Within less than 12 months Bolivia has managed to come full circle. First Evo Morales resigned as President of Bolivia in November 2019 amidst widespread protests calling into question the voting count, only to give way to a heavily military-backed interim government headed by Jeanine Anez that has delayed the due presidential vote three times (January, then May, finally September) before actually allowing the October 18 presidential ballot. In one of the rarest Latin American examples of popular vote rolling back a military coup by democratic means – although the root causes of popular discontent were justified and sound – Bolivians have granted a huge victory to Luis Arce, a former Economy Minister under the previous administration.

This means that the Bolivia of 2021 will seemingly take a simultaneous step back and several steps forward. Arce’s winning of the elections has triggered minimal public activity, his 55% was always twice as much as the ballot percentage of runner-up Carlos Mesa (29%). President Arce will also have more leeway in conducting difficult internal policies, considering he can proudly wield his 12-year Finance Minister tenure without the negative connotations of Evo Morales antics. Morales has repeated on several occasions that he would never run for a fourth term and would accept the results of the failed 2016 constitutional referendum yet still persevered with himself being the main candidate of the Movement Toward Socialism Party (MAS) in 2019.

Lower Gas Exports Amidst COVID-19

Now that Luis Arce can use this landslide victory to consolidate the Bolivian political spectrum around himself, he can assess the gravity of energy-related challenges the Latin American nation currently faces. With Bolivia being primarily a gas exporter with relatively low crude production numbers, the issue of natural gas exports is crucial for the robustness and sustainability of the economy. Here President-elect Arce’s main enemy is the outgoing caretaker President Jeanine Añez who was not elected for the position (and important thing to keep in mind so as to understand the legal implications) yet nevertheless agreed to renegotiate Bolivia’s gas supply deals vis-à-vis its two main gas buyers, Brazil and Argentina. Needless to say, both deals were renegotiated to the detriment of the Bolivian economy, 30% of which relies on natural gas proceeds. Related: Libya Oil Output Hits 800,000 Bpd

Graph 1. Bolivia’s Monthly Gas Production in 2015-2020 (million cubic meters per month).

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Source: Instituto Nacional de Estadistica, Estado Plurinacional de Bolivia.

Under the previous setup, Brazil had a long-term supply agreement with the Bolivian national oil and gas company YPFB which stipulated a 24 MCm per day take-or-pay takeover requirement, whilst Argentina was bound to buy 18 MCm per day – this was downgraded to 14 MCm per day to Brazil and 11 MCm per day to Argentina, equivalent to a roughly 40% drop across the board. The oddity of the situation is that in April-May, the Latin American lowpoint of the 1st COVID wave, both Brazil and Argentina failed to reach their already decreased contractual commitments, so low was natural gas demand in those periods. Although demand seems to be picking up a bit, Argentina was last reported to import around 18 MCm per day of Bolivian gas (corresponding to the previous take-or-pay threshold), this drop in export volumes has aggravated this year’s budget deficit, assumed to be around 10-11%.

Golden Era is Gone but the Principle Remains

Today’s travails mark a decisive end to the golden era of the 2010s when the Morales-led Bolivia managed to double its GDP, leaving behind the dreadful 20 years of stagnation between 1985 and 2005. The renationalization of Bolivia’s hydrocarbon sector following its 1996 ultraliberal privatization was heavily supported by Bolivians (the 2004 energy referendum when 92% of voters voted in favor of nationalization took place under President Mesa but he shied away from carrying it out) even before Morales, it is just that he was the first one to see the genuine political opportunity it entailed. Although oil and gas will not bring as much income as it did in the past years, the resource nationalism introduced by Morales and effectively turned to the populace’s benefit by means of a wide system of allowances will most probably outlive the political career of Morales himself.

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On a concurrent note, one of interim President Jeanine Añez’s main mishaps was its attempted re-privatization of the power utility company Elfec, less than a decade after the 2010 nationalization carried out by Evo Morales. The Elfec affair not only led to the immediate resignation of four cabinet ministers including high-profile finance minister Oscar Ortiz but also provided the last nail in the coffin of Añez’s own ambitions to present her candidature at the presidency. This was a poignant reminder that resource sovereignty and the willingness to keep crucial part of energy infrastructure in public hands remains an important issue not only to the Bolivian populace but also to the political layers and that Morales’ actions have had an impact that go beyond his persona.

The Future

President-elect Arce has stated in a recent interview to a Brazilian newspaper that he intends to renegotiate the gas deal with Brazil as his predecessor had no right to renegotiate a covenant without having the democratic mandate to do so, effectively meaning that the initial priorities would rather focus on immediate fire-fighting rather than strategic decisions. The overarching goal of Arce’s economic policy seems to be reactivating domestic demand that has flattened out during the months of pandemic and to restart some forms of subsidies to the poor. At the same time, his utterances point to the future Arce administration being more fiscally frugal than that of Morales and in this context the Añez Administration turn towards a less socialist system might turn out to be beneficial for him in getting rid of some Evo-era excesses.

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In terms of Bolivia’s hydrocarbons policy, there seems to be very little probability that President Arce will move to revisit the country’s 2005 hydrocarbon code as he was party to its adoption. Having to cope with the double whammy of reduced commitments vis-à-vis main buyers in Brazil and Argentina and low oil prices (to which the sales price of the gas is linked) will turn out to be one of the major setbacks in the government’s drive to return production to pre-2020 levels; the country time to placate investors’ fears that Bolivia is not safe enough for investment and this time will largely hurt its short-to-mid-term prospects. This being said, oil and gas majors like Gazprom, Total or Petrobras are already active in Bolivia and might step up their exploration and production game if enticed appropriately.

By Viktor Katona for Oilprice.com

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