Bolivia, with its large oil and natural gas potential, is becoming an increasingly important link in South American energy trade. The nation is becoming the natural gas hub for the Southern Cone.

GENERAL BACKGROUND
On August 6,1997, General Hugo Banzer became President of Bolivia replacing Gonzalo Sanchez de Lozada. President Banzer pledges to continue the reform policies of his predecessor with particular emphasis on reducing Bolivia's illicit cocaine drug trade and increasing efforts against poverty. Bolivia ranks among the poorest countries in South America. In 1996, Bolivia's per capita income was $880 (1990 US $) compared to Argentina's $5606 per capita, the highest in Latin America. However, Bolivia has made significant economic gains in recent years due to the free market policies of its government. Inflation has been reduced from nearly 28,000% in 1984 to 9.3% by the end of 1993 and 8% expected for 1996. Real gross domestic product should grow in the 4.5-6% range for the next half dozen years, up from the 3-4% range of recent years. Growth in 1996 was somewhat lower than expected at 4.5 percent (see chart). Even so, with population growing at a rate over 2% per year, only small gains are expected in per capita income.

The major impetus for higher growth rates is the continuation of "capitalization" of its national industries. The capitalization program approved in 1994 calls for the privatization of six national industries: YPFB, oil and gas; ENDE, electricity; ENTEL, telecommunications; LAB, airlines; ENFE, railroads; and EMV, tin/antimony smelter. Nearly five of the six have been privatized. YPFB still awaits a decision on refining and marketing. Only EMV is left to be capitalized. Essentially, capitalization calls for the matching of the government's estimated book value of the industry and the granting of management control to the investor(s). To complete the capitalization process, fifty percent of the "capitalized value" (book value plus matched value) of the industry is to be transferred via shares to a "trust fund" with dividends going to a pension fund for Bolivians. The number of shares are to be allocated on the basis of wages. No pension administrators have yet been selected, however. Nearly $2 billion of equity capital has been raised for the privatized industries, including significant debt transfers. So far, the government has sold the electric company (to three U.S. firms), the telecommunications enterprise (to the Italian firm, Stet International), the airline (to the Brazilian company VASP), and railroad (to the Chilean firm Cruz Bianca), YPFB exploration and production to U.S. Amoco and Argentina YPF, and transportation to U.S. Enron and Royal Dutch Shell.

Trade has been the mainstay of the Bolivian economy even though Bolivia continues to import more than it exports. The country habitually runs a current account deficit and owes 4.5 billion in bilateral and multilateral debt. There are several positive signs that Bolivia will turn around trade and its current account, but long term debt will require actions by international lending institutions. In September 1995, Germany forgave $30 million of Bolivia's bilateral debt. The Paris Club of creditor nations negotiated a $576 million debt restructuring agreement with Bolivia in December 1995. The Agreement included $152 million in debt forgiveness. The positive signs are growing as agriculture exports to its Andean Pact neighbors keep improving and mining with foreign investments should see a turnaround. In large measure, the outlook for Bolivia rests on the success of "capitalization" which will allow some infrastructure improvements and improved educational opportunities and social services, signing of the 1996 Hydrocarbon Law freeing up the stalled U.S.-Bolivia Bilateral Trade Agreement, and revenue from the Bolivia-Brazil pipeline. Bolivia recently signed a free trade agreement with Mexico, and agreed to a trade agreement with the Mercosur customs union under a so-called for-plus-one formula. The formula allows for the creation of free-trade zones between the Mercosur and other countries, but stops short of full membership in an eventual common market. The Mercosur is currently composed of Argentina, Brazil, Paraguay, and Uruguay.

OIL
In January 1996, the government unveiled YPFB's latest capitalization plan. Five new companies will emerge to cover the main industry activities: two exploration and production companies, refining, transportation, and marketing. Oil fields and exploration blocks will also be divided up between exploration and development companies. Indefinite concession contracts given to international oil companies will be administered by the General Directorate of Hydrocarbons, a new organization within the government's energy secretariat. The contracts will allow for winning bidders to exploit fields without violating the Bolivian Constitution, which states that oil and gas reserves are property of the state and therefore cannot be given to a third party. Two of YPFB's refineries, as well as the marketing companies, will not be capitalized, but sold directly to the highest bidder. Forty companies had been prequalified to bid on the YPFB units, including several Latin American firms.

As of June 1997, the Bolivian national oil and gas company YPFB has been nearly "capitalized." Bolivia is to receive $570 million over four years from the capitalizing of its two exploration and production units. The strategic partners are U.S. Amoco and Argentina's YPF-Perez-Companc Pluspetroleum. U.S. Enron and Royal Dutch Shell won the bid of $ 263.5 million for the pipeline transportation unit, which includes YPFB's share of the proposed Bolivia-Brazil pipeline. Overall Bolivia should receive $833.5 million for the capitalization of YPFB, as well as promulgating other investment activities as a result. The Bolivia constitution maintains ownership of energy reserves. Proved petroleum reserves are estimated at 132 million barrels, but with additional exploration, this figure could increase substantially.

NATURAL GAS
In 1995, Bolivia consumed 43 billion cubic feet of natural gas, almost all by the industrial sector.

Recently, new domestic gas distribution opportunities have been organized, with the help of local municipalities and private capital. YPFB has created five companies to undertake these projects in the cities of La Paz, Cochabamba, Santa Cruz, Sucre and Tarija. The completion of these projects will allow significant growth in the residential and commercial sectors.

Bolivia currently exports natural gas to Argentina, and has major plans to export gas to Brazil, Chile, and Paraguay in the near future. In September 1995, President Sanchez de Lozada and Paraguay's President Wasmosy signed an agreement for Bolivia to supply natural gas to Paraguay through a new pipeline. The initial delivery will be 20 million cubic feet per day (mmcf/d) at a cost of $1.20 dollars per million Btu. Increasing the volume of natural gas exports is one of the top priorities of the country's energy development program.

In November 1995, Total announced it was prepared to invest $25 million to explore for oil and gas in the Maididi block in the region around La Paz, close to Bolivia's Peruvian border. This represents the largest sum ever invested in Bolivia in a single exploration effort by a private international oil company. Tesoro and Zapata have signed a deal with Total to do exploratory drilling. The YPFB capitalization of exploration and production units by its strategic partners, U.S. Amoco and Argentina's YPF, lead to announcement that $86 million will be invested to expand the natural gas capacity of Chaco Oil Company, an affiliate of Amoco.

Pipelines
The stage is set for Bolivia to be the natural gas hub of the Southern Cone gas market. Bolivia currently has one existing gas export pipeline to Argentina, with a capacity of 212 million cubic feet per day. Bolivia's future pipeline plans include a link to northern Chile, a pipeline to Brazil, and a pipeline to Paraguay.

The pipeline to Chile has been delayed due to a problem with the proposed route, which was found in January 1995 to have geological faults. Additionally, the Bolivian army had refused to support the pipeline project until Chile agreed to deal with the issue of Bolivian access to the Pacific Ocean. The pipeline is eventually expected to handle as much as 700 million cubic feet per day as demand grows.

The Paraguay-Bolivia pipeline would run from Vuelta Grande in Bolivia to Asuncion in Paraguay. The 500-mile long Trans Chaco pipeline could transport up to 50 million cubic feet per day after five years from its initial 20 million cubic feet per day rate. Proposals are also being considered in extending the pipeline to Curitiba in Brazil. Discussions have also taken place between the two countries about a separate pipeline from Bolivia through Paraguay to Brazil, which would simultaneously supply Paraguay and Brazil.

The Bolivia-Brazil gas pipeline is by far the most important of the projects. In February 1993, the two countries signed an agreement to construct and operate jointly the $1.8 billion pipeline, which will originate in the Bolivian city of Santa Cruz. The pipeline is tentatively scheduled to begin gas deliveries to the Brazilian cities of Sao Paulo in 1998, and Porto Alegre in 1999. Though Bolivia and Brazil agreed on most of the basic terms of the project in August 1994, construction of the pipeline was held up for over a year due to financing and ownership disputes, certain technical points (concerning the size of the pipeline diameter), and a disagreement over gas pricing. These problems have now for the most part been settled. In October 1995, Petrobras (Brazil's state oil and gas company) prepared tender documents for the first two international bids for work on the pipeline. The final deal was signed September 4, 1996.

ELECTRIC POWER
Bolivia's electricity sector is made up of an interconnected system and three main isolated systems. The interconnected system accounts for nearly 90% of the country's consumption and approximately 77% of installed capacity. In June 1995, the government announced the capitalization of ENDE's three main electricity generation companies to U.S. power companies, Dominion Energy, Energy Initiatives, and Constellation Energy, for $140 million. Of Bolivia's 790 megawatts capacity, ENDE controlled almost 500 megawatts. (See Chart) ENDE's Empresa Corani, 126 megawatts (MW), was capitalized by Dominion Energy, Empresa Guaracachi, 248 MW, by Energy Initiatives, and Empresa Valle Hermoso, 87 MW, by Constellation. In addition, the Bolivia Power Company (COBEE) was purchased by the U.S. NRG Energy with plans to add 66 megawatts by 1998. COBEE (151 MW) is the largest privately-owned utility in the country. Of the electricity generated in the system, 60% is thermoelectric and 40% is hydroelectric. The four generating companies are working to increase Bolivia's generating capacity to provide electricity for domestic consumption and export, primarily to Brazil. Dominion Energy has offered to invest $85 million on the Sacaba project that will supply electricity and water to the city of Cochabamba. The three companies have also formed a consortium, Electrobol SA, to build a 450-500 MW gas-fired plant that will supply electricity to the Brazilian state of Mato Grosso. However, this bid was dropped. Instead, U.S. Enron plans to supply Mato Grosso from its planned 480 megawatt unit at Cuiaba, which is to be connected to the Bolivia-Brazi pipeline for a cost of $500 million. In total, Enron plans to have 2,260 megawatts capacity to supply Brazil's Sao Paulo, Mato Grosso, and Mato Grosso do Sul.

COUNTRY OVERVIEW
President: General Hugo Banzer
Independence: August 6, 1825 (from Spain)
Population (1995): 7.4 million
Location/Size: Central South America; 1,084,391 sq km (424,164 sq mi), slightly less than three times the size of Montana
Major Cities: La Paz and Sucre (executive and judicial) (capitals), Santa Cruz de la Sierra, Cochabamba
Languages: Spanish (official), Quechua (official), Aymara (official)
Ethnic Groups: Quechua (30%), Aymara (25%), Mestizo (mixed European and Indian ancestry- 25-30%), European (5-15%)
Religions: Roman Catholic (95%), Protestant and other (5%)
Defense (93E): Army (25,000), Navy (4,500), Air Force (4,000)

ECONOMIC OVERVIEW
Currency: 1 bolivianos ($B)=100 centavos
Market Exchange Rate (7/96): US$1 = $B5.13
Gross Domestic Product (GDP 1990 US, at market exchange rates) (1996E): $6.7 billion
GDP Growth Rate (1996E): 4.4% (World Bank est.)
Inflation Rate (consumer prices, 1996E): 8.0%
Current Account Balance (1995E): -323 million
Merchandise Exports(fob) (1995E): $1101 million
Merchandise Imports(cif) (1995E): $1376 million
Major Export Products: Minerals, natural gas, soybeans, wood, coffee, jewelry
Major Import Products: Capital goods, chemicals, petroleum, foodstuffs
Major Trading Partners: United States, Argentina, Brazil, Japan
Unemployment Rate (1995): 7.2%
Total External Debt (1995E): $4.5 billion

ENERGY OVERVIEW
Proven Oil Reserves (1/1/96): 131.9 million barrels
Oil Production (1995): 38,000 barrels per day (b/d), of which 29,000 b/d was crude oil
Oil Consumption (1995): 31,000 b/d
Crude Oil Refining Capacity (1/1/96): 45,000 b/d
Natural Gas Reserves (1/1/96): 4.5 trillion cubic feet (tcf)
Natural Gas Production (1995): 113.4 billion cubic feet (bcf)
Natural Gas Consumption (1995): 43.4 bcf
Electric Generation Capacity (1/1/95): 0.79 million kilowatts (790 megawatts)
Electricity Generation (1995): 2.9 billion kilowatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 0.12 quadrillion Btu
Energy Consumption per Capita (1995): 16.2 million Btu
Energy-related Carbon Emissions (1995): 1.9 million metric tons
Carbon Emissions per Capita (1995): 0.26 metric tons
Major Environmental Issues: Deforestation resulting from international demand for tropical timber and the clearing of land for agriculture; soil erosion; desertification; industrial pollution of water; loss of biodiversity

OIL AND GAS INDUSTRIES
Organization: Yacimientos Petroliferos Fiscales Bolivianos (YPFB) and Strategic Partners
Major Ports: None; country is landlocked
Major Oil and Gas Fields: Carrasco, San Roque, Sirari, Vibora, Vuelta Grande
Major Pipelines: Bolivia-Argentina; Bolivia-Brazil (proposed)
Major Refineries (crude oil capacity): Cochabamba (27,250 b/d), Santa Cruz (15,000 b/d), Sucre (3,000 b/d)

Links to other sites:
1997 CIA World Factbook - Bolivia
U.S. International Trade Administration, Country Commercial Guide - Bolivia
U.S. Department of Energy's Office of Fossil Energy's International section - Bolivia
U.S. Trade and Development Agency - Latin America and the Caribbean

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

LatinWorld's section on Bolivia
Bolivia from Bolivia Web

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File last modified: September 19, 1997

Contact:

Lowell Feld
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