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BOLIVIA: Approves Hikes on Oil and Gas Companies

by Juan ForeroNew York Times
May 9th, 2005


BOGOTÁ, Colombia, May 6 - ­ Bolivia’s Congress has approved new, steep tax hikes on oil and gas companies, breaking an eight-month impasse that saw President Carlos Mesa’s government nearly toppled by relentless protests.

The law, ostensibly aimed at placating a restive populace that contends multinational companies are plundering Bolivia’s resources, satisfies almost no one. Foreign oil companies and Mr. Mesa said investment would shrivel up.

Powerful indigenous groups, some calling for the gas industry to be nationalized, promised more protests.

The lower house of Congress passed the hydrocarbons law, as it is known, late Thursday night in a tense session punctuated by heated charges and countercharges. In a vote of 59 to 48, it left in place an 18 percent royalty, but created a 32 percent non-deductible tax on production.

Foreign energy companies, which flocked to Bolivia in the late 1990’s to develop Bolivia’s gas deposits, Latin America’s second-largest after those in Venezuela, are also required to sign new contracts with the government that conform with the new law.

Mr. Mesa, president since his predecessor resigned in October 2003 in the face of protests against his energy policies, now has 10 days to sign the law, return it to Congress with modifications, or reject it.

With few backers in Congress, the president is in a tough spot: He believes the taxes are too high, but cannot win support for lower levies.

“If he rejects it, he’s got a fight on his hands with Congress,” said Álvaro García, a left-leaning academic who has advised indigenous leaders in La Paz. “If he signs it, the companies will fight him. He’s up against the wall and a sword.”

On the streets, Mr. Mesa faces a popular movement of Indians, labor groups and students, some of whom are demanding that the state expropriate the energy companies. The powerful Movement Toward Socialism party, led by Evo Morales, has signaled that it could live with the combined 50 percent hike in taxes and royalties. But party leaders did not get more local control over gas revenues or a mechanism permitting the state to set prices for gas exports, as they had hoped.

The party, Mr. Mesa’s most potent adversary, is meeting Monday to decide on its next step. Political analysts say the movement could take to the streets to push for the modifications in the law it did not get, but also to solidify its leftist credentials ahead of elections that may be held for provincial prefects.

“They push from the street to get more,” said Carlos Toranzo, a political analyst in La Paz. “That’s the constant game.”

Energy companies in Bolivia, like Repsol YPF of Spain and Petrobras of Brazil, had warned in recent weeks that approval of the law would prompt them to seek international arbitration and to curtail investments. Indeed, net foreign direct investment in Bolivia fell from $1 billion Öin 1999 to $134 million last year, the United Nations said in a report.

Julio Gavito, the president of Repsol’s Bolivian operations, recently told La Razón, a La Paz newspaper, that a combined 50 percent tax and royalty scheme would “force us to abandon many gas fields and we would all lose out, above all Bolivia.”

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