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Viewing cable 06LAPAZ2196, HYDROCARBONS NATIONALIZATION FACES OBSTACLES

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Reference ID Created Released Classification Origin
06LAPAZ2196 2006-08-14 21:12 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy La Paz
VZCZCXYZ0001
PP RUEHWEB

DE RUEHLP #2196/01 2262112
ZNR UUUUU ZZH
P 142112Z AUG 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 0239
INFO RUEHAC/AMEMBASSY ASUNCION 6047
RUEHBO/AMEMBASSY BOGOTA 3364
RUEHBR/AMEMBASSY BRASILIA 7214
RUEHBU/AMEMBASSY BUENOS AIRES 4479
RUEHCV/AMEMBASSY CARACAS 1752
RUEHPE/AMEMBASSY LIMA 1772
RUEHMN/AMEMBASSY MONTEVIDEO 3964
RUEHQT/AMEMBASSY QUITO 4383
RUEHSG/AMEMBASSY SANTIAGO 8950
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 002196 
 
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 BL
SUBJECT: HYDROCARBONS NATIONALIZATION FACES OBSTACLES 
 
REF: A. LA PAZ 1157 
 
     B. LA PAZ 1248 
 
1. (SBU) Summary:  Bolivia's hydrocarbons nationalization 
plan is facing legal and financial obstacles that have 
delayed its implementation.  The state oil company, YPFB, 
lacks the necessary resources to take on its new mandated 
role as controller of the entire hydrocarbons production 
chain.  The GOB is considering revising the Central Bank law 
to enable the bank to lend to YPFB.  YPFB's lack of capacity 
and complicated negotiations with gas companies and buyers 
mean that the GOB will have to revise the nationalization 
timetable that it set for itself in the May 1 decree (ref A). 
 The danger now is that the GOB, in its quest for expediency, 
will undermine existing governmental institutions and 
safeguards.  End summary. 
 
Nationalization Delayed 
----------------------- 
2. (U) Bolivia's hydrocarbons nationalization plan is facing 
legal and financial obstacles that have delayed its 
implementation.  The May 1 nationalization decree gave the 
government 60 days to restructure state oil company YPFB and 
180 days to sign new contracts with private oil firms, and 
called for the state to immediately gain control of the 
"entire hydrocarbons production chain" through majority 
ownership of five key companies.  YPFB also had an August 12 
deadline for reaching an increased natural gas price 
agreement with Brazil.  The GOB has realized that these 
timetables are not possible to maintain and publicly reported 
that the implementation of nationalization will be delayed. 
 
YPFB Lacks Resources 
-------------------- 
3. (SBU) The revamping of YPFB to enable it to take control 
of hydrocarbons exploration, exploitation, refining, storage, 
distribution, sales, and industrialization requires financial 
and human resources that the GOB lacks.  The government 
reportedly is considering revising the Central Bank law to 
enable the Bank to loan money to state entities, in line with 
the Venezuelan model.  The GOB has its sights set on the 
record high levels of international reserves held by the Bank 
and plans to seek a loan from the Bank to YPFB, contingent on 
the legal revision.  The loan could be as large as USD 180 
million, although other reports put the figure at USD 45 
million.  National Treasury contacts told Econoff on August 
11 that YPFB had requested money from the Treasury, but the 
Treasury had refused so YPFB went to the Central Bank. 
 
Other Snags in the Plan 
----------------------- 
4. (SBU) The GOB has also realized that 180 days are 
insufficient to sign new contracts with the private firms. 
Government audits of the firms were only begun two weeks ago 
and will likely not be completed prior to the 180 day 
deadline on November 1.  The GOB has also failed to gain 
majority ownership of the five production, transportation, 
refining, and storage companies as mandated by the May 1 
decree.  Although it has taken over the shares formerly held 
by the Bolivian Pension Funds and has named directors to the 
boards of these companies (ref B), it has discovered that 
obtaining private company shares is a complex endeavor that 
involves several laws, regulations, and financing. 
 
Gas Price Negotiations with Brazil Postponed 
------------------------------------------- 
5. (SBU) Separately, the GOB has been unable to reach 
agreement with Petrobras on increasing the price of Bolivian 
natural gas exports to Brazil.  YPFB and Petrobras decided to 
resume negotiations following Brazil's presidential election 
in October.  Meanwhile, Brazil has declared that it will only 
import the amount of gas from Bolivia that it is bound to 
import by contract, and Petrobras has frozen all investments 
except those necessary to meet its contractual obligations. 
Petrobras signed large investment deals with Peru and 
 
Venezuela in the past month and is developing Brazil's own 
resources to meet the nation's growing energy demands. 
(Comment:  Venezuela claims solidarity with Bolivia, but 
appears to be taking its natural gas market.  End comment.) 
 
6. (SBU) Comment:  Although the government has not changed 
its overall hydrocarbons strategy, evidence is accumulating 
that it needs more time to accomplish its goals.  A 
significant concern now is that the GOB will attack 
institutional safeguards currently in place in its quest for 
expediency.  Changing the Central Bank law to enable the Bank 
to lend to state-owned companies would permit the Bank to 
once again support inefficient state companies and would 
compromise lending transparency and Bank autonomy.  In the 
past, this type of lending has contributed to serious 
inflation and macroeconomic instability.  End comment. 
GREENLEE