Saturday, May 22, 2004

South America’s three biggest economies — Argentina, Brazil, and Chile — are in a California-style energy crisis. But unlike California, these three border an impoverished, landlocked country of 8 million people with a reservoir of 56 trillion cubic feet of natural gas, enough to satisfy their domestic needs for centuries with plenty left over to export.

Ninety percent of these natural gas riches were discovered within the last eight years thanks partly to an internationally renowned program — “Capitalization” — that turned the country’s old, creaking state enterprises into 50-50 joint ventures between competitively selected international investor companies and the nation’s private pension funds.

It is even possible to build a pipeline to the West Coast of South America, locate a gas liquefaction plant there, and sell the poverty-wracked, landlocked country’s natural gas into the emerging global LNG (liquefied natural gas) market — making it a major “player” in world energy markets.

Facing such opportunities, what is a small, poor, landlocked country to do? Well, if it’s Bolivia, the answer is obvious.

First, the decision on the Pacific Coast LNG pipeline is delayed three years while the radical leftist opposition, dominated by coca growers, foments a nationalist brouhaha over the project that precipitates the ouster of Bolivia’s elected president.

Second, you vow never to permit any gas exports to exit Bolivia via arch-enemy Chile, the most economical route, and instead debate LNG “pipe dreams” with neighboring Peru that, due to dramatically higher costs, will never get built.

Step 3: Embroil your political system in a divisive debate over whether you should sell any gas to your other energy-starved neighbors, Argentina and Chile. Part of this debate is easy to resolve. “No gas exports to Chile” — a self-evident proposition to every patriotic Bolivian in today’s atmosphere of supercharged anti-Chilean jingoism.

First Bolivia wants the return of the seacoast that Chile carved out as an outcome of the 1879-80 War of the Pacific (which Bolivia and Peru started and then lost to Chile). No seacoast: no gas — and no pipeline.

Step 4: Attack the multinational energy companies that invested $3.7 billion in Bolivia’s energy sector and produced that spectacular surge in proven gas reserves — by threatening to take 50 percent of their production as a royalty. The result: Bolivia’s 69 percent “take” of oil company earnings before interest and taxes, second only to Venezuela in the region, will go even higher. Investment will go even lower.

Worse, others propose nationalizing their assets outright. Of course, it’s not clear what problem any of this solves. Under Bolivia’s network of 19 bilateral investment treaties, and under international law, nationalization will cost Bolivia compensation money and will discourage, not attract, foreign investment.

Bolivia’s latest effort to fleece the investors who helped it discover and develop its gas resources is the “Enron case.” Eight years before its collapse, Enron developed Bolivia’s biggest investment project to date — the Bolivia-to-Brazil gas pipeline — and became one of the joint venture partners operating Bolivia’s “capitalized” internal petroleum pipeline networks — which feed the pipeline to Brazil.

A government investigator charged last month Enron “owes” Bolivia $130 million because Enron “never invested 1 cent” for its 17 percent share of the Brazil pipeline, that it failed to comply with its contract terms to secure financing for the pipeline, etc. Simply ignored are inconvenient facts — such as Enron’s $57 million investment in the Brazil pipeline, the $90 million in “mezzanine” financing it negotiated to bring the pipeline to full capacity, and the Bolivian government’s obligation under the World Trade Organization and its bilateral U.S. investment treaty to compensate Enron or its successors if the government nationalizes Enron’s properties.

The hypernationlist Enron assault is largely the handiwork of former President Jaime Paz Zamora, leader of the Leftist Revolutionary Movement. Mr. Paz is looking to rehabilitate his party, once one of Bolivia’s “big three,” and to discredit his arch-enemy and author of the “Capitalization” program, deposed former President Gonzalo Sanchez de Lozada.

Tragically, Bolivia’s potential prosperity is the likely casualty of this irrationality. Bolivia has the potential to be a key part of the solution to Latin America’s energy problems chronicled in The Washington Times April 25 editorial “Pipe dreams in Latin America” — and in the process become a significant player in world energy markets.

Lamentably, Bolivia’s current course signals that it’s clearly “not ready for prime time” among global energy providers — and may seal its fate as a perpetually poor country that survives on international charity and by not paying its bills.

In recent weeks, U.S. officials have been in La Paz leading a “Bolivia Support Group” to bail out the cash-strapped government. Last week, the Bush administration announced Bolivia is to be among the first 16 beneficiaries of the new Millennium Challenge Corp. grants.

With Bolivia reversing course on its reforms and throwing away its energy opportunities, shouldn’t the U.S. and the international donor community re-examine their efforts? Shouldn’t any further aid be firmly conditioned on Bolivia sticking to its market-opening reforms and pursuing rational energy policies? Otherwise, our aid may simply end up subsidizing the ambitions of discredited politicians to bilk American investors in a bid to regain power.

G. Philip Hughes, former director for Latin American affairs and executive secretary of the National Security Council, is executive director of the U.S.-Bolivia Business Partnership.

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