly striking was not the nationalization itself, so much as the manner in which it was carried out. The elements of showmanship --- “property of Bolivia” banners draped over industrial complexes and army troops taking over refineries --- were carefully calculated. What Morales has done cannot be classified as an expropriation (as the companies’ assets, such as refineries, are not being seized), since it is control over the gas resource itself that concerns the government. Nevertheless, the military’s presence was symbolic, and lent a desired degree of drama which led the nationalization process to resemble an expropriation, at least in terms of public perception, even though it was definitely not that. Morales, a leader in the popular movements that toppled several past presidents, is acutely aware of how easily his own base could rise up against him should he falter in his mandate for profound change. This knowledge undoubtedly weighed on the new president’s nationalization strategy, and his decision to issue the decree suddenly and sharply on Monday suggests that he properly registered the building pressure.

Only five months into his presidency, Evo already has faced numerous problems. While he successfully negotiated with opposition parties to hold a constituent assembly (members of which are soon to be elected), several strikes and protests have marred his brief tenure. These have included sit-ins by airline workers and a poorly supported strike by healthcare workers, both of which Morales was able to handily brush off. The country’s main workers union, the COB --- although no longer as powerful or cohesive as in the past --- has continually pushed Morales for accelerated reform. Additional pressure came when demonstrators in Puerto Suarez seeking to overturn the government’s decision to block construction of a steel plant there, took three government ministers hostage, forcing Morales to send in an army detachment to free them. Such flare-ups were indicative of the situation which has reigned since the inauguration, as the various demands of an increasingly restive base (which has made no secret of its willingness to turn on Morales) were emphatically registered.

Implications of nationalization

The crucial, and if anything, burgeoning, entente cordial between La Paz and Caracas was underscored by Morales’s recent decision to join Cuba in signing on to Chávez’s ALBA (Alternativa Bolivariana) agreement, which is presented as an alternative to the US-backed FTAA (Free Trade Area of the Americas). With the nationalization, and the parallel growth of YPFB, Morales has also taken clear steps towards joining the regional movement in favor of energy integration. Chávez has stated that Bolivia must be included in the proposed Gasoducto del Sur, which will link much of eastern South America via a massive gas pipeline stretching from Venezuela to Argentina. The project already has the support of Brazilian president Luis Inacio Lula da Silva and Argentine president Nestor Kirchner. Bolivia’s nationalization will dramatically increase its interest in the project, for it now has its own gas to hurry to market. Yet at the same time, it could turn down Brazil’s desire to cooperate, since doing so would appear to be awarding La Paz for bushwhacking Brasilia’s investments in Bolivian gas. Moreover, Morales will now be able to more directly take the initiative in promoting additional energy projects, including the possible Uruguay-Paraguay-Bolivia pipeline which would be largely Venezuela-funded.

Yet there are potentially lurking problems that could plague the aftermath of the nationalization announcement. YPFB will need to prove that it is capable of serving as an effective administrator, and although it vastly lacks the technical expertise and financial wherewithal of PDVSA (which has succeeded in its model of being able to maintain an effective partnership with foreign companies) Chávez will be readily able to provide Morales with all of the technical and administrative support necessary in order to ensure the venture does not fail.

More pointedly, there are profound questions over how regional leaders, other than Chávez --- principally Lula --- will react to the decree. Given Petrobras’s large stake in Bolivia, and Brazil’s near total reliance on Bolivian gas, the prickly defensive stance taken by Lula’s government in the immediate wake of the nationalization of Petrobras’s holdings was understandable. A summit among Morales, Lula and Kirchner --- whose country is also a major importer of Bolivia’s gas --- was scheduled for May 4. While Morales has suggested that Petrobras will likely to be able to negotiate on favored terms, he has also declared the end to preferential gas deals with Argentina and Brazil, asserting that both countries will now need to pay the market rate.

The reunion comes at a crucial moment for Lula, who now must choose between affirming his pink tide credentials by supporting the nationalization, or retreat to a hangdog position of economic orthodoxy, where to the distress of many of his ruling PT party militants, he now can be found. It seems likely that Lula, up for reelection in October, and needing to reassure his own leftist base of his authenticity, will land softly on Morales, and that the current scrap will likely pass. Even the discomfort among Petrobras’s technical leadership, which produced the decision to halt investment in Bolivia, could be overturned by Lula’s intervention. This likely executive level stand-down notwithstanding, if the nationalization results in a marked increase in energy costs for Brazil, Lula may perhaps find himself in a difficult situation come election time. Surely, it is in the best interests of both men to contain the flap and not make it appear that there was a moderate and radical choice that could have been made.

For Washington, the gas nationalization, and Morales’ promise to return more industries to state control in the future, potentially ends the relatively well-mannered honeymoon period witnessed in recent weeks. While reasonably diplomatic stances had been taken by both sides on the issue of legalizing some coca-leaf production, it has always been a tense relationship, punctuated by outbursts and minor provocations. Economic repercussions for the US from the nationalization decree are minimal, because US energy corporations have only small investments at play in the country, and Bolivian gas currently does not reach the US market. Nevertheless, it is not breaking any secrets to indicate that the nationalization --- and the dramatic way in which it was launched --- are likely to alarm the State Department, which undoubtedly has looked with suspect eyes at the growing ties between Caracas, La Paz, and Havana.

Marking the way

The nationalization is undeniably a milestone for the newly fledged Morales presidency. It represents not only the dramatic fulfillment of a campaign pledge to his core constituents, but also promises to potentially change the face of Bolivia by providing funding for much needed social investment. Furthermore, it marks Morales’s ascension from the ranks of the chorus to being one of the principals, and now helps make him a fully credentialed member in the regional “pink tide” left-leaning movement.

The aftermath of Bolivia’s gas golpe

Morales goes to the summit

Four days after President Evo Morales exploded with a resounding decree which nationalized Bolivia’s natural gas resource and rattled the global economy, multinational energy corporations, and regional leaders alike, the uproar over the decision has begun to subside. A hastily arranged summit in the Argentine border city of Puerto Iguazu near Brazil managed to smooth the irritations which had emerged, particularly in Brazil and Argentina, who are major importers of Bolivian gas. Yet the declarations from that meeting, principally an affirmation of Bolivia’s sovereign rights, suggest that the turbulence which likely lies ahead can be tamed and diverted to constructive channels. It also should be noted that the price of natural gas sold in the US market is much higher than was the case with the commodity in Brazil, and that foreign producers of Bolivian hydrocarbons paid lower taxes and royalties than the prevailing world price, with the cost of this sweetheart arrangement being that several Bolivian presidents were overthrown by the population.

A region divided

On one key count, the mixed reaction to Morales's decree revealed the many gradations of the “pink tide,” a collection of leaders with ideologies ranging from New Deal-type pragmatism to exuberant socialism. While the newly formed ALBA alliance between Cuba, Venezuela and Bolivia is symbolically powerful, it is not likely to expand to include other regional nations. Indeed, while the summit saw a public reconciliation over the nationalization, largely at the insistence of Lula, it also indicated a clear differentiation between the more socialist leaders of Venezuela and Bolivia, and the more orthodox Argentine and Brazilian heads.

The implications of this split in the pink tide are significant: to date, the left-leaning leaders in Latin America have largely been successful in maintaining the regional unity necessary to counter Washington’s influence. They have been able to do this because they haven’t had to make irrevocable decisions up to now; even the momentous trade issue is fungible. But tensions within MERCOSUR and the Andean Community, combined with the strains created by the nationalization, may threaten that solidarity if the region’s leaders do not commit to again strengthening ties between their countries. One thing is all but certain: there is no prospect that either Argentina or Brazil will sign on to the non-specific ALBA trade treaty between Cuba and Venezuela, which was expanded to include Bolivia on April 29 in Havana. This reluctance is because both the crepuscular language and the misty goals are too abstract for either Kirchner or Lula --- let alone Tabaré Vazquez of Uruguay --- to relate to.

La Paz has found itself at the economic and political nexus of the pink tide, linked by ideology to Caracas, but economically bound to Brasilia and Buenos Aires. One thing that Morales knew, however, was that he couldn’t repudiate his campaign pledges to the electorate or deprive Bolivia of the revenue that is so urgently needed.

Bolivia on the line

Critics of the nationalization, or at least its implementation, have noted that Morales perhaps unnecessarily antagonized foreign investors, including the Brazilian state oil company Petrobras, which is the largest player in Bolivian gas. Certainly, sending in the troops was a needlessly provocative and almost infantile action in the eyes of the international market, and perhaps may have been an overreaction to the desires of his clamorous base which will likely raise expectations for unrealistic immediate gratification. Even with financial and technical assistance from Chávez and Petroleos de Venezuela (PDVSA), Bolivia’s state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB) is far from capable of assuming total responsibility for running the gas industry in the event of a large scale withdrawal by energy companies, without some negative impact because of its admittedly inadequate capacity. The repercussions of such an outcome are serious, as the Bolivian poor could receive as few benefits from an inoperable gas industry as an arrogantly controlled foreign multinational. Additionally, while energy integration projects offer real prospects for the future, the fact remains that Bolivian gas has a market mainly limited to Brazil and Argentina, and thus YPFB holds few good cards in its hand.

Right now, Morales must now negotiate carefully with the key players, chiefly Spain’s Repsol YPF and Petrobras. Aside from Spain’s Prime Minister Zapatero’s rather crude denouncement of Morales's rhetoric, there is evidence to suggest that, as political tempers cool, business leaders are also becoming reconciled to the nationalization and are beginning to integrate it into their thinking. On May 5, Repsol even expressed its willingness to cooperate with the Bolivian government, reversing its previously belligerent attitude. Petrobras’ initial reaction to cancel new investment in Bolivia simply was the result of a hasty call to arms, and will ease off once the doable details are spelled out. After all, didn’t Lula say that the halt of new investment could be overturned? This, however, is where some danger lurks. The companies are willing to work with Morales, but need to see a return on their investment, and the process of revising contracts must take the profit-motive into account.

Geopolitically, Morales must also be attuned to the needs and concerns of other regional leaders. Lula and Kirchner’s opinions, whose countries previously received preferential pricing on Bolivian gas, cannot be easily discounted. Both leaders are concerned with ensuring their country’s energy supplies, and for Lula, finding a path between keeping industrialists dependent on gas imports happy and maintaining the ghost of his leftist credentials will be crucial for his reelection. La Paz will need to display a deft touch in convincing Brasilia to propel further Petrobras investment, since it is the Brazilian company which has the greatest commercial interest in Bolivia, and thus offers the best possibility for future development as a partner with YPFB. While Lula remarked at the summit that Petrobras would continue to “invest wherever it sees a chance to obtain a return for its investments,” it is up to Morales to ensure that Lula continues to see Bolivia favorably.

Northern scrutiny

While much of the international fireworks are now fading, there is an ominous undercurrent which still threatens. Some in Washington, who comprise the ideological heart of the anti-Chávez crusade, have taken the nationalization as a sign that the Bush administration, distracted by Iraq, has thus failed to effectively contain Caracas’s spreading influence and that Washington is in real danger of losing Latin America. The nationalization’s high media profile could force the State Department to take a tough approach to the region, even to the point of mobilizing the CIA and the US military, but it is more likely to work its way by undermining the all-important chink in the armor --- the Latin American armed forces.

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