VZCZCXYZ0000
PP RUEHWEB

DE RUEHLP #1157/01 1221554
ZNR UUUUU ZZH
P 021554Z MAY 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 9021
INFO RUEHAC/AMEMBASSY ASUNCION 5797
RUEHBO/AMEMBASSY BOGOTA 3092
RUEHBR/AMEMBASSY BRASILIA 6955
RUEHBU/AMEMBASSY BUENOS AIRES 4197
RUEHCV/AMEMBASSY CARACAS 1493
RUEHPE/AMEMBASSY LIMA 1461
RUEHMN/AMEMBASSY MONTEVIDEO 3746
RUEHQT/AMEMBASSY QUITO 4135
RUEHSG/AMEMBASSY SANTIAGO 8678
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 001157 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET BL
SUBJECT: PRESIDENT NATIONALIZES HYDROCARBONS 
 
REF: A. LA PAZ 869 
 
     ¶B. LA PAZ 1107 
 
¶1. Summary: On May 1, the GOB issued its long-awaited Supreme 
Decree "nationalizing" the hydrocarbons sector.  Largely 
consistent with prior GOB announcements and the May 2005 
Hydrocarbons Law, the decree gives hydrocarbons companies six 
months to negotiate new "service" contracts with the GOB; 
transfers to the state control over the entire hydrocarbons 
chain, from production to commercialization; and offers the 
state oil company (YPFB) majority share of five companies, 
including two with U.S. investment.  It also raises taxes, at 
least temporarily, by 32% on producers with large fields, 
while leaving open key questions about whether the takeover 
will be accomplished by payment, as required by the Bolivian 
Constitution, or by expropriation.  Military troops 
symbolically occupied 56 oil and gas installations 
immediately following the president's announcement.  End 
Summary. 
 
¶2. On May 1, President Morales issued Supreme Decree 28701, 
postponed since April (ref A), "nationalizing" the 
hydrocarbons sector.  With some exceptions, the decree is 
consistent with previous GOB statements.  The decree gives 
the companies six months to negotiate new service contracts 
with the GOB, and requires that each new contract be approved 
individually by Congress.  During the interim period, the GOB 
plans to audit the companies to verify levels of recouped 
investment and to assign final, differential tax rates to 
each company.  The May 1 Decree also included the following: 
 
-- The State will gain control of the entire hydrocarbons 
chain: production, transportation, refining, storage, 
distribution, commercialization, and industrialization.  YPFB 
(the state oil company) will determine volumes, prices, and 
conditions for commercialization of hydrocarbons for the 
internal market and for export.  YPFB will be involved in the 
complete hydrocarbons production chain.  YPFB will be 
restructured within 60 days. 
 
-- YPFB will take over 50 percent plus one of the shares of 
the capitalized (partially privatized) companies, Transredes 
(U.S.), Chaco (U.S.), and Andina (Spain/Argentina).  This 
will be accomplished by confiscating the shares held in trust 
by the Bolivian Collective Capitalization Fund for payment of 
Bolivian pension funds (approximately 45 percent), and by 
forcibly acquiring the rest from the companies. 
 
-- YPFB will take over 50 percent plus one of the shares of 
Petrobras Bolivia Refining (Brazil) and the Bolivian 
Hydrocarbons Logistics Company (Germany/Peru).  These are 
fully privatized companies, and would require a greater 
government investment to "take over." 
 
¶3.  The decree also contained a previously unannounced 
provision for a temporary 32 percent tax increase on 
companies operating in the mega-fields of San Alberto and San 
Antonio, mainly Petrobras (Brazil), Repsol YPF (Spain and 
Argentina), and Total (France, with U.S. investment by 
ExxonMobil). 
 
¶4.  It also left open key questions on how the takeovers are 
to be accomplished.  According to Bolivia's Constitution, 
nationalization requires compensation.  If the government 
intends to purchase the shares taken over from the companies, 
it is unclear where the funds to do this would come from. 
The same is true for the government's continued payment of 
pension funds, which Morales guaranteed in his announcement. 
 
¶5.  Petrobras officials told us they would hold a meeting in 
Brasilia on May 2 to discuss their response.  According to a 
Brazilian Embassy official, President Lula will chair the 
meeting, and the Ministers of the Presidency and of Energy, 
along with the President of Petrobras, will participate.  The 
Embassy official further noted Brazil's "surprise" at the 
Bolivian government's unilateral announcement and that Lula's 
domestic opponents were already seeking to make political hay 
out of Evo Morales' dissapointing actions. 
 
¶6. After the decree was announced, Armed Forces troops were 
sent to occupy 56 oil and gas installations.  Contacts at 
Transredes (U.S. pipeline operator) told us that the troops 
had entered their offices peacefully, without attempting to 
hinder operations. 
 
¶7. Comment:  Of the U.S. investors in Bolivia's hydrocarbons 
sector; i.e., Chaco (Pan-American), Transredes (Prisma), 
Vintage (Occidental), ExxonMobil (in partnership with French 
company Total), and BTG (pipeline operator); Transredes (with 
approximately USD 500 million invested) and Chaco will be 
hardest hit by the decree due to the GOB's plan to gain 
control of their operations.  Company officials express grave 
concern privately about the decree, but thus far have 
preferred to refrain from public comments about it.  End 
comment. 
GREENLEE