TRENDING TOWARDS A NEW ROUND OF NATIONALIZATIONS: THE BOLIVIAN OIL AND GAS SECTOR AND MINING SECTOR INITIATIVES

• Jurisdiction: Derecho Internacional

Mining and Oil and Gas Law, Development, and Investment - Book 1
(Apr 2007)
CHAPTER 1A
TRENDING TOWARDS A NEW ROUND OF NATIONALIZATIONS: THE BOLIVIAN OIL AND GAS SECTOR AND MINING SECTOR INITIATIVES
Diego Rojas M.
Attorney
C.R.&F. Rojas - Abogados
Santa Cruz, Bolivia

DIEGO F. ROJAS M.

Diego F. Rojas Moreno is a Partner at C.R.&F. Rojas - Abogados, in Santa Cruz, Bolivia. He has been Senior Attorney with BG Bolivia Corporation (Sucursal Bolivia), Santa Cruz, Bolivia (2001-02); Foreign Associate - Corporate and Securities Division with Epstein Becker & Green P.C., New York, New York (2000-01); did his Internship with Holland & Knight LLP, New York, New York; and Associate at C.R.&F. Rojas - Abogados, La Paz and Santa Cruz, Bolivia (1994-99). He is fluent in Spanish and English.

Mr. Rojas earned a Post-Graduate Degree in Arbitration and Conciliation (2006) from the Universidad de Aquino Bolivia - UDABOL, Santa Cruz de la Sierra, Bolivia; Post-Graduate Degree in Oil and Gas Law (2003) from the Universidad Privada de Santa Druz de la Sierra, Santa Cruz de la Sierra, Bolivia; L.L.M. (2000) from the University of Chicago Law School, Chicago, Illinois, USA, where he was Negotiation Skills Champion; Post-Graduate Degree in Corporate Law (1999) from the Universidad Andina Simón Bolivar, La Paz, Bolivia; Juris Doctor Degree (1997) from the Universidad Católica Boliviana "San Pablo," La Paz, Bolivia, with Thesis Awarded Honors Distinction; and A Level Degrees - Business Studies, History, Spanish (1990), Marlborough College, Wiltshire, England.

Mr. Rojas is a member of Ilustre Colegio de Abogados de La Paz (Bar Association of La Paz); Colegio de Abogados Santa Cruz - Bolivia (Bar Association of Santa Cruz); International Bar Association; International Trademark Association; and National Law Center for Inter-American Free Trade.

Select publications include: "Nationalization - Supreme Decree No. 28701 of 1 May, 2006," Current Practice, IBA-SEERIL (2006); "Natural Gas and Electric Markets in South America - Bolivia chapter" (Matthew Bender 2006); "Gas Regulation 2006 - Bolivia chapter," Getting the Deal Through - Gas Regulation (2003, 2004, 2006); Doing Business in 2006: Creating Jobs (The World Bank 2005); "Securitisation in Bolivia," Global Securitisation and Structured Finance (2003, 2004); "The Bolivian Judicial System," IFLR 1000, The Guide to the World's Leading Financial Law Firms (2003); "Litigation Guide - Bolivia," IFLR 1000 (2002); "Minimizing Risk in a Multinational Energy Project Using an Integrated International Legal Team," Oil & Gas Magazine (Bolivian Chamber of Hydrocarbons 2002), co-authored with Douglas Burnett of Holland & Knight); "Bolivian Oil and Gas Market," Latin American Law and Business Report (2001); "Bolivia's Oil and Gas Potential," Lex Mundi World Reports (2001) and Inter-American Trade (National Law Center for Inter-American Free Trade 2001); "The Regulation of Banking in The Americas and the Caribbean (Bolivian section)" (Centre for International Business Law Research 1999); "The Regulation of Banking in Bolivia," Bomchil, Castro, Goodrich, Claro & Asociados Newsletter (1998); "Bolivian Banking Regulations," Inter-American Trade Report (National Law Center for Inter-American Free Trade 1998); "The New (Bolivian) Securities Law," Bomchil, Castro, Goodrich, Claro & Asociados Newsletter (1998).

Presentations include: Universidad Privada de Santa Cruz de la Sierra - Programa de Red de Expresión Dinámica - "La nueva Ley de Hidrocarburos y los Contratos de las Empresas Petroleras," November 14, 2005, Santa Cruz, Bolivia; Latin Lawyer Energy Arbitration Roundtable, October 19, 2005, King & Spalding, Houston, Texas; State Bar of Texas - International law Institute - "The Bolivian Referendum and its Implications for the Gas Market," February 25, 2005, Houston, Texas.

I. INTRODUCTION

Bolivia has the second-largest natural gas reserves in South America, second only to Venezuela. Proven and Probable reserves stand at 48 trillion cubic feet (tcf), while projected reserves are estimated at over 70 tcf. In terms of the region's total reserves, Bolivia has approximately 17 per cent.

Approximately 611,000 km2 (55.6%) of the Bolivian territory comprises areas worthy of hydrocarbon potential. Out of this area, 138,507.8 km2 (22.66%) are currently under production by private parties who operate subject to Operational Agreements. Consequently, 472,492.2 km2 (77.33 %) comprises areas still to be exploited.

Bolivia has four major "mega" natural gas fields: San Alberto, San Antonio, Itau and Margarita. Each gas field is estimated to have over 5 tcf. The fields are located in the eastern and South-eastern part of the country, the Tarija basin being the most important.

Up until recent discoveries, Bolivia's existing natural gas reserves were entirely destined to satisfying the domestic market and export commitments to Brazil and Argentina. However, as a result of the rise in proven reserves and due to growing international demand, the Bolivian government has recently signed a new gas export agreement with Argentina and is analyzing possible exports to other neighboring countries with the objective of becoming the most important gas supplier in the Southern Cone.

The partial (51%) privatization of Yacimientos Petroliferos Fiscales Bolivianos (YPFB), the State oil and gas company, was set in motion with the passing of the Capitalization¹ Law No. 1544 of March 21, 1994. This law paved the way for partial privatization of six nationally owned industries: YPFB, ENDE (electricity), ENTEL (telecommunications), LAB (airlines), ENFE (railroads) and EMV (tin/antimony).

In order to privatize YPFB, the company was divided into two upstream units, a transport company, a refining company, and several service companies. The two upstream units were half-privatized in 1996, with sales to U.S.-based Amoco (now BP Amoco) and Argentine YPF (now Repsol YPF) for a total of $US 571 million. Chaco S.A. is the corporation that currently represents BP Amoco's interest while Andina S.A. represents the Repsol YPF interest. A consortium between U.S.-based Enron and Royal Dutch/Shell won the transportation bid by offering $US 263.5 million. Transredes S.A. is the corporation that currently operates the downstream unit and consequently represents the Enron/Shell interest.

In October 1999, YPFB decided to sell the last six divisions of the company that remained under government control: storage facilities and multi-purpose pipelines, gas distribution grids, liquid petroleum gas (LPG) bottling plants, service stations, airport fuel terminals and refineries. In November 1999, YPFB completed the privatization of its

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refining business by selling its two largest refineries to a 70%-30% consortium of Brazilian Petrobras and Argentine Perez Compac for $102 million.

In late June 2000, YPFB went ahead with the sale of its remaining 20 storage facilities and 6 product pipelines. A German-Peruvian consortium called Oil Tanking-GMP was the only bidder and won the tender with an offer of just over $12 million. This sale had been intended to complete the YPFB privatization process.

On October 17, 2003, Gonzalo Sanchez de Lozada, serving his second term as Bolivia's President and who had in his previous term "Capitalized" the major public companies, was ousted from office by violent revolt. His demise led to political turmoil blaming the frustrated Capitalization process as the cause. As a result, in the July 2004, Bolivia held a binding referendum in which a majority of the population approved the Nationalization² of the oil and gas sector. Subsequently, the new Law of Hydrocarbons No. 3058 of May 17, 2005 was passed.

Although this law sets the foundation for the Nationalization of hydrocarbons, on May 1, 2006, the government under President Evo Morales issued the "Nationalization" Supreme Decree No. 28701, through which the State effectively took control of the entire commercial and production chain of the oil and gas sector. In November 2006, applying the above-mentioned decree, the government, through YPFB, signed new Operational Agreements with all private oil and gas producers currently operating in Bolivia.

II. LEGAL FRAMEWORK

The oil and gas sector is regulated by the following legal norms:

Laws

— Law Nº 843 of May 20, 1986, Tax Reform Law.

— Law Nº 1182 of September 17, 1990, Investment Law.

— Law Nº 1544 of March 21, 1994, Capitalization Law.

— Law Nº 1600 of October 28, 1994, Sectorial Regulation System Law (SIRESE Law).

— Law Nº 1606 of December 22, 1994, Modification of Law 843.

— Law Nº 1731 of November 25, 1996, Adjustment and modification of Law Nº 843.

— Law Nº 1961 of March 23, 1999, Energy Export Corridors (Heart Law).

— Law Nº 2650 of April 13, 2004, Political Constitution of the State.

— Law Nº 3058 of May 20, 2005, Hydrocarbons Law.

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Supreme Decrees

— S.D. Nº 27574 of June 21, 2004, approves the Regulations for the export of liquid hydrocarbons.

— S.D. Nº 24689 of July 2, 1996, approves the Regulations for Technical and Safety Norms for Upstream Activities.

— S.D. Nº 24335 of July 19, 1996, approves the Regulation for the Devolution and Retention of Areas.

— S.D. Nº 24398 of October 31, 1996, Approves the Regulations of Hydrocarbons Law No. 1689.

— S.D. Nº 28173 of May 19, 2005, stipulates the transitory regulation that will govern all the hydrocarbon activities that are regulated by the Superintendency of Hydrocarbons.

— S.D. Nº 28174 of May 19, 2005, assures the provision of hydrocarbons to the internal market, and also international engagements for exportation of hydrocarbons.

— S.D. Nº 28175 of May 19, 2005, assures the continuity for provision of diesel oil.

— S.D. Nº 28176 of May 19, 2005, grants (in a transitory manner) to the Superintendency of Hydrocarbons, the authority to issue export permits of liquids hydrocarbons.

— S.D. Nº 28177 of May...