November 2019 – @alvaroriosroca Bolivia is going through a very critical moment in its democratic transit. We have a transitional government and soon we will have a new government with new elections, because the OAS confirmed very serious irregularities in the recent election. For this reason we allow ourselves to make a quick diagnosis of the energy sector and then we will propose a roadmap of actions: immediate, short and medium term….
Thanks to many factors (gas reserves discovered almost two decades ago, fantasy international prices, avid energy markets, and high tax revenues) Bolivia experienced a decade of economic prosperity unprecedented in its history.
Rentier exports between 2007 and 2014 that rose to 6,000 MMUSD per year and then began to decline due to falling reserves and production due to lack of exploration, markets and much lower prices. The bonanza gave for much but above all forxitist propaganda about the situation of the sector and also for construction of white elephants and other kinds of waste. The energy sector is already in emergency room and scalpel is required.
Immediate actions: Maintain supply to the internal and external market, protect our facilities from vandalism and resume negotiations with buyers in Brazil for the contract that ends this 2019 and where we must give certainty to customers. Begin negotiations with Argentina for the signed addendum and above all the winter gas peak that should not be so high because it prevents other negotiations. This with the reserves and current production capacity.
Also immediately stop propagandistic industrialization projects due to lack of markets, gas supply and economic resources, such as polypropylene silver, GTL MAP/DAP/NPK and others, which total 3,700 MMUSD. Stop electricity generation projects that are not under construction. We have excess capacity of about 2,000 MW and no market.
In the short term, transparent audits of YPFB’s activities and start with the depoliticization of YPFB ENDE and return them to the role of strategic companies with an independent board of directors, president and board of directors, which does not worship the government in office. YPFB’s very robust economic and financial situation has become very fragile. Its profits were reduced from 1,374 MMUSD in 2013 to 52 MMUSD in 2018 and we understand the results in 2019 will be much worse. In other words, the capacity to invest and pay debts to the BCB is very limited.
In the short term establish incentives (remuneration international oil price for example) for enhanced recovery projects for oil and be able to extract5,000 to 7,000 Bbl/day in one to three years. We are bleeding to death importing gasoline and diesel at a rate of 40,000 Bbl/day at international prices of 80/90 USD/Bbl. This would allow us to collect royalties and taxes, prevent the dollars from going abroad, operate our refineries and generate productive employment.
In the short term take action on the urea plant that has cost YPFB and the country around 1,000 MMUSD. The average exports in 2018 and 2019 have been 73 MMUSD which does not even cover operating expenses because it only operates at 36% of its maximum capacity. It is necessary to look for a commercial scheme for this plant, generate exports and take it to capacity and seek capital recovery. A Public-Private Partnership model could be an alternative.
In the short term, continue with the signing of exploratory contracts that were under negotiation to attract new exploration and replenish reserves that are so necessary. Also regain confidence with private operators for bureaucratic approval procedures.
In the medium term, seek consensus with society to review Bolivia’s fiscal scheme to encourage massive exploration throughout the national territory of both oil and natural gas and the search for new markets.
In the medium term, re-engineer and establish the political shielding of YPFB and ENDE and activate their participation in the entire chain under Public-Private Partnerships to give them competence and efficiency.
*Former Minister of Hydrocarbons and current Managing Partner of Gas Energy Latin America.