VZCZCXYZ0000
PP RUEHWEB

DE RUEHLP #2945/01 3032146
ZNR UUUUU ZZH
P 302146Z OCT 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 1133
INFO RUEHAC/AMEMBASSY ASUNCION 6236
RUEHBO/AMEMBASSY BOGOTA 3556
RUEHBR/AMEMBASSY BRASILIA 7418
RUEHBU/AMEMBASSY BUENOS AIRES 4678
RUEHCV/AMEMBASSY CARACAS 1929
RUEHPE/AMEMBASSY LIMA 1980
RUEHME/AMEMBASSY MEXICO 1853
RUEHMN/AMEMBASSY MONTEVIDEO 4129
RUEHQT/AMEMBASSY QUITO 4567
RUEHSG/AMEMBASSY SANTIAGO 9141
RUEHSO/AMCONSUL SAO PAULO 2016
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 002945 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG EPET PGOV BL
SUBJECT: DIVIDING UP THE SPOILS: GAS REVENUE DEBATE 
INTENSIFIES 
 
-------- 
Summary 
-------- 
 
¶1. (SBU) With the signature of gas accords October 28, the 
GOB estimates that hydrocarbons production will generate USD 
2 billion next year, with USD 1.3 billion going to the 
government as a result of new production contracts (septel), 
and USD 4 billion within four years, with USD 2.4 billion 
destined to the state.  This increased revenue is certain to 
generate conflict between universities, municipalities, 
regional governments, and the central government, who will 
each demand a piece of the pie.  GOB promises to provide 
universal, free healthcare and other benefits with the money 
have raised public expectations.  It remains to be seen if 
they will be fulfilled.  End summary. 
 
----------------------- 
Gas Revenue on the Rise 
----------------------- 
 
¶2. (SBU) According to YPFB (Bolivia's state-owned oil 
company) President Juan Carlos Ortiz, hydrocarbons production 
in the next year will generate USD 2 billion.  Based on the 
new hydrocarbons exploration and production contracts 
(septel), USD 1.3 billion of this will go to the state in 
taxes and royalties.  Within four years, taking into account 
increased production and export to Argentina, the sector is 
estimated to generate USD 4 billion annually, with USD 2.4 
billion going to the state (based upon current prices, which 
could decrease if oil prices decline).  The state revenue is 
made up of general taxes of around 10 percent, royalties of 
roughly 18 percent, a direct hydrocarbons tax (IDH) of around 
32 percent, and a tax on the large fields of San Alberto, San 
Antonio, Margarita, and Itau of 32 percent for use by YPFB. 
Tax and royalty rates vary by company contract, but range 
from 50 percent to 82 percent, according to various sources. 
 
------------------------------- 
Competing Demands for Resources 
------------------------------- 
 
¶3. (SBU) Bolivian law requires that all taxes be shared by 
the national government with regional governments, 
universities, and municipalities.  Regional governments in 
gas producing areas currently receive 12 percent of royalties 
and part of the IDH payments.  Due to the fact that regional 
governments have money that they are not spending and the 
national treasury has a deficit, the MAS administration is 
proposing changes at the Constituent Assembly to the way the 
IDH is divvied up to give the national government a larger 
take.  A move to decrease their revenue will surely anger 
regional governments and further divide the eastern producing 
regions and the central government.  Eighty-nine percent of 
Bolivia's natural gas is produced in Tarija and Santa Cruz, 
home to the GOB's main opposition.  These two regions will be 
particularly disgruntled if they do not get "their fair 
share" of the revenue, and it is instead spent to alleviate 
poverty in the western highlands.  The GOB intends for the 
revenue from the additional 32 percent tax that has been 
placed on the large fields to go directly to YPFB -- an 
estimated USD 200 to 300 million dollars annually.  The 
regions, universities, and municipalities will likely protest 
this assignment of resources and demand their share in 
accordance with Bolivian tax law. 
 
------------------------------ 
Investing in Human Capital ... 
------------------------------ 
 
¶4. (SBU) Meanwhile, the government has already announced in 
 
the press that hydrocarbons revenue will be used to provide 
universal, free healthcare, bonus payments to schoolchildren, 
housing, employment, and other benefits.  The World Health 
Organization has reportedly agreed to donate USD 2 million in 
support of the universal healthcare program.  The Armed 
Forces will deliver USD 25 to parents of enrolled primary 
school children in November to promote school attendance. 
Vice Minister of Tourism Dr. Jose Cox told Emboff on October 
30 there would be "plenty of money for tourism promotion now 
that the GOB had signed the hydrocarbons contracts." 
 
------------------------------------------- 
Comment: And Reaping the Political Benefit? 
------------------------------------------- 
 
¶5. (SBU) The division of hydrocarbons revenue is certain to 
generate heated conflict between the central and regional 
governments.  GOB pledges to provide various benefits with 
the hydrocarbons revenue have raised public expectations. 
Members of the government and the public are reacting as if 
they have won the lottery and are already dreaming of one 
million ways to spend the money.  The resources give the GOB 
an important opportunity to improve the lives of Bolivia's 
majority poor, and reap significant political benefits as 
well.  The challenge, as always, is in implementation, and 
additional demands are growing from every direction.  There 
is already major pressure from MAS insiders for the 
government to create jobs for MAS loyalists in ministries. 
The government's challenge will be to manage patronage 
demands effectively while simultaneously providing basic 
improvements in the living standards of the Bolivian people, 
South America's poorest.  End comment. 
GOLDBERG