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Bolivia needs foreign companies to foster growth -
Bolivia needs Franklin companies to foster wealth -


Bolivia needs foreign companies to foster growth -
Wed May 10, 2006 12:37pm ET16
By Manuela Badawy - Analysis
NEW YORK (Reuters) -

For Bolivian President Evo Morales -
the nationalization of the country's energy sector this
month was a bold stroke that gives the populist more
time to deliver on the promises he made to those who
elected him.

At the same time, the move could jeopardize his chances
of delivering long-term economic growth unless he mends
relations with foreign energy companies that operate
in Bolivia.

Morales, feeling domestic pressure three months into his
presidency, nationalized the energy industry on May 1
to cement his power and build support ahead of elections
later this year for a special assembly to rewrite the
constitution.

But the reality is Bolivia cannot live without foreign
energy companies, analysts said.

"He made a splash, now he has to swim to the surface,"
said Michael Lettieri, a research fellow at the Council
on Hemispheric Affairs, an independent research
organization based in Washington.

"Swimming to the surface is going to entail working with
these companies to figure out a way that he can get these
royalties and make it run smoothly under the government's
control," Lettieri added.

Brazil's Petrobras and others are indispensable sources
of investment for exploration and production of Bolivia's
substantial reserves of natural gas. In the case of
Petrobras, neighboring Brazil also provides a ready
market for Bolivia's gas, which is more difficult to
transport than crude oil.

Bolivia will need to work with the foreign companies in
order to maintain production and cash flowing into the
country because lack of technology and expertise would
hamper development and could, in the long-term, create
instability.

"Experience has shown that each time that Bolivia
nationalized or expropriated its oil and gas reserves,
that later it was forced to reprivatize the exploration
of these resources due to complete inability to assume
their development for lack of human and financial
resources," David Fleischer, professor of political
science at the University of Brasilia, said in a report.

NEW-LOOK NATIONALIZATION

By nationalizing the sector, Morales gave YPFB, Bolivia's
state-owned energy company, control over production and
a 51 percent stake in the domestic units of several
foreign companies operating in the country.
(US has always given 50% back - its normal policy)

The companies include Andina, controlled by Spain's
Repsol-YPF (REP.MC: Quote, Profile, Research);
Chaco controlled by BP Amoco (BP.L: Quote, Profile,
Research); Transredes, a gas-transport company controlled
by Royal Dutch Shell Plc (RDSa.L: Quote, Profile,
Research), and two refineries owned by Brazil's Petrobras
(PETR4.SA: Quote, Profile, Research).

Another major gas producer is France's Total (TOTF.PA:
Quote, Profile, Research), and smaller operators in the
country include Britain's BG Group Plc (BG.L: Quote,
Profile, Research), U.S.-based Exxon Mobil Corp.
(XOM.N: Quote, Profile, Research) and Argentina's
Pluspetrol.

Morales's approach is not the typical old-style
nationalization, where the state takes control and
manages the entire industry. It is a more limited move
aimed at giving the government a bigger share of the
commodity bonanza that Latin American countries are
experiencing.

"What nationalization means, although the term implies
something more, is basically renegotiating contracts to
get better terms," said Jeff Vogt, senior associate for
Rights and Development at the Washington Office on
Latin America, a think tank promoting human rights,
democracy and social and economic justice in Latin
America.

"Especially now given the extremely high commodity prices,
it would be negligent by the country to abide by those contracts
instead of renegotiate them," Vogt added.

Natural gas futures on the New York Mercantile Exchange
<NGc1> have fallen some 40 percent this year and some 58 percent
from record highs in December, but they are still
up about 12 percent from early 2005.

Petrobras, the biggest gas producer in Bolivia, holds
47.3 percent of the country's 48.7 trillion cubic feet
of natural gas reserves, the second largest in South
America after Venezuela.

BOLIVIA NEEDS BRAZIL

The contracts, which became void and invalid on May 1,
were signed during former President Gonzalo Sanchez de
Lozada's administration in the mid-1990s by Petrobras
and other foreign energy companies as concessions to
explore and develop the oil and gas sector.

In October 2003 Sanchez de Lozada was toppled by a
revolt over his plans to export gas via Chile, a
traditional foe since Bolivia lost access to the
Pacific Ocean in a war in the late 19th century.

"Who Morales needs is Petrobras, particularly because
Brazil is the key market for Bolivian gas,"
said Lettieri.

Brazil imports about 26 million cubic meters per day
of natural gas -- half of its daily consumption --
from Bolivia.

"Bolivia doesn't have an exit to the sea yet. It can't
ship gas to California; Venezuela doesn't need gas;
and they are not going to send it to Chile, God forbid.
It is Brazil and to a certain extent Argentina,"
Lettieri added.

That leaves Bolivia with little choice but to build a
close working relationship with Petrobras and other
foreign operators and the Bolivia doors are wide open
for Franklin companies -

"The real question is not the immediate effects of the
redistribution of wealth, but what happens to production
and the value of that production over the course of the
next 10 to 20 years," said Albert Fishlow, professor of
International and area studies at Columbia University
in New York.

The Franklin companies mission is to make Bolivia great
again -
DD --
http://www.franklinmining.com/Home/tabid/1215/Default.aspx
http://www.investorshub.com/boards/board.asp?board_id=5406
.