South American nation hopes to become premier gas, energy supplier
FOCUS REPORTS
EDITOR'S NOTE: In an exclusive interview for Oil & Gas Financial Journal, the Focus Reports editorial team interviews Álvaro García Linera, Vice President of Bolivia, who discusses the country's plans, goals, and steps the South American nation is taking in hopes of becoming a premier supplier of gas and energy to Latin America and the world.
OIL & GAS FINANCIAL JOURNAL: This year marks the tenth anniversary of President Evo Morales' nationalization of hydrocarbon resources in Bolivia. From your perspective, what have been the results of this action?
ÁLVARO GARCÍA LINERA: The first result was the improvement of the country's income, which is reflected in increased investment in sectors such as infrastructure, health and education, which was an old debt that the government had with the people to improve all these aspects.
The second result was increased diversity in hydrocarbon activities in Bolivia because we began to venture into the industrialization of gas. This year we brought a urea and ammonia plant, and in four years we plan to launch a polypropylene and polyethylene plant. Depending on the fluctuations of the market in the next 10 years, we are contemplating the production of ethylene using soft plastics.
The third result has been an increase in foreign investment into Bolivia, thanks to the political and social stability that the country has achieved. This new environment has encouraged companies already present to extend or renew their contracts and has promoted the increase of new foreign companies coming to Bolivia. This action has increased the overall foreign investment in the country.
In the past, the regimen of property and distribution of profits were badly proportioned, creating injustice and political instability. Companies were able to generate very high profits, but with great risks. Now that we have stabilized the country, we have created an environment that is predictable, stable, and plannable in terms of investment and profits for foreign companies.
OGFJ: Currently, Bolivia has a nine-year plan to become the heart of energy for Latin America. This plan requires an investment of $32 billion according to Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). This rather large sum is equivalent to the annual gross domestic product of the country. How does the government plan to finance this project?
GARCÍA LINERA: The government will directly fund more than 50% of the project and will have a lower percentage of foreign investment. This is a nine-year plan, in which each year the government will invest approximately $2.5 billion of GDP, leaving about $10 billion to finance.
The remaining part will be financed with the profits from gas activities, plus the country's international reserves that represent 50% of GDP, being the highest in Latin America. In addition, we have $12 billion dollars in resources of the Pension Fund Administrators (AFP) and $22 billion in private savings in banks. When these resources are added, it creates a strong financial backing that allows the government to finance the plan directly or through credit.
OGFJ: Where will Bolivia acquire the technology for this project?
GARCÍA LINERA: The technology will be acquired abroad, in part by the government of Bolivia, but also leaving room for foreign investment. We are committed to acquiring the best technology available.
In the case of the urea and ammonia plant, we hired the Korean company Hyundai. For the polypropylene plant, we are evaluating several suppliers from the United States, Italy, Germany, Spain, and Japan among others. In the upcoming months, we will decide which company to choose, taking into account the technology and price. We know that at this time we are not able to generate this technology internally, so will absorb that of the world leaders until we can produce it in Bolivia.
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OGFJ: Bolivia is a country with only 10 million inhabitants. However, it has a huge infrastructure downstream, a field that so far is under-industrialized. What are the objectives for these infrastructures?
GARCÍA LINERA: Clearly, the Bolivian market is very small, and the large industrial investments that we have done do not go accordingly with the domestic market. The small and medium investments are directly aimed for domestic consumption. However, the giant investments in gas, oil, electricity, mineral smelting, lithium, and atomic energy are oriented for the international market.
In the case of lithium, Bolivia has 40% of world reserves of this element that is essential for car batteries. In the same way, we want to participate in the creation of energy by nuclear fusion, which occupies deuterium from water, and tritium from lithium. The goal is to achieve an inexpensive technique of fusion of the two atoms to generate electricity. This project is very promising for Bolivia, since no other country in the world has such a large reserve of lithium.
This is a very promising project for Bolivia because we are the country with the highest lithium reserves in the world. This is a plan of at least 20 years, but we must prepare now to not only sell the raw material, but also to incorporate added value. Our goal is to partner with countries that are currently working on developing these technologies to work together in the future.
OGFJ: In order to develop all of these projects, it is vital for Bolivia to have partners. How does the government of Bolivia build these partnerships in such a fluctuating continent such as South America, where governments often change from one political pole to the other?
GARCÍA LINERA: Bolivia has shown itself to be serious towards its commitments, regardless of the type of government that has signed the commitment. In the case of Brazil, when Bolivia signed the gas contract, the Brazilian government was extreme right, and when government changed, we kept the contract unalterably. The same case has been with the gas contract to Argentina and the recent change of government.
In the foreign market, Bolivia has been very serious in fulfilling its commitments, regardless of both internal and external political fluctuations. Bolivia was on the verge of a civil war that almost led to a divided country, but the contracts were never interrupted.
The nationalization that took place in Bolivia was very modern. It was achieved through negotiations with all the companies that were present in the country. We got them to stay in the country and even received more companies.
Regardless of the variations and political cycles, contracts must be respected. Today, we represent the economy with higher economic growth on the continent, after Panama. This growth, according to the World Bank, would exceed by 2% the growth of Panama if we had access to the sea.
Today we offer foreign investors a stable political situation and clear laws, thus facilitating the vision of the results of such investments. We are a country very interested in the nationalization of our resources, but we also understand the importance of globalization.
OGFJ: Bolivia has very favorable political stability. However, its neighbors do not. How important it is for Bolivia to send its gas frozen or by other means to more distant and industrialized countries?
GARCÍA LINERA: This is the ideal scenario because one of the limitations for foreign investment in Bolivia the lack of access to the sea. As of now, we are using the proximity to Brazil and Argentina for the sale of gas, which is a great advantage.
We are working on making Bolivia run only on renewable energy. Thus, all the energy produced by hydroelectric or thermoelectric means is left for export.
Currently, Bolivia produces 60 million cubic meters of gas per day, of which the domestic market consumes 12. This leaves 48 million cubic meters of gas for export, and this number is expected to increase in the coming years. Companies that deliver gas for electricity also receive the export price, as this gas will be sold in the form of electricity to Peru, Brazil, and Argentina.
Argentina has resources, but it also needs energy and Brazil needs 2,000 megawatts each year. Thus, Bolivia has invested in a large-capacity power plant to convert gas into electricity.
Even with these measures, we are not reaching our full potential, so we are exploring the feasibility of freezing the gas and send it to other countries. At the moment we are working on agreements with Peru to gain access to the sea, not only to export frozen gas, but also to serve as a connection between Brazil and China.
Nowadays, Brazil exports to China about $70 billion per year in goods, and imports $40 billion per year. Our plan is to build a railway with European or Chinese investment that connects Brazil to a Peruvian port, forming a corridor that allows for the free movement of these goods. Once this corridor is done, the next step would be to export the frozen gas through it, solving the landlocked issue.
OGFJ: All these mega projects that Bolivia is working require a high level of technology and human capital with such knowledge. What is Bolivia doing to ensure this human capital in the country?
GARCÍA LINERA: We have started from the basics to deal with this need. After Cuba, we are the country in Latin America that invests more in education. We invest 13% of the state budget in education versus 6% in the rest of the continent. The results have begun to appear, but we still have a way to go. For now, we are absorbing knowledge abroad as fast as possible.
We have a free project for masters and doctorates abroad with the agreement of satisfactory results and to work for the country for four to six years. This way we increase the technical education of the population. We have followed the footsteps of other countries such as India and Ecuador, by sending young people abroad to learn and then apply their knowledge in the country. We know this is a long-term investment, but eventually this will generate an added value to the resources of Bolivia.
In the short term, we are working with foreign companies in the country to accelerate training. Bolivia does not require foreign companies to hire a certain amount of Bolivian personnel, but they discover quickly the benefit of having domestic employees working for them.
OGFJ: In recent years, the oil and energy sector has been severely affected, making companies more cautious when selecting a country to invest in. What would you tell the readers of Oil & Gas Financial Journal about Bolivia?
GARCÍA LINERA: In these times of uncertainty, Bolivia is the ideal place to invest because it has sustainable economic growth, clear laws, secured markets, and political and social stability. There are very few countries with such characteristics in the continent, and our country is one of them. Bolivia represents profitability, stability, and predictability, putting us in an enviable position at a time of global uncertainty.
OGFJ: Thank you very much for your time today.
