Analysis

On May 1, Bolivian President Evo Morales signed decree 28701, which nationalizes Bolivia's oil and gas resources. This was one of Morales' main campaign promises and sets Bolivia on a course similar to that of countries like Venezuela.

Even before winning the presidency, Morales said he intended to nationalize Bolivia's oil and gas resources. In that sense, this announcement is not a surprise, especially after reports emerging in the first days of April said a law to nationalize the resources was ready to be proposed. If anything, Morales just caught the local media by surprise, having announced it on a holiday. Using the figure of a decree instead of a change in the law, which can come later, also gives Morales an element of surprise to protect the announcement from potential legal challenges. At the same time of the announcement, Bolivian troops took control of several oil fields. The deployment of troops is intended both as a symbolic way to signal that Morales means business and to prevent any attempt to shut down production. Even if the nationalization was not unexpected, the way in which Morales' government has acted shows some heavy-handedness and not much willingness to compromise.

The decree's first details establish that the firms operating in the country will need to hand their production to the state-owned Yacimientos Petroliferos Fiscales Bolivianos (YPFB), which will take over selling the private firms' production as well as its own. The decree further says that private companies have 180 days to sign the new contracts in order to keep operations in Bolivia. Morales had said from the time he was campaigning that he would not confiscate companies' actual facilities and investments.

The main foreign energy companies operating in Bolivia are the Spanish company Repsol YPF, the Brazilian company Petroleo Brasileiro and the French company Total. Morales' decree establishes that those companies that had produced more than 100 million cubic meters in 2005 would only benefit from 18 percent of the production, with the rest of it going directly to the Bolivian government. Companies like Repsol YPF, which had registered the largest amount of reserves, will be affected most by the nationalization. If those details turn out to be true, then it will not leave those companies with many incentives to keep operating in the country.

Morales was facing increased domestic pressure to act quickly to fulfill some of his campaign promises, after having initially flip-flopped on the promise to allow unrestricted coca growing. This seems to be a way for Morales to reconcile himself with the other Bolivian political actors, and it will likely be well received by Bolivia's new partners on the just-signed Peoples' Trade Agreement: Cuba and Venezuela.