Hydrocarbon bill worries investors

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RIO DE JANEIRO -- Energy companies are re-evaluating their investments in Bolivia after the country's president, Carlos Mesa, bowed to mass protests last week and allowed the passage of a new law that dramatically raised taxes and royalties on hydrocarbons.

Government ministers were traveling over the weekend in Spain and France to explain the new measures to investors, many of whom say the new charges make their operations unprofitable.

Financial analysts warned that the law could have disastrous consequences for South America's poorest country, but Mr. Mesa dropped a veto threat after a huge march on the capital last week by mainly indigenous groups.

Mr. Mesa had sought a compromise to soften the law, but the native Aymara and Quechua organizations, which descended on La Paz, were in no mood to negotiate.

"We want those bloodsuckers out of the country," declared the leader of the Bolivian Workers Central (COB), Jaime Solares, who threatened to storm the presidential palace as demonstrators clashed with soldiers and police.

Fearing a repeat of the bloody 2003 revolt that toppled his predecessor Gonzalo Sanchez de Lozada, Mr. Mesa announced last Tuesday that he would not change or amend the new law, which leaves some oil and gas companies owing the state up to 70 percent of their earnings.

The previous president was forced into exiled after troops fired on protesters, killed about 100 people, as the COB and other Indian-based labor and peasant groups laid siege to the capital.

The groups were angry over a proposal to sell gas to the United States through Chile, a traditional enemy because of its annexation of Bolivia's coastline in a 19th century war.

Mr. Mesa tried to calm tensions by holding a referendum last year to repeal privatizations. But the left accused him of not going far enough in wresting control from the multinationals, while powerful business groups warned that the plebiscite would lead to state takeovers of energy reserves worth an estimated $70 billion.

A bomb hurled at the headquarters of Brazil's energy giant, Petrobras, in Bolivia's eastern city of Santa Cruz a week ago has been interpreted as a warning to oil companies not to resist nationalizations.

The head of the Santa Cruz Chamber of Commerce, Svonko Matcovik spoke at business conference at New York's Yale Club this month about the growing danger of populist movements in Latin America.

Only last month, Ecuador's president, Lucio Gutierrez, was forced out of office by mass protests.

Mr. Matcovik said Bolivia's eastern provinces -- which contain 90 percent of the gas fields -- could break away from La Paz and form an autonomous government if nationalization policies are violently forced through.