Bolivia’s State Oil and Gas Company in Crisis

Readers:

The move by Bolivia’s new government to reassert public control of the nation’s gas and oil resources remains one of the most important, and most complicated, issues before the nation. Three months after President Evo Morales issued his executive decree “nationalizing” oil and gas and giving new life to the state-owned oil company (YPFB) the management of that company has become a major issue.

Below is an analysis of that situation from one of our researchers leading The Democracy Center’s investigative work on oil and gas, Aaron Luoma. For those interested in more information on Bolivia’s oil and gas reforms, you can read briefing papers by Aaron and our other gas and oil researcher, Gretchen Gordon, here. We look forward to your comments.

Jim Shultz

Bolivia’s State Oil and Gas Company in Crisis

Since President Evo Morales’s May 1st presidential decree that ‘nationalized’ Bolivia’s oil and gas, YPFB, Bolivia’s state oil and gas company, has begun to slowly assume its responsibilities mandated by the decree. In these past two weeks, however, YPFB finds itself embroiled in a corruption scandal that has also exposed its Achilles heel: whether it is competent to manage Bolivia’s oil and gas resources. At the center of the controversy is YPFB President Jorge Alvarado, who stands formally accused by the Superintendent of Hydrocarbons, Bolivia’s oil and gas regulatory agency, of signing a contract that was projected to cost the state $38.5 million in lost revenue while violating an article of the May 1st nationalization decree.

This sobering development has important implications for the Evo Morales administration as it attempts to breath life into the formerly dormant YPFB, whose operational capacity is crucial to the government’s overall economic development plan. Raising the stakes even further, just this past week Evo Morales declared his fight against government corruption as one of the principal achievements of his first six months in office. This growing controversy and the questions it raises, coupled with YPFB’s lack of economic resources, threatens to derail the ‘nationalization’ of Bolivia’s oil and gas. How this crisis plays out, and the ultimate fate of YPFB chief Jorge Alvarado, is giving President Evo Morales one of the biggest challenges of his nascent administration.

The ‘Super’ Makes His Case

According to a report issued on July 21st by the Superintendent of Hydrocarbons, Victor Hugo Sainz, YPFB President Alvarado signed a contract on June 8th that allowed an intermediary company to export crude oil to Brazil at a discounted price, with the refined diesel exported back to Bolivia by a Brazilian company. Complicating the issue even further, both companies involved are controlled by the same businessman, whose Brazilian operation has been under investigation by local authorities. The Superintendent’s report states that in addition to the loss of a potential $38.5 million for the state, the contract violates the May 1st decree that designates YPFB as the only entity authorized to sell Bolivia’s oil and gas. The Superintendent further stated that only private entities that had previously been accused of contraband and tax evasion would be benefiting from the contract.

YPFB President Alvarado and Hydrocarbons Minister Rada Respond

On July 26th Hydrocarbons Minister Andres Soliz Rada offered his support in a joint statement with President Alvarado asserting that the contract was “completely beneficial for the country” to ensure Bolivia’s supply of diesel, while insisting that the contract would have actually saved the state $4 million. Minister Rada defended the use of an intermediary company as a “transitory measure” because “Bolivia doesn’t produce sufficient diesel to supply the internal market and there was no other viable solution [for YPFB]"

In a press release YPFB said that the Superintendent of Hydrocarbons had “committed errors of interpretation and calculation” and questioned whether the report could be trusted. Alvarado added that it is not possible to increase Bolivia’s diesel production because the refineries in Bolivia are already operating at full capacity. Alvarado called the authorities at the regulatory agency irresponsible for blocking a contract that “benefits the country”.

The Office of the Superintendent Defends Its Actions

In the days that followed the release of the report, the Superintendent’s Director of Commercialization, Jorge Tallez, denounced what he described as government pressure to retract its report, saying the report was made “by professionals with high levels of experience, knowledge, and above all, honesty.” He went on to harshly rebuke the YPFB president, saying Alvarado “must fulfill his obligations as a public official, and not act out of ignorance or corruption. This is not only a damaging contract, but illegal as well.” Superintendent Sainz added that the conclusions reached in the report were “based on the data in the contract” in question.

The President and Vice President Speak Out

Under mounting pressure from opposition parties calling for the resignation of Alvarado, on July 31st President Morales ordered the Attorney General and Controller to investigate the case and issue a report by August 20th , adding that anyone found responsible for corruption would be fired. Vice President Alvaro Garcia-Linera also weighed in, noting “enormous technical deficiencies” in both Superintendent Sainz and YPFB President Alvarado, saying they were “perhaps not the most suitable [for their positions], as evidenced by their actions these past two weeks." However, critics disagreed with the Vice President saying that the Superintendent is a qualified professional in his field while Alvarado is a political appointee. Minister Rada also began to distance himself from the growing crisis, warning that if YPFB is not transparent it could face the “frustration of the Bolivian people, and the failure of the nationalization…”

Alvarado Says Superintendent of Hydrocarbons “Arm of Neo-liberal Model”

Just this past Monday, Jorge Alvarado, fighting for his political life, called for the elimination of the Office of Superintendent of Hydrocarbons, born of the privatization process in the mid 1990s, declaring it “an important arm of the neo-liberal economic model.” Alvarado said any regulatory or investigative oversight body should be part of each ministry, as it was before the privatization process. The eventual dispensing of the Superintendent regulatory bodies has long been policy of the Morales government, added Alvarado. On Tuesday, Minister Rada confirmed that the Superintendent agencies would be terminated as part of the Morales government plan, but the timing of the decision would have nothing to do with any current conflict involving YPFB, and would be accomplished via legislation proposed to Congress in the coming months. Superintendent Sáinz said he had not received any official communication from the government about the future of his regulatory body, but its elimination would be “a decision that must be taken by the President.”

Evo’s Challenge

This past weekend at the convocation of the Constitutional Assembly, President Morales reflected on his fight against corruption, calling it virtually “institutionalized” in the state apparatus. With opposition leaders in Congress calling for Alvarado’s resignation, the heat is clearly on Evo to take decisive action to demonstrate that malfeasance in any form will not be tolerated in his government. With YPFB’s operational capacity a key component of the government’s economic development plan, the administration faces a difficult, uphill task to assure the Bolivian people that YPFB is transparent and corruption-free, and fully capable of leading the development of Bolivia’s oil and gas resources.

Written by Aaron Luoma