Bolivian natural gas plant

The presence of Evo Morales, Bolivia’s left-wing leader, at Jair Bolsonaro’s inauguration ceremony in January raised more than a few eyebrows. Mr. Morales was the only left-wing head of state in the continent to show up and has since been the only member of the South American “Pink Tide” that Brazil’s far-right president hasn’t actively railed against.

Kirchnerism in Argentina and Nicolás Maduro’s Venezuela have both been on the receiving end of Mr. Bolsonaro’s motormouth, yet his Bolivian counterpart has been spared.

</p> <p>There is a pragmatic reason for this, however, embodied by Gasbol—a mammoth 3,150-kilometer pipeline transporting natural gas from Bolivia. Despite current ideological differences, the two countries share a profitable trade relationship, which is based almost exclusively around natural gas.</p> <hr class="wp-block-separator"/> <h4 style="text-align:center">Bolivian exports to Brazil: all about natural gas</h4> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017-1024x511.jpg" alt="bolivian exports to brazil 2017" class="wp-image-24453" srcset="https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017-1024x511.jpg 1024w, https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017-300x150.jpg 300w, https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017-768x383.jpg 768w, https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017-610x305.jpg 610w, https://brazilian.report/wp-content/uploads/2019/09/bolivian-exports-to-brazil-2017.jpg 1292w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <hr class="wp-block-separator"/> <p>Around 27 percent of natural gas consumed in Brazil comes from Bolivia. And while Brazil is the leading recipient of Bolivian exports, 96 percent of which is natural gas.</p> <p>When the Gasbol pipeline was opened in 1999, a 20-year contract between the two countries ended up as a win-win. For Bolivia, gas exports went hand in hand with the country&#8217;s fast cycle of development, and when Evo Morales took office in 2006 he started a plan to nationalize hydrocarbons.</p> <p>Yacimientos Petrolíferos Fiscales Bolivianos (<a href="https://www.ypfb.gob.bo/es/">YPBF</a>), Bolivia&#8217;s state-owned oil and gas company, began doing business with major multinationals and taxed its production at over 50 percent to fund this new economic stage. At the same time, Latin American countries were enjoying a commodities boom with increasing global demands.</p> <div class="flourish-embed" data-src="visualisation/693540"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>Brazil had always been happy with this relationship. Last year, Brazilian exports to Bolivia jumped 3.2 percent, reaching USD 1.6 billion. The gas coming from the Western South America coast remains the priority in the two countries&#8217; dealings, as underlined by the director of Brazil&#8217;s National Petrol Agency (ANP), José Cesário Cecchi. “Gasbol is Brazil’s biggest gas pipeline, and it increased the share of natural gas in the energy matrix fron around 3 percent in 1999-2000 to 12 to 13 percent today,” he stated.</p> <p>But a new dilemma has arisen: the Gasbol deal is up in December, and during a public hearing, Mr. Cecchi mentioned that the ANP has begun discussions over the contracting capacity involved in the renewal.</p> <p>The current challenge poses two hurdles for Brazilian authorities. First, it means bilateral negotiations between Jair Bolsonaro and Evo Morales are on the horizon, which is sure to be a challenge considering their ideological differences. Some friction was created between the two after the recent Amazon fire crisis which <a href="https://brazilian.report/society/2019/08/26/brazil-amazon-fires-ablaze-bolivia-threaten-people-wildlife/">involved Bolivia&#8217;s Chiquitano forest</a>.</p> <p>On the other hand, major local companies have their eye on the government&#8217;s plans to dismantle <a href="https://brazilian.report/money/2018/05/28/petrobras-oil-prices-brazil/">Petrobras&#8217; monopoly of the oil distribution chain</a> in Brazil. The ANP itself has brought about a new opportunity to open up what is a narrow market, allowing other firms to import Bolivian natural gas.</p> <h2>Brazil targeting Petrobras&#8217; monopoly</h2> <p>Petrobras is about to have some new hungry competitors. As Economy Minister Paulo Guedes said on March 26, the government wants to lower natural gas prices as soon as possible, which faces the state giant’s “bureaucracy resistance.” The company is now responsible for 75 percent of the gas produced in Brazil, according to the ANP.</p> <p>To unlock the sector, Petrobras signed a deal with Brazil&#8217;s antitrust watchdog Cade, foreseeing the state-owned company giving up natural gas transport and distribution markets entirely, with a divestment program that will run until the end of 2021. That includes its 51 percent hold of subsidiary TBG, which operates the Bolivia-Brazil gas pipeline.</p> <div class="flourish-embed" data-src="visualisation/693547"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>In exchange, Cade agreed to withdraw the three lawsuits against Petrobras for anti-competitive activities. Company CEO Roberto Castello Branco confirmed that the divestment strategy would be released soon. In the meantime, TBG attracted at least 18 interested companies in its first public call for bids. There are hungry sharks waiting in the open sea.</p> <p>According to Ulisses Ruiz de Gamboa, professor of economics at Mackenzie Presbyterian University, breaking Petrobras’ monopoly is a positive prognosis with a simple economic explanation. He says the entry of private companies will create competition and increase supply, which would lower prices and boost industry.</p> <p>“It is necessary not just in terms of competition, but also related to Petrobras’ recent efficiency problems. Besides Paulo Guedes&#8217;s promises of a reduction in price, the sector expects USD 34 billion in investment soon. This is a benefit for the final consumer, who will be able to buy cheaper gas,” he adds.</p> <p>But there’s more on the horizon. Besides the dissolution of Petrobras’ market share in the coming years, authorities believe that the privatization of state-owned gas distribution companies will also follow. This condition is an attempt to tame state-level spending, which represents one of the most significant challenges to Jair Bolsonaro’s administration, as explained by our reporter Natália Scalzaretto.</p> <p>The antidote, the government says, is the Fiscal Balance Promotion Plan (PEF), also known as the “Mansueto Plan,” named after treasury secretary Mansueto de Almeida, responsible for the measure. As the fiscal situation of states has worsened in recent years, Brasilia is willing to grant BRL 10 billion federal loans to states each year. In exchange, they must employ more fiscally responsible practices.</p> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/09/evo-morales-bolivia-gas.jpg" alt="evo morales bolivia gas" class="wp-image-24454" srcset="https://brazilian.report/wp-content/uploads/2019/09/evo-morales-bolivia-gas.jpg 1000w, https://brazilian.report/wp-content/uploads/2019/09/evo-morales-bolivia-gas-300x200.jpg 300w, https://brazilian.report/wp-content/uploads/2019/09/evo-morales-bolivia-gas-768x512.jpg 768w, https://brazilian.report/wp-content/uploads/2019/09/evo-morales-bolivia-gas-610x407.jpg 610w" sizes="(max-width: 1000px) 100vw, 1000px" /><figcaption>Bolivian President Evo Morales</figcaption></figure> <h2>Bolivia eyes an opportunity</h2> <p>As Petrobras’ monopoly is dismantled, Bolivia is aiming for a more significant participation in the South American fuel distribution chain. YPBF wants to raise its 12-percent slice of the TBG Brazil-Bolivia Pipeline, which would represent a considerable triumph for the Evo Morales administration. In October, he will run for his fifth-successive presidential term, yet faces his tightest election since 2006.</p> <p>However, a more prominent role in the segment turns out to be a necessity. As the Gasbol contract negotiations begin, commodity prices have lowered about 40 percent, according to the ANP. This has caused La Paz to hit red alert.</p> <p>Bolivian experts also say that domestic production is facing a crucial moment. With Latin American natural gas production falling 1.7 percent in 2018, Bolivia could step in to fill this gap, but the country’s supply capacities are in check.</p> <p>The government remains optimistic. Hydrocarbons Minister Luis Alberto Sánchez said that Bolivia “has a large opportunity” to be part of the distribution market in Brazil. His statement points toward actions beyond Petrobras and TGB, including a plan to buy assets of MSGás and MTGás, the two major distributors on the border states of Mato Grosso and Mato Grosso do Sul. “Brazil is a strategic partner for our country,” he said.</p> <p>The two parts show interest in a good neighborly relationship as they wait for Petrobras’ outcome. By the end of September, Mato Grosso Governor Mauro Mendes will meet authorities of the state company YPFB, in Santa Cruz de La Sierra, to sign a new natural gas supply agreement. The Mato-Grossense Gas Company (MT Gás) will be sitting ‘chair to chair’ with YPFB, opening new possibilities.</p> <p>The brand-new open market sought by the government can indeed be more competitive. In parallel to the main issue, the likely reelection of Evo Morales will push him closer to Jair Bolsonaro for a substantial economic reason.

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PowerSep 21, 2019

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BY Lucas Berti

Lucas Berti covers international affairs—specializing Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.