May 10, 2006

Bolivia's recent decision to nationalize its oil and gas sector should come as little surprise.

After all, Bolivian President Evo Morales won elections by an unprecedented landslide in December with a platform that called for nationalizing the oil and gas industry.

Yet his announcement on May 1 that he was taking back control of his country's resources sent shock waves among political and economic circles, both in Latin America and here in the United States.

Foreign oil and gas companies have six months to adjust their contracts with the Bolivian government or leave the country. Morales proclaimed: "We want partners, not owners," a statement that aptly describes the national sentiment.

Although at first glance it may appear somewhat extreme, Morales' action makes perfect sense.

Bolivian gas reserves, the second largest in South America after Venezuela's, have been a leading cause of the country's instability for at least the past decade. And we're talking about Bolivia, a country that has had seven presidents since 1996.

In 2003, Bolivian resentment at foreign corporations exploiting their resources culminated in what is now known as the "Gas War." Hundreds of thousands of Bolivians took to the streets to protest the government's plans to build a pipeline through the country's neighboring Chile -- Bolivia's long time archrival -- to export gas to U.S. markets.

Then-President Gonzalo Sanchez de Lozada sent in the troops to squelch the protests. The confrontation led to several dozen people being killed. The president was forced to resign, and the big project was put on hold. Two other men attempted to govern the unruly country over the next two years. Both faced the question of what to do with Bolivia's gas, but neither resolved the issue.

Many industry analysts are warning that Morales' nationalization will lead to financial ruin for Bolivia. Ironically, they're talking about a country that isn't exactly rolling in dough.

Bolivia is the poorest country in South America. Nearly two-thirds of the country's 9 million people live in poverty. The government is so strapped for cash that it was one of only three Latin American countries that qualified for debt relief in an agreement signed last year by the "Group of Eight" -- the world's richest countries.

Even a superficial look at Bolivia's former gas strategy shows that it hasn't worked well. When Bolivia privatized its state-owned oil and gas company in the early 1990s, foreign companies like the now-defunct Enron Corporation came into Bolivia as "strategic partners" in the gas industry. Enron's international assets were subsequently reorganized under the new name of Prisma Energy, which still owns significant portions of Bolivia's gas networks.

Other foreign companies that benefited from Bolivia's gas include Brazil's state-owned Petrobras, Spanish-Argentine Repsol YPF, Anglo-Dutch Shell and American giant Exxon-Mobil.

Interestingly, Morales isn't alone.

Several Latin American countries, particularly those with valuable natural resources and large poor populations, are taking steps to exert greater control over those resources and to gain a larger share of their earnings.

In the meantime, international oil and gas companies and their shareholders are raking in record profits. This dichotomy hasn't gone unnoticed.

Morales is trying to ensure that his "shareholders" -- the Bolivian people -- benefit from gas sales. He is fulfilling his campaign promise.

To do otherwise would be to go against the wishes of those who elected him, and that would be highly undemocratic.

Nadia Martinez is co-director of the Sustainable Energy and Economy Network (SEEN), a project of the Institute for Policy Studies in Washington, D.C. She was born and raised in Panama. She can be reached at pmproj [at] progressive [dot] org.