Power games

By Published On: November 2, 2006Categories: Gas & Oil2 Comments on Power games

Power is in the eye of the beholder, to paraphrase a famous saying. After all, power is a difficult thing to quantify or measure and depends on how we react to it.  In our globalised world, power is even harder to analyse as it exists at lots of different levels and is enmeshed not just in people and institutions but also international laws and conventions.

Which is where our two fighters enter the ring:

On one side we have the Bolivian Government led by the smartly-dressed, pursed-lipped Carlos Villegas, an academic with THE book on the gas industry who had to replace the former Hydrocarbons Minister in the 7th Round and who largely has the support of the people to reclaim Bolivia’s natural resources.

On the other we have the multi-headed beast of the energy multinationals including Repsol, BP, British Gas, Total and the biggest bruiser Brazilian Petrobras, powerful companies with big money and international political backing.

Who do you think will win?

The first round bell was rung on May 1st, when President Morales theatrically announced "nationalisation" of Bolivia’s hydrocarbons by posting the army outside key gas and oil installations. The energy companies and financial press turned purple with outrage, whilst a Bolivian population calmly and happily accepted the news as the government merely delivering on a manifesto commitment. The Government said it could deliver the knock-out below within six months.

The multinationals are traditionally seen nowadays to have all the advantages in power. They frequently have bigger incomes than Governments like Bolivia, PR teams, staff, financial and legal experts that outnumber Bolivian ministries, the overwhelming support of the financial world, the media and Northern Governments, and the ability to threaten withdrawals of investments and to relocate playing countries off each other by chosing the country with the least restrictions and the most possible profit.

We certainly saw the companies pulling all the punches. They got the message out into the media that the proposals were "economic suicide", they initiated legal actions against the Government under Bilateral Investment Treaties, they started plastering the TV and press with propaganda which suggested that they were really more like NGOs here just to help people, and they leaked stories about falling reserves suggesting the end to all investment.

Surprisingly Brazilian State energy firm Petrobras was the worst – frequently threatening legal action, sending Mines Minister Rondeau to Bolivia to threaten the Bolivian Government and probably being behind the resignation of former Minister of Hydrocarbons Soliz Rama. Their US shareholders may have had something to do with that.

Yet there were other signs that the Bolivian Government had planned out some effective moves. The companies couldn’t deny they had popular support (with any opposition rather saying that the Government hadn’t gone far enough and should confiscate the reserves without compensation).  The Government also knew that energy prices at the highest ever meant it was increasingly hard for multinationals to justify their soaring profits. Around the world, States have been successfully changing contracts back in their favour, such as Venezuela who set a useful precedent renegotiating contracts a year earlier.

Moreover, in areas like hydrocarbons, it is much more difficult for multinational companies to cut and run (as opposed to areas like textiles and electronics) because frequently they have had to invest considerable capital for example in the construction of pipelines. Brazil, even if it wanted to, couldn’t just switch off its Bolivian gas supply without causing one of its main cities, Sao Paolo to shut down.  Meanwhile other companies like Venezuela PDVSA as well as apparently Malaysian companies said they were willing to step in and fill in any empty spaces.

Manuel Morales, assessor to the State Hydrocarbons Company YPFB recounted an illuminating story to me back in June when the Government met with one of the multinational companies (unfortunately nameless) to explain the new law. The company reps were in belligerent mood and threatened legal action at which point the Government reps said there was clearly therefore no point negotiating and walked out. But as they reached the door, the multinational company reps called them back and said: "Ok we will talk."

Another friend in the Government told me that he got a call from British Gas representatives asking for advice and contacts to help them find out what the Government really would be willing to settle for and clearly upset about threatened changes. That doesn’t sound to me like a fighter who knows he is about to win.

So last week, tension mounted as the deadline of the final round approached for finalising the contracts. The Government threatened that it would happily take over companies that failed to sign, yet a few hours before the deadline there were rumours that only two companies were on the verge of accepting the new contracts. But rather than a knock-out punch, the news on Sunday was unexpectedly that both the Government and the Companies had won.

The new contracts were greeted almost universal congratulation – with even the normally-hostile right-wing papers praising the agreement. The Government trumpeted that the State would now receive about $1billion a year as opposed to the $250 million it used to receive in revenues. The energy companies said negotiations had been "tough" but they were satisfied with the outcome and even promised to make further investments of more than $2 billion in the coming years. British Gas said their role had changed to being service-provider but otherwise was "more or less the same."

Clearly the fight doesn’t end with an agreement, with both sides having clear interests to show that they had got a good deal – one to satisfy voters and another shareholders. We will have to see the details of the contracts before making an effective judgement about where Bolivia and the companies scored their respective points.

But what comes through most strongly from what we know already – which is that between 50% to 82% of revenues will now go to the State – is the shocking nature of the former deal Bolivia had with the energy companies. The fact that the companies are able to live with paying that revenue makes the 18% they paid under the Government of President Gonzalo Sanchez de Lozada seem an unbelievable hand-over of Bolivia’s future economic development.

And we need to remember that this was a policy actively encouraged by instititutions like the IMF and Western Governments. It is hardly a surprise that Bolivia’s social movements use language like saqueo or looting when they talk about the economic policies that Bolivian Governments have applied with the support of the international community in the last 20 years.

Yet as the applause dies down on the fight, I am left with some questions. The concentration of the two fighters has distracted from who should be the real winner in this fight and that of course is the Bolivian people.

And what is noticeable from watching the twists and turns of the power games is the fact that it hasn’t involved Bolivian civil society in a qualitatively different way. They have remained bystanders at the side of the ring, as much as they were when the companies were capitalised. They have, like me, been forced from the sparring of words to guess what is really going on, and today are still waiting for the full details of the contracts to come out. 

Experience worldwide shows that transparency and popular participation in energy resources is crucial for ensuring long-term sustainable development. Given Bolivia’s combatitive social movements, the MAS Government will have to prioritise these issues if the fight is not going to leave the ring and head back onto the streets.



  1. Ronald November 5, 2006 at 1:38 pm - Reply

    Yeap, you’re rigth, I think this is the time to change many things, but we need international coverage for the construction of the new country. We are alone now

  2. Helen November 10, 2006 at 4:57 am - Reply

    This is really interesting. How will the contracts become public and who will be able to scrutinise them? Are there any mechanisms for transparency of the use of the new revenues so that civil society is involved in seeing how they are spent? In the work on the Unearth Justice campaign, these are really crucial questions that come up – it’s really rare to civil society involved in a meaningful way. It will be interesting to see how things develop in Bolivia.

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