Bolivia’s Nationalization by Decree

by Gretchen Gordon

The smell of gas hangs strongly in the air as a crowd of flag-waving Bolivians celebrate outside the Petrobras Gualberto Villaroel oil and gas refinery. A state worker clad in a tan work suit and hardhat props a wooden ladder against the front wall of the refinery just beneath the blue metal letters that read PETROBRAS, and ascends the ladder as the crowd looks on.

He carries a laminated banner with the name “Yacimientos Petroliferos Fiscales Bolivianos,” or YPFB, Bolivia’s former state oil and gas company, essentially privatized in the mid-1990s through a process called “capitalization.”

“Take down the placard!” someone yells from the crowd. “Throw it in the trash!” someone else shouts, making a rhyme with the Spanish words. (¡Saque el letrero!, ¡Que lo pone en el basurero!)

As the worker struggles a bit to secure the banner over the blue letters, someone in the crowd observes, “No, they’re not going to take it down, just cover it over.”

As the banner is secured, someone calls out, “¡Que viva Bolivia! ¡Que Viva la nacionalizacion!”

“¡Que viva!” the crowd erupts in response.

It’s Monday, May 1, not coincidentally International Workers Day, and the Bolivian government has just declared the nationalization of oil and gas by presidential decree.

Though the “nationalization” and “recovery” of Bolivia’s oil and gas resources has been the main political issue in the country for the last several years, the Supreme Decree 28701 read publicly by president Evo Morales on Mayday came as a surprise to Bolivians and foreign investors alike. During the government’s first 100 days, several policy options have been floated regarding the restructuring of the oil and gas sector; however no clear comprehensive policy has been put forward until now.

Nationalization by Decree

Under the main goal of recovering “the property, possession, and total and absolute control” of oil and gas resources for the state, Decree 28701 contains five principal measures:

* Declaration of the state as the agent empowered to commercialize, set conditions, volumes and prices for internal consumption, export, and industrialization, and to take “control and direction” of all aspects of oil and gas production and distribution.

* Establishment of a 180-day time period for the re-negotiation of contracts to bring them in line with the oil and gas law 3058 passed last year.

* Recovery of 51% of the shares of five capitalized companies, carved out of the state company in 1996.

* Increase of the tax and royalty level from 50% to 82% for companies operating in Bolivia’s two largest gas fields (Petrobras, Repsol and Total).

* An audit of investments and earnings for all other oil and gas companies operating in Bolivia to determine their future tax rate and terms of operation.

While the discourse of the day is powerful—punctuated by the imagery of the securing of the country’s 56 oil and gas fields and two refineries by the Bolivian military—the real extent and impact of the government’s policy are not yet clear.

The recent oil and gas debate in Bolivia has shown that the term “nationalization” is open to definition and interpretation. Since Morales’ landslide electoral victory and “democratic revolution” last December, the government has consistently maintained that their “nationalization” does not involve expropriation, as traditionally understood by the term. The decree in fact does not confiscate private infrastructure or expel foreign companies as some in Bolivia have demanded. The plan to recover 51% shareholding of the capitalized oil and gas firms is seen by some as insufficient, due to the fact that the holdings of these companies were under 100% YPFB control prior to the privatization of the mid-1990s. Others criticize that the new restructuring is too similar to the oil and gas law passed during the Carlos Mesa administration, rejected by social movements as inadequate. Jaime Solares, the leader of Bolivia’s Labor Federation, has criticized the decree as a “partial” nationalization and renewed the demand for the state to take “absolute control” through confiscation without compensation.

At the same time, many see the government’s plan as the key to much-needed economic development and as a means of recovering state sovereignty in a country that historically has been managed in the interests of foreign capital. “The recovery of the oil and gas resources is what Bolivia is counting on to be able to develop,” explains Roberto Delis, an YPFB employee participating in the refinery “takeover.” “Now those resources are going to be returned so that they serve Bolivia.”

The potential increase in government revenues through the elevation of tax and royalty rates from 50% to 82% will be very significant for this impoverished nation, but is an unexpected move by a government which previously was exploring more cautious options. The figure of 82% is also highly symbolic in that it is the inverse of the 18% tax rate put in place during the privatization process in 1996. What the companies were putting in their pockets as recent as a year ago, will now be what Bolivia keeps for itself.

Many aspects of the decree, however, remain to be determined and its true impact will depend on the details of its implementation over the coming months. The mechanism for the recovery of majority shares in the capitalized companies remains unspecified, as does the treatment of the 54 fields not impacted by the tax rate increase. The government calls the decree “flexible and consensual.” However, they have made it clear that those companies unwilling to play by the new rules of the game will not be allowed to remain in Bolivia.

Domestic business interests have reacted with concern, though without marshalling a strong challenge. Many support the concept of recovering greater state control, but fear economic instability and warn against the possibility of costly international litigation by transnational companies. The response by foreign investors has been strong, though still not completely bellicose. Brazilian President Lula called the move “unfriendly,” while Spain’s Zapatero expressed his “profound preoccupation.” Brazilian Petrobras and Spanish Repsol are two of Bolivia’s largest foreign investors. Many companies, however, are keeping their comments reserved.

Government Takeover?

From La Paz’s main plaza, in a skillfully orchestrated event weaving together the nationalistic historical memory of Bolivia’s previous two oil nationalizations (1937 and 1969) with the class themes of International Workers Day, President Morales addresses a crowd of thousands urging Bolivians to come together to defend this new endeavor.

Meanwhile, back at the Gualberto Villaroel refinery outside Cochabamba, Saul Escalera, the director of Industrialization for YPFB, addresses the crowd from the bed of a red pickup truck. Announces Escalera:

“We will now engage in a symbolic entrance of YPFB technicians in which we will give official notification [to Petrobras] that as of this moment this refinery will be administered by YPFB.”

Escalera asks the crowd to refrain from trying to enter the refinery, warning that such an action could jeopardize the nationalization process. As the group of around fifteen technicians and representatives pass through the front gates of the plant, a military band strikes up the national anthem as the crowd sings. Young soldiers proceed through the gates carrying a giant Bolivian flag.

Returning back through the front gates after several minutes, with little fanfare, Escalera notifies the crowd, “We have now recovered this refinery…You may now all return home.”

With the waning notes of a brass band, Bolivia’s “nationalization without expropriation” advances, as has Morales’ broader “democratic revolution,” without violence or disruption, and to the great surprise of most onlookers.

The question which remains is how much will a profound change for Bolivia require the old system to be dismantled, and how much, like refinery placards, can more pragmatically be covered over with something new.


Gretchen Gordon is a research associate with the Democracy Center in Cochabamba, Bolivia.

This story originally appeared May 2 in Upside Down World

See related story, this issue:

“THE WEALTH UNDERGROUND: Bolivian Gas in State and Corporate Hands,”
by Benjamin Dangl


Reprinted by WORLD WAR 4 REPORT, June 1, 2006
Reprinting permissible with attribution