Mauricio Medinaceli Monrroy
Private Consultant
Oil - Natural Gas - Energy

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Electoral proposals for the hydrocarbons sector in Bolivia or the reasons for my little hope

In general, I don’t like unpunctuality and I like less when I'm the unpunctual person, because I feel it’s a situation of high injustice, with people who arrived "on time". I touch this topic because last Friday I arrived very late to a meeting prepared by my good friends of INESAD... an unforgivable fault really.

In this meeting I presented a document that I wrote (in the framework of an interesting project carried out by INESAD) on the main challenges of the electoral proposals on hydrocarbons (in Bolivia) for the next national elections.

I want to comment the main ideas of the text, starting in the same way as I did in the presentation. I want to start by indicating that the problems of the hydrocarbons sector are, I believe, of public knowledge (low reserves, stagnant production, absence of markets, subsidies, etc.), solutions are also known... what is necessary are political decisions.

Having said that, I now point out what (from my point of view) are the main challenges in the sector. I do this for a formal structure, since the real discussion that I want to open comes later... that is, paragraphs below. In any case, let's start with the challenges:

1. Legal framework. At this moment the sector is "upside down", in Bolivia the famous Kelsen's pyramid is inverted. Ministerial resolutions and YPFB decisions are, many times, above the laws and the national constitution. Then it is necessary to reorganize everything and have a consistent legal framework.

2. Institutional framework. During the last years there was a "Soviet" vision of the sector. Maybe now the reader will be asking himself: Soviet? Yes, this “Soviet” vision (once again, from my perspective) privileges tangible projects... separation plants, industrialization plants, etc. Which is good, nevertheless, there is also something very important to be considered in the country, that "something" are the institutions.

Perhaps “institutions” sounds like a “gringo” invention that has nothing to do with our way of doing things. However, they are very important... seriously. Let me explain my point of view with this analogy. Imagine that you and your friends decide to play a football game with your lifetime the "enemy". If you and your friends have a "Soviet" vision of life, you will only focus on goals... at any cost. Is this enough? Well, no.

Imagine that the game is played without a referee and without rules. What could you expect? Nothing less than chaos, therefore it will be necessary to put some order, rules of the game are necessary... some "institutions" are necessary.

Something like this is currently happening in the hydrocarbons sector in Bolivia, where the regulatory body (ANH) has very little room for action, the Ministry of Hydrocarbons and YPFB often assume similar functions. In other words, we have an institutional framework so complex that private investors in our country need to open fields with a clean machete in an endless bureaucratic jungle.

3. YPFB (Bolivian state oil company). Nowadays it would be impossible to propose privatization (or at least an opening for private capital) in YPFB. That’s why we have YPFB for long. If this is the case, how do we improve this company? Is only new organizational chart enough? In this field there’s a lot to discuss.

4. Tax system for E&P projects. A tax (royalties and IDH) of 50% on gross production is something that only works with high prices and secure markets. While this system continues the investment in exploration will not be aggressive.

5. Subsidies. Those who know me understand my position: it is necessary to eliminate them. In this link you can find a discussion about it.

6. GSA to Brazil. Thanks to the way we manage the sector during the last 12 years, it’s almost impossible to think of a new contract with Brazil equal to or better than what we have now. Surely the new contract will be with lower prices and shorter term. Therefore, it is necessary to rethink our commercial opening.

There are probably many other problems in the sector, these are only some that, I believe, need urgent attention. However, here comes the substantive question: Do you believe that a political-supporter representative will propose the solution to these problems? In other words, do you think a politician will propose:

Eliminate final consumer price subsidies

Decrease taxes for oil companies

Sign a new contract with Brazil in less advantageous conditions

Corporatize YPFB

Improve the legal system

Or better said: Would the population accept such proposals? I think it will be very difficult. So what we can do? Tell the public that these things will not be done (like eliminating the subsidy, for example) and once in the Government, implement them?

For these reasons I ended the talk by commenting to the attendees (who were kind enough to stay) my full loss of hope in the immediate future. Solving these problems and substantially raise the gas and oil production will take years... many years.

Or perhaps all this is a divine design to stop being a highly dependent oil and gas country?

Today I will balance my lack of hope, because I will go with my Santi to receive our prize for having completed the 2018 FIFA album.

Mauricio Medinaceli Monrroy

La Paz, May 4th 2018

 

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In the Blog section I invite you to read: "The future of Bolivian natural gas exports to Brazil"

 

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