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The Democracy Center – Bolivia Briefing Series

President Evo Morales’ Gas and Oil
“Nationalization” Decree

A Review of the International Media Coverage
June 2006

By Aaron Luoma

Editors Note: On May 1 Bolivia’s President, Evo Morales, issued an executive decree “nationalizing” the nation’s oil and gas reserves. Once again Bolivia was thrust into the international news as journalists from abroad swept into the Andes to report the story. They did so with markedly mixed results. Much of the coverage painted the decree as a radical act, some even as a confiscation of private property and assets. In fact, the decree was far from it.

It is not surprising, actually, that so many journalists would have been caught in the trap of reporting the decree as something far more radical than it actually was. Much of that owes to the extreme imagery adopted by the Bolivian government itself in announcing the decree. Morales made the announcement on May 1, the closest thing the international left has to a joint holiday. He wrapped his announcement in fiery rhetoric and sent Bolivian soldiers to a number of oil fields to “protect|” the nation’s petroleum assets.

I am certain that the Morales government had only domestic politics in mind in crafting the imagery and rhetoric with which the decree was announced. This was Evo fulfilling a campaign promise, seeking to own the historic mantle that “nationalization” represents in Bolivian history, and laying the groundwork for his party’s campaign for delegates to a national Constituent Assembly. I am willing to bet that Morales and his advisors gave very little thought to how that imagery and rhetoric would play abroad. A good chunk of the foreign press never got passed all that radical imagery to dig down into the far more moderate policy that lurked below in the actual decree.

One can chalk that up to the pressure of deadlines, but the fact remains that, in sum, much of the foreign coverage left readers with a seriously inaccurate impression of what Morales actually did. Here is our analysis of some of that coverage, prepared by our gas and oil researcher, Aaron Luoma. I strongly encourage readers interested in this issue to look at our comprehensive brief analyzing the decree itself, available to view here.

Jim Shultz

I. How the Decree Was Represented – Did the Media Get the Facts Right?

The first responsibility of the media is to get the basic facts right, and here we found coverage that failed on some key points.

False Reports that the Bolivian Government had “Seized” the Assets of Foreign Oil Companies

A number of major media outlets reported, incorrectly, that the Bolivian government had “seized” the assets of foreign energy companies and cancelled their existing contracts with Bolivia. Some examples:

  • Refers to, “the Bolivian government’s seizure of oil and gas assets” and that Petrobras, “Brazil's state-controlled oil company, is among foreign companies whose assets were seized” (Bloomberg, May 24 – “Chirac Says Bolivia Oil, Gas Profits Should Help Poor’)
  • Writes of “Bolivia's decision to kick out foreign energy companies”, and that refineries under Petrobras management “that were going to be seized” (Wall Street Journal, May 25 – ‘New President Has Bolivia Marching to Chavez’s Beat’)
  • “Morales on May 1 seized international oil company assets in Bolivia” (Bloomberg, May 26 – ‘Chavez Increases Grip in Bolivia With $1.5 Bln Plan’)
  • Describes Bolivia as “getting in on another Latin craze: the abrogation of contracts” (Wall Street Journal, May 3 – ‘Latin Energy Fad’)
  • Article is headlined: ‘Tillerson's Exxon Mobil Faces Eviction From Bolivia’ (Forbes, May 2)

In fact, no assets were seized by the decree and no contracts were cancelled. What the Morales decree called for was the recovery of a majority, controlling stake in five companies which, until privatization in the 1990s, used to be part of the 100% state-owned national oil industry. And, in contrast to reports that contracts were cancelled, the decree simply called for the renegotiation of foreign oil contracts over the next six months, with a caveat that companies that did not renegotiate would no longer be able to do business in the country.

Misleading Reports that the Bolivian Government is Forcing all Foreign Oil Corporations to Sell Half their Assets to the Bolivian Government

Many other news reports created the erroneous impression that the Bolivian government was demanding that foreign oil companies operating in Bolivia sell off 51% of their assets to the newly reconstituted Bolivian state oil and gas company (YPFB) at a cost to Bolivia of billions of dollars.

Some examples:

  • “Under Monday's decree, foreign companies must sell 51 percent of their participation to YPFB. Where the state is going to get the several billion dollars it is estimated is needed for this isn't known.” (AP, May 4 – ‘Brazil Challenges Bolivia Nationalization’)
  • “(Companies) will be obliged to sell at least 51% of their holdings to the Bolivian government” (BBC, May 3 – ‘Crisis Talks on Bolivia Gas Move’)
  • “Under Monday's decree, foreign companies must sell a majority stake of their participation to YPFB. Yet it remains unclear how Bolivia will come up with the several billion dollars needed for that deal.” (AP, May 4 – ‘Crisis Feared Over Bolivia Gas Takeover’)
  • “Companies must sell 51 percent of their holdings to the Bolivian government and renegotiate their contracts within six months” (The Nation, May 11 – ‘Bolivia Steps on the Gas’)

In fact, as noted above, the decree does not seek majority control of every foreign oil company operating in Bolivia, but only in the five specific oil firms that were formerly owned by the Bolivian people prior to privatization in the 1990s. And even in these cases the decree does not require that those companies sell Bolivia 51% of their assets. Three of these companies are public-private joint ventures in which the government already owns between 30 and 48% of the shares. The amount of shares involved in this purchase is far more minimal that the coverage above would lead readers to believe.

Nowhere in the decree does it require any other foreign oil companies to sell off 51% of their shares and the five companies involved only represent 10% of Bolivia’s total oil and gas reserves. And in the case of at least some of these five companies affected the government would pay for the necessary shares in gas, not cash.

II. Just How Radical Is the Decree and What Does it

Indicate About the New Bolivian Government?

Much of the initial media coverage following the decree created the impression that it was a radical act and an indication of a new anti-democratic attitude by the new Bolivian government.

Labeling the Decree Itself as a “Radical” Act

In much of the coverage the decree itself was described as “radical” and a move that would isolate Bolivia from foreign investment and destroy economic harmony with its key neighbors. Some examples:

  • “Evo Morales is jeopardizing badly needed foreign investments and aid” (Miami Herald, May 3rd, ‘Power Grab is Risky for Morales’)
  • “South American leaders are making peace with Bolivia's decision to nationalize its natural gas sector, hoping to diffuse tensions sparked by the Andean nation's radical petroleum industry takeover.” (AP, May 5, ‘Leaders Back Bolivia Gas Nationalization’)
  • “…the energy crisis looms largest amid regional divisions unseen in South America since the 1980s era of lingering dictatorships and budding democracies.” (AP/ABC News International, May 10, ‘Bolivia Gas Plan Causes Rift in S. America’)
  • “Bolivia's startling seizure of its gas fields has intensified fears of ‘resource nationalism’…" (Rueters, May 2, ‘Bolivia stirs fears of energy producer power’)
  • ‘In addition to angering allies in Brazil and Spain, his radical move may alienate moderates in Washington who had been willing to take a conciliatory approach…” (May 3, Business Week Online, ‘Bolivia’s Risky Game’)

In fact, Bolivia’s “nationalization” plan is far from radical. The decree takes a three-pronged approach that is all standard public policy: a) it seeks to recover a majority, managing interest in companies previously owned by the government; b) it sets up a renegotiation of oil company contracts based on a comprehensive audit of company costs and profits; and c) it raises taxes temporarily on the country’s two most productive oil fields.

By seeking public ownership of its gas and oil Bolivia is seeking to follow a path common among nations. Globally, more than 80% of the world’s oil and gas fields are already under public ownership. The Morales government has also repeatedly stated that it wants the companies to stay as ‘partners’ and wants to maintain an environment conducive to making a profit. In contrast to the dire warnings invoked by the media, Nobel laureate and former World Bank chief economist Joseph Stiglitz endorsed the move as sensible national economics. Following a post-decree visit to Bolivia, Stiglitz wrote, “When a country is robbed of a national art treasure, we don’t call its return ‘re-nationalisation’, because it belonged to the country all along.”

Labeling the Decree as a Sign of a New Authoritarian Attitude on the Part of President Morales

The Foreign media has also made much of the decree as a symbol that Bolivian President Evo Morales has taken a serious authoritarian turn (or “populist” which, thanks to statements from US Defense Secretary Donald Rumsfeld, has become a new stand-in term for autocratic). The decree has been described as a move by Morales to consolidate power and play to nationalist tendencies, including a post-decree statement by US President George W. Bush warning about “the erosion of democracy” in Bolivia.

Some examples of this position in the media include:

  • “One hundred days after Evo Morales came to power, Bolivia is embarking on a fresh electoral cycle with an increasingly authoritarian president” (Financial Times, May 2nd, ‘Nationalization Fuels Fears about Evo Morales’s Power’)
  • “It didn’t take long for Evo Morales to play the nationalist card”; and the decree will boost “Morales’s populist credentials, but at a great cost to the country and its hopes for a better future” (Miami Herald editorial, May 3rd, ‘Bolivia’s President Plays Nationalist Card’)
  • “Latin America is experiencing a wave of nationalist fervor” and “nationalist anti-oil company fervor spreading” (Washington Post, May 4th, ‘Bolivian Gas Takeover Sets a Familiar Scene’)
  • “The nationalization evokes comparisons to decades past when Latin American regimes ruled with brute military force” (AP/ABC News International, May 10, ‘Bolivia Gas Plan Causes Rift in S. America’)

In fact, instead of being an anti-democratic act, the decree represents the fulfillment of a key campaign pledge upon which Bolivians elected Morales overwhelmingly last December. Morales action is based on a both a historic electoral mandate of his won (54%) and directly responds to the results of a July 2004 national referendum in which 92% of voters supported a measure to have the state recapture control of its oil and gas resources.

IV. Conclusion

The Democracy Center believes that events in Bolivia need to be reported in the foreign media with accuracy and balance. We actively assist foreign journalists in the preparation of their stories by providing them with background information, contacts with Bolivian experts and spokespeople, and with the preparation of analyses and background papers.

We hope this review will help stimulate debate on how Bolivia is covered in the international press and we applaud the many journalists who devote the hard work required to provide coverage that is accurate and substantial, as many do.

Credits

This briefing paper, one in a series from The Democracy Center, was written by Aaron Luoma (ALuoma@democracyctr.org) and edited by Jim Shultz (JShultz@democracyctr.org). It is based on ongoing research that Aaron is conducting in association with Gretchen Gordon (GGordon@democracyctr.org) and draws as well from research being conducted on the Bolivian gas issue by two Bolivian organizations, the Center for Higher University Studies (CESU) of San Simon University and the Center for Labor and Agricultural Studies (CEDLA), as well as research by Professor Mirko Orgaz Garcia at the University of San Andres.