ANÁLISIS QUINCENAL: Transparency and Extractives Update from Latin America
By Carlos Monge, RWI Latin America Regional Coordinator
With Claudia Viale and León Portocarrero
April 7th – 21st, 2009 |
Español |
Bolivia adjusts its minimums for natural gas exports to Argentina.
Bolivian natural gas exports continue to fall due to the lower demand from neighboring Brazil and Argentina. Indeed, in March export levels were at 24.9 million cubic meters a day (MMm3/d), 25% less than for the same month in 2008. To make matters worse, the fall in demand has been accompanied by reductions in natural gas export prices. For example, the price of gas sold to Argentina fell from US$ 7.84 to US$ 4.58 per MMm3/d between January and early April.
The fall in Argentine demand can be explained by the slowdown in Argentina's economic activity, and by the fall in the price of alternative fuels, such as diesel, which are tied to international oil prices.
A meeting was held on April 20 in Santa Cruz between executives of the Bolivian state-owned oil company YPFB and representatives from the state-owned Energy Argentina (ENARSA), along with officials from Bolivia's Ministry of Energy and Argentina's Ministry of Planning.
The purpose of this meeting was to determine the volume of natural gas to be exported to Argentina during the winter. Officials also discussed whether the construction of the Northern Argentina Pipeline project would begin or would be postponed. Though exports to Argentina were averaging of 5 MMm3/d of gas to Argentina, YPFB president Carlos Villegas had offered to increase the export volume to 6.5 MMm3/d in a previous meeting.
On April 21st, after the meeting, participants announced that the gas contract between Bolivia and Argentina had been modified to guarantee an adjusted minimum export level of 4MMm3/d, though the previous agreement established a 7,7MMm3/d level.
Villegas also stated that the Argentine Government would take on the full responsibility for construction of the pipeline, which implies a US$ 950 million investment. However, no details were provided about the date on which the project would begin.
No information was provided about any contract changes to prices or penalties. As a result, said energy analyst Carlos Alberto Lopez, the new contract does not give Bolivian gas producers enough security to increase their investments, since Argentina's guaranteed level of purchases is lower than the one previously agreed and prices will probably also be adjusted downwards, because they are tied to international oil prices.
The fall in hydrocarbon prices also allows Argentina to get its energy supply from cheaper sources in the international markets, freeing themselves from their previous dependency on Bolivian gas and also paying lower prices. The recession also means less energy consumption and thus another drop in the demand for Bolivian gas. For Bolivia, reduced gas exports to Argentina and lower prices mean less rent from hydrocarbons. It is also important to remember that Brazil has already been buying less at lower prices. Since early January 2009, the fall in economic activity in Brazil, as well as increased rainfall which allowed hydroelectric power plants to provide cheaper energy, reduced the country's demand for Bolivian natural gas.
Fuel prices in Latin America continue to diverge from international levels.
International oil prices have fluctuated significantly during the last year, but this volatility has not been reflected directly in changes to gasoline prices in countries such as Venezuela, Chile or Colombia. While the governments in the first two countries have taken measures to keep domestic prices in pace with the international decline, or decline even more sharply, Colombia has seen its gasoline prices remain near the same level reached during the recent high-price period.
The most extreme situation among these countries is in Venezuela, where on April 13th it was reported that state-owned oil company PDVSA had lost almost US$ 2.1 billion due to the state subsidy that has enabled Venezuela to have the cheapest consumer gasoline prices in the world. These losses are even higher when we consider the 7.2 million liters of diesel that are subsidized for the domestic market. Analysts say without the subsidy for 95 octane gasoline, prices would be eight times higher.
Though PDVSA does not disclose its financial information, Consulting Group ODH has said that at present, according to their own estimates, refining and transport costs exceed the final sales price. Estimates indicate a US$ 0.15 total cost per liter of gasoline, while the sales price is between US$ 0.03 and US$ 0.04. Even though different solutions were proposed in order to close this gap, such as increasing the price of 90 octane gasoline, which is used by 70% of the population, the Venezuelan State has not announced any measures to date. Nevertheless, it is highly likely that budget restrictions will not allow Venezuela to sustain the current level of subsidies.
Chile's government protected gasoline consumers with a cut in specific taxes from six monthly tax units (MTU) in January 2008 to 3.5 MTU at present. But this tax cut will only be in force for a few more weeks due to the fall in international prices. Indeed, the formula used by the Ministry of Finance established that if WTI oil prices remained below US$ 85 for 12 consecutive months, the tax level would increase gradually until it was fully restored. This will probably occur by mid-2009.
Due to the anticipated impact on costs for the Chilean industry, many groups requested a delay in the gas tax increase, including the Chilean Association of Metal and Mechanic Industries (Asimet) and the National Confederation of Small and Medium Sized Companies (Conapyme).
In Colombia the situation is different, since the state did not grant subsidies during the high-price period and domestic prices have remained at almost the same level even as international prices fell. The president of Fendipetróleos, Rodrigo Valencia, said that there was an approximate excess cost of US$ 0.53 (1,200 Colombian pesos) for each gallon of gasoline. One proposed option for addressing this was to lower the tax on gasoline from 38% to 25%. However, on April 21, the government said it would institute a price reduction of 400 pesos per gallon, which would be applied as of May 1st and would be financed with resources accumulated in the stabilization fund, which has reached 426 billion pesos. This decision was made after the transport sector announced they would begin an indefinite strike.
Though Colombia is just now seeing reductions to align domestic prices with the current international level prices, in Chile and Venezuela the effects of policies that protected consumers from sharper increases are beginning to wear out. It remains to be seen how governments will to face new calls from consumers, transporters and industries to keep fuel prices low during the crisis period.
Conflicts over extractive activities increase in Peru.
The environment of conflict within Peru worsened during the first months of 2009, according to the Ombudsman's Office report. Almost two dozen new conflicts were in March alone, bringing the total number to 238, since 2004 when these reports began to be published. Of those, 49% are socio-environmental conflicts, almost all of them related to extractive industries (71% to mining and 7% to hydrocarbons). Among many conflicts, the mobilization of indigenous communities from the Amazon area and the strike by Doe Run workers stand out.
On April 9th, a general strike of indigenous peoples from the Amazon area broke out under the leadership of the Interethnic Association for the Development of the Peruvian Jungle (AIDESEP) and their local allies such as the Regional Organization of Indigenous Peoples of the Northern Amazon (ORPIAN). The motive for this protest was the demand that Congress revokes the legal decrees approved by Alan García's government after the signature of the FTA with the US. Approved without any public consultation, these decrees endanger the rights of indigenous peoples as well as the integrity of their territories, in order to pave the way for agro, industrial, forestry and hydrocarbon activities in the Amazon.
In August 2008, the Amazon communities carried out a national mobilization that achieved the repeal of legal decrees 1015 and 1073, which had lowered the required attendance for meetings on land sale decisions. However, 12 other decrees that have been questioned by indigenous groups are still valid, such as DL 1090 which excludes deforested areas from the national heritage and allows them to be considered agricultural lands and therefore available for sale. The current strike comes as a response by the indigenous peoples to seven months with no further response by the state to the outcry over the 2008 decrees.
During April, there were reported takeovers at an oil block operated by Pluspetrol, as well as at a regional airport and on the Tambo, Urubamba and Napo rivers. The Navy intervened by destroying the barrier created by Kichuas and Arabelas groups, permitting boats from the Perenco oil company to go through. Though the protests were ongoing, ten more oil concessions for the jungle area were awarded on April 16. In response to this announcement, and to the continued lack of dialogue with the state, AIDESEP president Alberto Pizango announced in late April that the protest would become more radical and that the groups would also approach oil and gas companies in order to seek support against the aforementioned decrees.
In the mining sector, a conflict erupted at the company Doe Run, property of the Renco Group, after a halt in the majority of their operations led to the temporary suspension of 75% of their 3,500 workers. These workers began a strike on Tuesday April 21, blocking the roads and stopping activities at La Oroya. The striking workers demanded an end to the suspension, which began with the company's loss of US$ 175 million needed to purchase the minerals it refines. Doe Run has now sought a loan from the Peruvian Government, but this may not have been necessary, since a group of companies had offered their own loan. Doe Run will face continued uncertainty if while it looks to the state or other companies to solve its problems, instead taking internal actions, such as seeking additional contributions from its stakeholders or drawing on the huge profits which it has reportedly been repatriating illegally at the expense of its own financial solvency and the fulfillment of its environmental obligations.
The increase in conflict related to the extractive industries in Peru demands urgent attention from Peru's leaders. The risk of greater violence will increase as long as the lack of attention and dialogue continues and the interests of extractive companies are placed ahead of those of the population.
Sources: El Mercurio, El Universal, El Comercio (Peru), ElDeber.com.bo, El País, La Razón, La Republica.com.co (Columbia),, La República (Peru)
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