Tuesday, May 23, 2006

Metiendo la mano a todo: Chávez y Morales crearán Minersur

Según informaciones oficiales el “Acuerdo Minero del Sur” (Minersur), será suscrito entre los presidentes de Venezuela, Hugo Chávez, y de Bolivia, Evo Morales, este 26 de mayo en la región del Chapare.

En declaraciones recogidas por la Agencia Boliviana de Información, el titular de Planificación indicó que el proyecto está orientado a desarrollar proyectos binacionales para explotar yacimientos mineralógicos en todo el territorio boliviano. Por eso negó que el ingreso de capitales venezolanos para apuntalar esa sociedad minera tenga por objetivo explotar los yacimientos del Mutún, tal como se informó en algunos sectores opuesto a la administración gubernamental.

Ese jueves 25 se procederá a la apertura del sobre A, el sábado 27 el sobre B (propuesta económica) y el 30 de de mayo se adjudicará la explotación de ese proyecto siderúrgico. Villegas explicó que la fecha están en carrera las empresas Jindall Still and Power (India), Mittal Steel Group (británico-holandesa) y Techint-Siderar (Argentina).

El ministro Villegas reconoció que un proceso de licitación tiene dos desenlaces: habrá un ganador y un perdedor y el gobierno está jugando a ganador, es decir, adjudicar el proceso de licitación a una empresa ganadora. [A menos que estas empresas retiren sus propuestas, como ya lo han hecho varias otras].

Thursday, May 18, 2006

Land Reform in Bolivia: A Picture of What's to Come

The image to the left of your screen illustrates a pattern that is actually recognized by the United States' National Aeronautics and Space Administration (NASA) as unique to Bolivia.

The image was taken in 2001. A side-by-side comparison of what the place looked like in 1986 and 2001 can be found by clicking here. [1]

What does this photo show? Nothing but the effects of increased migration from the Altiplano to the Santa Cruz lowlands, and the application of Aymara production and land distribution techniques. The pie or radial patterned fields are part of the San Javier resettlement scheme. They are the visual translation of Andean communitarism imported to the Eastern part of the country.

You shouldn't be surprised by the fractioning of the land, this is a common feature of "ancestral" altiplanic methods of production. In post-colonial altiplano, land is/was inherited in such a fractional manner, and of course, with time, efficiency began to suffer. Eventually the mini-fundio became commonplace and nowadays, some communities subsist even under a "surco-fundio" system[2]. The pattern is being replicated in the Bolivian lowlands, despite the availability and knowledge of alternative production methods, we can only expect the same ultimate result for any redistributed lands. The fields illustrated in the photograph are not producing soybean or any other "cash crops" such as rice or wheat, they are too small for efficient production. [3]

What's next? As you read this, the Morales government is preparing the second (or third) Land Reform in Bolivian history, 4.5 million hectares (about 17,375 square miles - the size of the states of the state of Massachusetts and New Jersey combined) are to be redistributed to the indigenous poor, the same folks who are now eking an existence in the communities such as the one seen above, or are just about ready to abandon their minifundios in the altiplano.

Other than property rights being obliterated, what worries me are the upcoming decreases in national food production once the fields targeted for reform are fractioned redistributed. Not to say anything about the actions that the current legal owners could take. Should we prepare ourselves for land reform a la Zimbabwe?[4]

Alvaro Ruiz has more on the topic.

Notes and Sources:

[1] Detailed explanation is available in the following website: <http://asterweb.jpl.nasa.gov/gallery-detail.asp?name=bolivia>
[2] Surco is refers to each of a field's furrows. Under a "surco-fundio" each row has an owner.
[3] Efficient land use: <http://veimages.gsfc.nasa.gov/1562/tierras_baja_strip.jpg> targeted for land reform.
[4] More on "Fast Track Land Reform" in Zimbabwe: <http://www.hrw.org/reports/2002/zimbabwe/>

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Wednesday, May 17, 2006

Formerly the Journal of Bolivian Business & Politics

For the few of you who may read this blog on a regular basis, you may have noticed that I've changed the site's title to a much simpler one. The main reason being that most of my visits come from search engine results and I don't want any newbie to have the impression that this is anything other than a humble personal web log. The second reason is that the original name was kind of cumbersome to cite and/or link.

Tuesday, May 16, 2006

World GTL: A Profile

On May 15 the Bolivian state-owned integrated oil services company Yacimientos Petrolíferos Fiscales Bolivianos (YPFB) and New York-based private developer World GTL (WGTL) signed a letter of intent to begin a feasibility study for the construction of a "Gas-to-Liquids" plant in Bolivia[1]. David Loring, President and Chief Executive Officer of the company and Jorge Alvarado, YPFB's "Interim" President signed the document on a public ceremony.

But just who is World GTL?

Not much financial information about WGTL is available, given that it is a privately-held company (meaning that they don't trade their stock in any exchange and are not regulated by the Securities and Exchange Commission). However, there are some precedents to their activities.

The company was founded in 2000, according to a somewhat obscure UFTO Note[2] :

"Their [business] plan is to acquire ownership rights (in some cases production rights) to certain stranded gas fields at deeply discounted prices, and capitalize on
opportunities that now exist to convert these "stranded" natural gas fields into
synthetic petroleum products.

Why don't the major [oil & gas companies] do this themselves? They do hold on to larger fields and may eventually develop them as LNG sources (or increasingly, with GTL), but they have no interest in smaller fields, e.g. under 3 tcf. This leaves a huge opportunity for players like World GTL. In fact, majors have already said they'd license their GTL technology and help with plant financing. (...) Turning Stranded Gas into Proven Oil Reserves World GTL has come up with an interesting strategy. Once the development is done on a project (i.e. secure gas rights, do site plan, license technology, do preliminary engineering, arrange financing, sales agreements, etc.) previously stranded gas reserves with little to no value will essentially have been converted to "in the ground" gasoline and diesel inventories which can be easily monetized in the international oil market. (...)"

An interesting strategy, and certainly a workable one in Bolivia, were many natural gas fields are of very limited size. But if we are talking about the San Alberto or Margarita fields (some of the largest single-location fields in South America) I think they may be "stranded" in a different, more political sense, and perhaps a different type of partner is needed for developing those fields.

World GTL, has had successes in the past, they developed one of the contintent' first GTL plants in partnership with Petrotrin, the Trinidad & Tobago petroleum company (which took one third of the equity in the project) and Guardian Holdings which took an equity stake in the project through its alternative energy Prometheus Fund .

As far as management goes, the company was founded by a number of former executives of some major oil companies, many of whom currently have a management position, including:
  • Gordon H. Barrows, Chairman. Mr. Barrows has advised the United Nations, the World Bank and numerous governments and petroleum companies on petroleum matters. He is also Chairman of the Barrows Company, an international petroleum information company.
  • David Loring, President and Chief Executive Officer. Previously involved in petroleum development and production projects with ARCO and major international projects with the General Motors Corporation.
  • James Higbee, Vice President, International. Previously Managing Counsel for Squire, Sanders & Dempsey in Almaty, Kazakhstan; prior to that worked 18 years at ARCO, including as Director, International Negotiations and Contracts.
  • Peter Tijm, Vice President of Technology. Twenty-eight years with Shell, including the Bintulu GTL plant.
  • Leigh Noda, Chief Operating Officer. Mr. Noda has over 30 years of experience in the management of international petroleum refining operations with ARCO.
In light of this information, WGTL seems to be an interesting partner for some of the nation's projects. One could argue it lacks the capabilities to develop some of the larger projects, but their sole presence in Bolivia is a welcomed sign post-nationalization.

Notes and Sources:

[1] "Gas-to-Liquids"is a refining process that converts natural gas or other hydrocarbons into diesel fuel. It's a somewhat costly process that yields a cleaner "greener" fuel. Given Bolivia's diesel refining deficit and considerable demand -currently supplemented by imports from Argentina and Venezuela- the option of adopting the GTL method has been studied for many years.

[2] UFTO is a California-based advisory group that conducts "studies on behalf of a select group of energy utilities and vendors, to seek out technologies of interest and to facilitate collaborations among utilities, government and private companies." The complete article is found here, as of May 16, 2006.

My Hoovers and LexisNexis searches are yielding little results, this is it for today.

Company Websites: YPFB , WGTL , Petrotrin, Guardian Holdings, The Barrows Company .

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Wednesday, May 03, 2006

Nationalization in Bolivia: Will Foreign Oil & Gas Companies Suffer?

Why the big guns, does he fear Lestat is coming?

Yesterday evening President Evo Morales made good of his campaign promise of “nationalizing” Bolivia’s oil and gas resources. Via an official decree President Morales ordered the military to “occupy” foreign-operated gas extraction plants, refineries, and gas stations. He even addressed the country from the grounds of the Petrobras-operated San Alberto field, while heavily guarded by members of the US-trained counterterrorism task force Fuerza 10 [1] and a gleeful cadre of ministers, including nationalization “mastermind” Andrés Soliz Rada. While due to its now bore-some rhetoric his speech is not worth dissecting, the resulting official decree, the legal basis for any future nationalization plan is. However, I will leave that post for later this week, when we may have more information.

In this post I only want to report on the reactions of some of the companies directly affected by the announcement and the market’s reaction to the event itself:

§ Repsol (NYSE:REP).- Spain’s Repsol is the most exposed Western oil company in Bolivia, they operate some 30 fields. Bolivia is the source of 18 percent of the Madrid-based firm's reserves and 9 percent of its production. However, after the big write-down in the value of these assets in January (See the post about this here), the actual impact on Repsol is less than the reserves and production figures would suggest. Repsol ADR’s opened down three percent today and closed at a slight negative. In Madrid, the company’s stock recovered during the day and closed higher than the prior day. Repsol’s press release states that the company is evaluating the viability of renegotiation (link here).

§ British Gas (LSS:BG).- Shares of BG Group, which holds three fields in Bolivia including the Margarita field, also opened lower this morning. Bolivia only accounts for 3 percent of BG’s production and 4 percent of reserves. The Company did not issue a press release regarding the issue, though more information about its operations in Bolivia is available here.

§ Pluspetrol Energy. - The company holds 6 fields, including the Madrejones camp, it’s more invested in the Peruvian Camisea project than in Bolivia and did not issue an statement. It's operations in Bolivia function under the Repsol umbrella. It was not immediately affected by the events.

§ Total (NYSE:TOT). – Bolivia represents less than one percent of the company’s reserves, and its stake in San Alberto is shared with Petrobras. The company did not comment on the issue. It’s stock was not affected by the events

§ Vintage Petroleum (A subsidiary of Occidental Petroleum Corporation NYSE: OXY). - It currently operates three fields, the Bolivian operations represent a marginal segment of its South American operation, and there was no release for the company regarding this issue. This is the only US company significantly involved in Bolivian gas extraction. (Exxon-Mobil has gas transport operations)

§ Petrobras (NYSE: PBR). - Brazilian company Petrobras holds small but very public stake in Bolivia, its investments there yield only 2.4 percent of its output and form 2.8 of reserves. However dire the situation may look, Petrobras is in a position to actually profit from the current situation. Under the current administration, renegotiation of contracts will benefit a selected few, and depending on the company's decision or intervention from Brazilian president Lula da Silva, Petrobras may be one of them. As I have stated elsewhere in this blog Petrobras has a competitive advantage in not being a European or American company. Surely it’ll never be able to pull the same weight as an Exxon-Mobil but it is a force to be reckoned with in South America. Petrobras is a “politically correct” candidate for partnership under the awry rationale of the current administration - where the red dye of banners surpases logic. Now will Petroleo Brasileiro take over when Repsol finally decides enough is enough? Or will PBR go the other way and take Bolivia off line?

As far as the immediate reaction of the market, we can see that firms were quick to clarify their exposure in Bolivia and investors took note. Even Repsol, which would come out the greatest loser from a far-reaching expropriation, does not depend on Bolivia for its profitability. While other affected companies, namely Petrobras, stand to gain from this turn of events.

It’s not clear how far this “nationalization” will really go; as far as I’m concerned, this is nothing but the long needed and awaited contract-renegotiation under a populist guise. Production is only being channeled through YPFB while administrative control of infrastructure remains on foreign control until negotiations start.

And judging by the text of the initial decree, the only asset that has truly changed hands, are the millions of Andina, Chaco and Transredes shares owned by Bolivian citizens themselves in their pension funds, which have now being transferred for free to the MAS-controlled YPFB coffers. No clue on what that money will be used for, and with that source of income offline lets hope Chavista aid keeps flowing to pay the Bonosol, or Morales is going to see first hand that expropriation is not “the answer to all of our miseries”.

Note:[1] The only reason why I point this out is because this elite unit was compromised by Morales himself when earlier this year he practically cut its US funding and training. It's personnel had been allegedly involved in the controversial transfer of Man Portable Missiles to the US, an operation that tarnished it's reputation and pride. By placing them along his side in this very nationalistic ocassion, is Morales trying to rebuild their persona as his own little shock troops? Afterall they are not supossed to do guard duty...

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Nationalization in Bolivia: Are Foreign-Operating Mining Companies Next?

In light of the recent “nationalization” of Bolivia’s hydrocarbons we should examine whether the threat of expropriation also risks other foreign companies exposed to events in Bolivia, while Morales claimed in his fiery “nationalization” speech that mines and land were next, only to be contradicted by his vice-president in a radio address hours later, the reality may differ.

Apex Silver Mines Limited (Amex: SIL) today responded to unusual trading activity (I’m guessing the shorts are having a field day) arguing that the government does not plan nationalization of mines, this contradicts the president’s own comments, but Apex has a good point – the Bolivian Minister of Mines and Metallurgy has repeatedly commented that no nationalization of the San Cristobal mining project is planned. I wouldn’t count my chips yet, though the company is doing an impressive job addressing social needs of communities surrounding the mine and it’s starting to diversify its production in other South American countries, the concern is also 100% foreign owned and more than 50 percent managed by international personnel. Which makes it a prime target for Morales’ populist rhetoric, add to the mix the rising prices of precious and other minerals and the fact that the mine starts operating only in 2007 and you have a target of opportunity. At the close of the market today Apex Silver shares had sunk by $3.30 (U.S.) or 16 per cent.

Vancouver-based silver producer Pan American Silver Corp (NASDAQ: PAAS), which has a 55-per-cent interest in San Vicente, a small silver-zinc mine in Bolivia, also issued some comments, stating that they have been holding off investment on the mine due to political risk. Pan American shares fell by 1 per cent to close at $26.72 on the Toronto Stock Exchange.

Coeur d'Alene Mines Corp (NYSE:CDE) the company developing the San Bartolomé project had its shares fall by 57 cents or 8 per cent to $6.31 on the New York Stock Exchange. However, this company is somehow less exposed to instability as it manages sub-leased concessions owned by the state-run company COMIBOL and a number of cooperatives.

Though foreign mining companies are also exposed to expropriation risk, the threat is smaller than it was for gas and oil firms, and even other formerly state-run enterprises. As John Carlesso, chief executive officer for Toronto-based Apogee Minerals Ltd (TSX:APE) stated, oil and gas development; generate relatively few local jobs and results in a product that is exported at well below market rates. By contrast, a mining project can create thousands of jobs and typically requires substantial investment in infrastructure such as roads and power plants that Bolivia wants for its own economic agenda [1].

Looks like it’s more a matter of keeping the miners and the COB leadership happy, a similar relationship exists elsewhere in our continent, in the land of Bolivar, where the populist coronelisimo maintains a pretty good relationship with gold-mining company Crystallex International Corp (Amex: KRY) banking that the new jobs created by this North American company will prolong the sustainability of his regime.

At least in the short term, there is no strong signal that the Morales government is willing to “nationalize” foreign-operated mines –with the glaring exception of the recent EBX neutralization. The cynic in me tells me that Morales is waiting until the big projects start being profitable and all costs have been covered before he makes a move, but I think he’ll have his hands full dealing with the gas and oil expropriations.