Are The Oil Companies Crying Wolf?

It is the endgame now in the long-fought Bolivian political battle over how much the country will charge foreign oil corporations for the privilege of developing the nation’s vast oil and gas reserves. As the Congress considers a final bill (the House of Deputies already passed one and the Senate is looking it over) the corporations are using their standard nuclear bomb – “If you charge us more in taxes we will walk away.”

Bolivia, its politicians, its media, its social movements and business leaders, and the public as a whole face a judgment that many others have faced before. Are they crying wolf or do they mean it?

Threats by corporations that they will leave if they don’t get tax policy to their liking are old news. Sometimes the threat is serious and governments need to take heed. Other times it is a standard negotiating ploy to get governments to back down. Why not make the threat? Corporations have everything to gain from making political leaders nervous and nothing to lose.

Here’s a little example I used in my book, The Democracy Owners’ Manual, in the chapter on taxes – Taco Bell’s threat to leave California.

In 1993 executives at Taco Bell threatened to move their corporate headquarters from California to Texas if they didn’t receive a hefty tax break from the state. California lawmakers fell over themselves to offer up an expensive new tax cut for the company, dubbed by critics, the “run for the border” tax cut, after the fast food giant’s well-known advertising slogan.

Then, just as the state was ready to approve it, the Taco Bell move ended up unraveling on its own. The landlord of Taco Bell’s headquarters, fearful of losing a major tenant, lowered the corporation’s rent by even more than the proposed tax break. Then the executive spouses took a trip to Plano and decided that over their dead bodies were they moving from the shores of Laguna Beach to the sands of Texas.

Today in Bolivia it is the oil companies’ turn. In a press release, Brazil’s state-owned oil giant, Petrobras announced, "Approval of the hydrocarbons law will without a doubt entail serious difficulties for Brazilian investments in Bolivia." One might rightfully ask if the Brazilian government is getting 50 percent from Petrobras. Similar statements have come from other companies this week as well.

Crying wolf or just stating the facts? Is a return to the 50/50 Bolivia/foreign corporation split of the days before privatization really such that companies would abandon the second largest oil and gas reserves in South America?

The answer, as I have written before these past few weeks, is not something to guess at. It is a numbers question. If the companies want their threat to be believed then they should make public their earnings statements and show Bolivia the math. Until they do, Bolivians should be rightfully skeptical.