Bolivia Nationalizes the Oil and Gas Sector
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Case Details:
Case Code : BENV006
Case Length : 20 Pages
Period : 2001-2006
Pub Date : 2006
Teaching Note : Available
Organization : Microsoft
Industry : Oil & Natural Gas
Countries : Bolivia
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts Contd...
Benefits of Nationalization
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The first and foremost benefit to Bolivia from the nationalization of the oil
and gas sector was an expected increase in the share of profits of the foreign
companies, which could be diverted to state welfare programs.
Nationalization sought to channel the wealth of Bolivia's natural resources for
the benefit of the local populace instead of filling the coffers of the foreign
companies. After the nationalization, the tax on profit on production was
increased from 50% to 82%. Analysts expected that this would result in growth of
income to the government of between US$320 million and US$780 million.
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The two key elements in the renegotiation of the contracts as
a part of nationalization were to reclaim important assets by the state owned
YPFB, and a greater share of revenues to the Bolivian government...
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The Criticism
Some analysts said that Morales had done more harm
than good to Bolivia by nationalizing the oil and gas sector. The
nationalization had imposed such severe business conditions on the
foreign companies that it would make oil and gas exploration and
production unprofitable for most of them. Also, foreign companies would
have brought in the latest techniques and technologies in exploration
and production and that would have helped in easy location and quality
production of oil and gas. Local companies could not hope to match this,
Bolivia not being self-reliant in those areas... |
The Two Summits
On May 04, 2006, a summit was hurriedly organized in
Argentina between Lula da Silva, Nestor Kirchner (Argentina's President,),
Chavez, and Morales to discuss the nationalization in Bolivia. It was
essentially organized to allay the fears of Brazil and Argentina, the two
largest customers of the Bolivian gas, and to prevent any possible regional
crisis...
The Road Ahead
According to Alvaro Garcia Linera (Linera), Vice-President of Bolivia and one of
the important ideologues of Morales, a road map called 'Andean-Amazonian
Capitalism' was required to build a strong Bolivian state that would regulate
the growth of the industrial economy and transfer the surpluses to the
communities...
Exhibits
Exhibit I (a): Map of Bolivia
Exhibit I (b): Bolivia - A Brief Profile
Exhibit II: Bolivia GDP Growth by Sectors Till 2003
Exhibit III: Oil Production and Consumption in Bolivia: 1980 - 2005*
Exhibit IV: History of Oil in Bolivia
Exhibit V: History of Natural Gas in Bolivia
Exhibit VI: Bolivia's Natural Gas Reserves: 1997-2005
Exhibit VII: Gas Production and Consumption in Bolivia: 1980 - 2003
Exhibit VIII: Results of the Referendum
Exhibit IX: Complete Text of the Presidential Decree (28701) on Nationalization
of Oil and Gas Sector
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