How Morales Took On the Oil Giants - and Won His People Back

By Dan Glaister
The Guardian UK

Saturday 06 May 2006

Stand-off after Chávez-inspired leader sends troops into gas fields.
The lady behind the reception desk at the Palmasola refinery smiled sweetly. "We're just carrying on here as normal," she said. "There's nothing to report."

Horses ambled by on the dusty road outside. A few oil tankers stood idly, their drivers asleep. Only the presence of half-a-dozen soldiers, guns at their sides, revealed there was, indeed, something to report.

For Palmasola, a Brazilian-owned refinery 15 miles west of Santa Cruz de la Sierra, the most prosperous city in Latin America's poorest nation, was at the centre of an international storm this week that saw the country nationalise in all but name its foreign-owned gas and oil industry, pitting neighbouring countries against each other and wrongfooting foreign investors.

Article continues On May 1, Bolivia's recently elected president, Evo Morales, the country's first indigenous leader, put on a tin hat and made the declaration that much of the country had been waiting to hear. "The time has come," he said, announcing "a historic day in which Bolivia retakes absolute control of our natural resources". Mr. Morales spoke of "looting by foreign companies" and said it was time the armed forces "occupy all the energy fields in Bolivia." But he was off pace. The army had already moved into Bolivia's foreign-owned energy fields, refineries and distribution depots.

International capital did not like what it saw. Even Bolivia's allies, such as Brazilian president Luiz Inacio Lula da Silva, looked displeased. But on the streets of Bolivia, it was a different story. "It's been up and down," says José López, a Santa Cruz native. "For the first 100 days of his rule, Evo didn't do the things he said he would. But this was much better. Now everyone is behind him again."

Such was the swing of popular support behind Mr. Morales this week that a general strike planned for Thursday in the Santa Cruz region was called off. Sitting on a dusty traffic island outside the gates to the refinery, Eduardo González was charged with militant fervour and a sense of economic injustice. "It's good they want something for us," says Mr. González, who services the tankers outside the gates. "If Bolivia owns the refinery it means there will be more jobs for Bolivians. Most of the people working in there," he nods at the distance, "are foreigners - Brazilians and Peruvians. We should have 100% ownership of it as a resource to help build the country."

Private and Public

While foreign governments and the 25 foreign energy companies in Bolivia - including BP and BG from the UK, France's Total, Spain's Repsol, Brazil's Petrobras and ExxonMobil from the US - expressed their "consternation" at Mr. Morales' "sad and worrying" decision, really only the timing should have taken them by surprise. For the president was doing that most unfashionable of things, delivering on a campaign promise.

Throughout the campaign, Mr. Morales and his running mate said they wanted to renegotiate foreign ownership of Bolivia's natural resources. This would not be appropriation, they said, it would not be nationalisation, it would be a renegotiation of existing contracts on terms that would provide a greater share of the revenues for the state.

Throughout the campaign, hydrocarbons were the most frequently mentioned natural resources. Bolivians have long been sensitive about foreigners exploiting their resources, and not without reason. First came the Spanish, to rid the country of its silver, starting at Potos' in 1545. By the 20th century, tin mining had taken over. Today, Bolivia has the second largest reserves of natural gas in Latin America after Venezuela; 45% of it is exported to Brazil at a low price. But in the late 1970s, faced with crippling debt, Bolivia began to place its public assets in private hands: the mines, the railways, electricity, water, the state airline, hydrocarbons all went through a process delicately termed "capitalisation" in order to avoid the word "privatisation."

But the economic rigour demanded by the neo-liberal orthodoxy failed to produce the expected results. Poverty remained rampant, as did political instability. By the end of the 1990s, popular protests became the preferred method of political engagement. Mr. Morales and his Movement Towards Socialism party proved adept at harnessing these pressures. "Twenty years on, people see the grand deception," said José Mirtenbaum, sitting in his tiny office in a dismal building in Santa Cruz's University Gabriel René Moreno.

"After all the great promises of the 1980s, what sort of planet do we have? It's also cyclical: there has been 20 years of neo-liberalism. Twenty years is enough, we shouldn't be too surprised."

But what is taking the place of neo-liberalism and privatisation? Is it the good old-fashioned leftist thirst for nationalisation and state control reasserting itself, as many feared this week? "It's an adjustment," says Mr. Mirtenbaum. "It's a sort of gradual nationalisation. The next 180 days will be very difficult."

Capital Values

The decree announcing the army would seize control of the gas installations gave foreign firms 180 days to renegotiate their contracts. "They're still going to get a decent return," says Mr. Mirtenbaum. "It's a good business. These are irrational fears on the part of shareholders who think Bolivia cannot be a good partner, a good capitalist."

The vice-president, Alvaro García, speaking the day after the announcement, sought to assuage investors' fears: "The decree doesn't confiscate or annul the production capacity of the companies, what it does is reduce the extraordinary profits." Mr. Morales, however, had already signalled his next move: "This is just the start," he said on Monday. "Tomorrow or the day after it will be mining, then forestry and eventually all the natural resources for which our ancestors fought."

For some, Mr. Morales is reasserting the Bolivian state, a state that all but disappeared under the strains of financial policies imposed from afar. The notion that the state was ill-suited to running anything took deep root in Bolivia. For others, it is not the might of the state that is being asserted but the might of Hugo Chávez of Venezuela. His hands were all over the hydrocarbons announcement: presidents Morales and Chávez were in Havana last weekend to meet Fidel Castro and sign up to the latest instrument of hemispheric influence, the Alba trade agreement. Then Mr. Chávez popped up in La Paz to, in the words of the Santa Cruz paper El Nuevo Día, hold the president's hand as he travelled to a summit meeting with the leaders of Brazil and Argentina.

For the US it could mark the fulfilment of another of Mr. Morales' pledges, to be "Washington's worst nightmare". After a lot of bellicose comment during the campaign, the Bush administration has adopted an unexpectedly conciliatory tone.

"The US never had much confidence in Morales," says Peter Hakim, president of the Washington-based Inter-American Dialogue. "Some were prepared to give him a chance, but when he starts behaving like this it strengthens the hardline groups who think he's an ally of Chávez. I don't think Venezuela can be unhappy about this because the more the region is unsettled, the more they look like the leader."

Indeed Mr. Chávez is not averse to stirring things up in the region. He has intervened in the forthcoming Peruvian and Mexican elections; his presence at the Mar del Plata summit was almost as divisive as that of President Bush; and his efforts to spread his munificence has sometimes been counterproductive.

But others wonder if presidents Castro or Chávez did have a hand in Mr. Morales' move. The announcement that he is obliging foreign investors to renegotiate the terms of their business certainly echoes moves made by Mr. Chávez with foreign oil companies, but Venezuela has a lot of valuable assets: it sends 1.5m barrels of oil a day to the US. Bolivia, on the other hand, has two clients for its natural gas: Brazil and Argentina, and some see naivety in Mr. Morales' failure to balance the interests of his domestic base with the demands of foreign policy to maintain good relations with his neighbours.

Those differences seemed to be partly healed at Thursday's summit. The four leaders - of Argentina, Bolivia, Brazil and Venezuela - managed to move beyond the minor scuffle over gas prices. Indeed, they came close to enacting much of Mr. Chávez's rhetoric: they all agreed to get behind Bolivia and support it as it tried to correct the woes of neo-liberalism and build a new country.

They also agreed to join in the "gasoducto del sur" which, as Mr. Chávez grandly declared, "will bring cheap, clean gas to all the people of South America for the next century."

But Larry Birns, of the Washington-based Council on Hemispheric Affairs, believes the rhetoric and the reality might herald some sort of shift in the region. Alba, the gasoducto, Mr. Morales taking on the energy companies, suggest, he says, that "a lethal threat is being posed by the school of thought that says development is not merely a matter for the economists.

"Social issues have to be considered too. There is a direct challenge to the notion that what is private is good and what is public is bad. Enron put an end to that. If Morales has a successful administration, it will bring up some very heavy questions for Washington.

"It's going to be difficult for the Republicans to resist saying, what are we going to do now? The commies are running amok in Latin America. But the truth now is that the US has run out of options. There's not much it can do, short of killing the leaders."

Back at the refinery, the nice lady shrugs when I ask what the soldiers are doing. "They're guarding things," she says, helpfully. "Making sure everything's in order. That's all we know."