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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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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"The time has come, the awaited day, a historic day in which Bolivia retakes absolute control of our natural resources. The looting by the foreign companies has ended."¹

- Evo Morales, President, Bolivia, Announcing the Nationalization of Oil and Gas Sector, on May 01, 2006.

"Governments in the region see energy as a commodity they can use to push populist agendas...From a political point of view, it's a powerful issue to manipulate, but from an industrial point of view, it can do real harm."²

- Adriano Pires, Director, Brazilian Center for Infrastructure Studies, in May 2006.

"These conditions make gas operations practically impossible in Bolivia."³

- Jose Sergio Gabrielli, President, Petroleo Brasileiro SA,⁴ on Nationalization, in May 2006.

The Nationalization Spree

On May Day⁵ - May 01, 2006, Evo Morales Ayma (Morales), President of Bolivia, announced that the oil and gas sector in Bolivia was being nationalized. The announcement was considered significant because Bolivia, with the second largest natural gas resources in South America after Venezuela, played a significant role in the regional gas market.

Even as the announcement was being made, the Bolivian army took control of the 56 oil and gas sites in Bolivia, thus completing the process of nationalization. Morales also said that the other natural resources of the country such as mines, forests, etc. would be subsequently nationalized.

Morales gave six months' time to the foreign companies in the oil and gas sector to renegotiate their existing contracts with the government or leave the country.

The companies were also ordered to give up ownership of the oil and gas fields. Besides, all future sales had to be channeled through a state-owned company.

Responding to this decree, the foreign companies in Bolivia said they would proceed with caution until the government clarified the terms and conditions of the new contracts.

The announcement also created a stir in the international community. The European Commission⁶ said it was worried as the announcement would further push up the already increasing international oil prices.

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1] Paulo Prada, "Bolivian Nationalizes Oil and Gas Sector,"www.nytimes.com, May 02, 2006.

2] Walter Mignolo, "Nationalization of Natural Gas in Bolivia,"www.americas.org, May 09, 2006.

3] Jeffery R. Webber, "Nationalization of Gas!"www.zmag.org, May 04, 2006.

4] Petroleo Brasileiro SA, popularly known as Petrobras, is a Brazilian government co-owned oil company. It was established in 1953 and is headquartered in Rio de Janeiro. It is a major oil producer and distributor in Brazil. The company is renowned for developing advanced technology for deep water and ultra-deep water oil production. (Source: http://en.wikipedia.org/wiki/Petrobras)

5] May Day, also known as the Labor Day or the International Worker's Day was instituted to commemorate the social and economic achievements of the international labor movement. It also marks the official sanction of the eight-hour work day on May 1, 1886 in the US after an agitation by the trade and labor unions. It is usually celebrated in various parts of the world in the form of rallies and demonstrations. (Source: http://en.wikipedia.org/wiki/May_day)

6] The European Commission (EC) is the executive body of the member countries of the European Union. Its main function is to propose and implement legislations and also to act as guardian of the treaties signed by the European Union. The European Union is a collection of 25 member states from the European Continent. It is defined by a unified currency (only in some member states), customs union, central bank, common agricultural policy etc. (Compiled from various sources)