BOLIVIAN GAS PIPELINE CONSTRUCTION

I. IDENTIFICATION

1. The Issue
   
   

   In 1995, scientists found large deposits of natural gas in north and south-west Bolivia. Due to the country's economic situation, the Bolivian government did not have the resources to dig for oil wells or develop the area. At the same time, president Gonzalo Sanchez de Lozada was leading the country through a de- nationalization reform and encouraging foreign investment in previously national companies. Therefore, the president's next step was to add the national oil company, Yacimientos Petroliferos Fiscales Bolivianos' (YPFB), to its list of privatizations. In mid-1994, U.S. based Enron Corporation won the bid to develop Bolivia's gas resources by constructing, financing, and eventually investing and operating a pipeline. In September, 1996, the presidents of Bolivia and Brazil met in Cochabamba, Bolivia to inaugurate the gas pipeline project, which would carry natural gas to south-west Brazil. While there has not been much environmental research conducted on this project, the implications of previous ventures in Ecuador, Peru, and Colombia suggest a cause for concern, especially since the pipeline is already under construction and no significant environmental risk assessment has been presented.

2. Description
   
   

   Upon his election in 1993, Bolivian president Gonzalez Sanchez de Lozada undertook a series of reforms with the goal of privatizing 50 percent of all national companies. Thus began a series of de-nationalizations, beginning with the airlines, hydroelectric power, and ending, most recently, with the natural gas and oil companies. Lozada gained a national consensus mainly because of his innovative solution to this problem: capitalization. The Bolivian government would not concede all control and profits over its companies. Rather, it would sell up to 50% of each company to the highest bidder. The 50% kept by the state would be used to create Bolivia's first universal pension plan in history. Therefore, when YPFB leaders realized that the government was offering Enron Corporation up to 55% of the project, they organized strikes and accused the state of having personal connections with Enron officials. On March 22, 1996, Army troops took over refineries and natural gas facilities in anticipation of a strike by employees of YPFB. The government feared that workers would sabotage the existing Bolivia-Argentina pipeline in protest of YPFB's privatization and Enron's unusually high take-over of the national company. To solve this dilemma, Enron invited Shell into the venture, lowering its claim to 42% of the final proposal. This concession quelled most internal dissent by the YPFB, the Federation of Private Business (CEPB), and opposition parties and allowed Sanchez de Lozada to continue the venture unhindered.

   The Bolivian gas endeavor began with unilateral trade with Argentina. However, in January of 1996, the Paraguayan and Bolivian presidents signed an agreement proposing a new pipeline and natural gas trading agreement. Plans for constructing another pipeline to Chile have also been in the making, but have been difficult. However, the Brazilian project is by far the most lucrative agreement, and has contributed to a grandiose new scheme taken on by Enron of creating one continental gas grid, with Bolivia as the natural gas hub supplying neighboring countries. To complement this now regional endeavor, Bolivia has recently changed its status in MERCOSUR from that of an associate state to a full membership contract. On February 29, 1997, a new free-trade zone will slowly begin to be built between Bolivia and the MERCOSUR countries, to be completed in eighteen years. This new economic partnership can only help the pipeline project.

   Currently, Bolivia has 7.2 trillion cubic feet in natural gas reserves, a number expected to rise sharply once unexplored areas are tapped. Estimations for the length and width of the Bolivia- Brazil pipeline are 2,100 miles and 36 inches. The Bolivian government owns 60% of the pipeline within its borders and 20% within Brazil. The consortium of financiers; PETROBRAS (Brazilian Petroleum), the BTB consortium (British Gas, Tenneco Gas, and Australia's BHP Petroleum), and YPFB in conjunction with U.S. partners Enron and Shell, will be financing a project worth roughly US $2 billion. Of these, Enron will be primarily in charge of construction. The company hopes to break ground in the first half of 1997 and to finish by 1999.

   Rio Grande (the region where the pipeline will originate) is located in the department of Santa Cruz, near the cities of Santa Cruz, Warnes, General Saavedra, and Montero. This region lies in the "Oriente", or eastern section of Bolivia closest to Brazil and Paraguay. The area's physical geography consists of subtropical forests and part of one of the world's largest remaining natural wetlands, the Pantanal, which extends into the north-west of Paraguay and the Mato Grosso region of Brazil. This fragile ecosystem is already being encroached upon by an advancing agricultural frontier resulting in overgrazing, deforestation of subtropical areas, pesticide pollution, and soil erosion. In addition, poachers have been wiping out large quantities of predator species, such as caiman, fox, jaguar, wolf and alligator, imbalancing the ecosystem. Although Sanchez de Lozada has proclaimed his firm commitment to sustainable development, the government has not made any concrete moves in this direction.

   According to current forecasts, Bolivian gas would be transported from Bolivia's Rio Grande to Porto Alegre, Brazil, passing through Puerto Suarez and the Brazilian states of Mato Grosso do Sul, Sao Paulo, Parana, Santa Catarina, and Rio Grande do Sul, with possibilities of extending up to Rio de Janeiro and Belo Horizonte in Minas Gerais. Such a path would undoubtedly cross unprotected and undeveloped land in Bolivia, no doubt the most economically disadvantaged party in this entire scheme and therefore the most vulnerable to exploitation by member countries.

3. Related Cases

   TED
   ECUADOR EXXON VENEZ COLOMOIL HIDROVIA PATANAL MEXPOWER NEPPOWER CASPOIL CASPIAN KAZAKH KOMI KUWAIT

   
   

   Keyword Clusters
   1. Trade Products=GAS
   2. Bio-geography=TEMPERATE
   3. Environmental Problem=POLLUTION LAND

4. Draft Author: Barbara C. Pando, May 3, 1997

II. LEGAL Cluster

5. Discourse and Status: AGREEment and INPROGress

6. Forum and Scope: BOLIVia and MULTInational

7. Decision Breadth: Two (Bolivia, Brazil)

8. Legal Standing: Treaty

III. GEOGRAPHIC Cluster

9. Geographic Locations
a. Geographic Doman: South America [SAMER]
b. Geographic Site: Western South America
c. Geographic Impact: Bolivia

10. Sub-National Factors
a. SUB-STATE: NO

11. Type of Habitat: TEMPERATE

IV. TRADE Cluster

12. Type of Measure : Import Standard

13. Direct vs. Indirect Impacts: DIRect

14. Relation of Trade Measure to Resource Impact:
a. Directly Related to Product=YES-GAS
b. Indirectly Related to Product=NO
c. Not Related to Product=NO
d. Related to Process=YES-POLLUTION LAND

15. Trade Product Identification: GAS

16. Economic Data

Bolivia's GDP per capita in 1994 was US $770. The distribution of GDP to agricultural, industry, manufacturing, and service sectors resulted in the highest allotment going to services at 47%. Industry came next at 35%, with agriculture following (18%) and manufacturing last (15%). Export competitiveness increased after 1985, when all export taxes were abolished and a floating exchange rate was adopted. Hydrocarbons became leading export in 1980s, accounting for 11 percent of GDP and over 50 percent of government revenues in 1985. Natural gas replaced tin and other minerals as leading export, growing from 21 to 44 percent of exports in 1980-87; most went to Argentina and Brazil. Tin declined to just over 12 percent by 1987.

17. Impact of Trade Restriction: LOW

18. Industry Sector: OILGAS

19. Exporters and Importers: BOLIVIA and MANY

V. ENVIRONMENT Cluster

20. Environmental Problem Type: HABITAT LOSS

Due to already existing problems in the Pantanal and the Amazon regarding biodiversity loss, soil erosion, and deforestation, constructing the pipeline without any serious environmental risk assessment could lead to an even faster pace of environmental degradation. Fifty percent of Bolivia's land mass consists of virgin tropical rainforests and marsh lands, and all of this land is located in the country's eastern section. Although president Sanchez de Lozada may wish to develop this region, the Bolivian government has done little to direct construction in this direction.

At the Earth Summit in Rio de Janeiro in August of 1992, Bolivian representatives stated in writing that ["Bolivia was implementing a process directed at conserving and adequately administering natural resources and the environment"] (Agenda 21, Section 1.2) At the Summit for Sustainable Development in the Americas, Bolivia was a signatory of the final document, in which representatives reaffirmed their commitments made at the Earth Summit and agreed that investment in the present will protect future natural reserves and populations. These actions show that Bolivia is to some extent aware of the necessity for sustainable development. However, due to lack of capital and vulnerable trading negotiations, the government may not be able to adequately protect its rainforests and wetlands in Santa Cruz and the Beni.

21. Name, Type, and Diversity of Species

Species under immediate threat and endangerment:

VI. OTHER Factors

25. Culture: NO

Since the pipeline project is so new, it has not affected local populations as of yet. However, it stands to endanger the livelihoods of Guarani natives who live in the area of the Pantanal, as well as Bolivian campesinos in the Oriente by polluting areas which they use to produce subsistence agriculture and/or export materials such as soya.

26. Trans-Boundary Issues: YES

One of the main causes for concern is that Brazil would exploit Bolivian reserves so as to preserve their own sizable natural gas resources for more efficient domestic consumption use in future years. However, since the Bolivians desperately need new exports and are to an extent dependent on the revenue they will receive from the pipeline, they cannot at this time make any demands on the Brazilians. Again, the Ecuadorian oil case is similar in that the state was encumbered by its need to export oil and therefore could not alter its transportation or construction methods to consider the environment or local peasants.

27. Human Rights: NO

28. Relevant Literature

Pool, Claire. "Modern-day Buccaneer", Latin Trade, February 1996, 23-24.

Arabinar, Antonio. Hacia el desarrollo sosteniblede las americas, Washington, D.C.: Sesion extraordinaria del Consejo Permanente, 12 February 1996.

Dyer, Geoff. "Mercosur States set to endorse link with Bolivia", Financial Times, 17 December 1996, 4.

Environmental Brief: Aguaytia Gas and Power Project. Washington, D.C.: Inter American Development Bank, 30 July 1996.

http://gurukul.ucc.american.edu/ted/PATANAL.HTM. Pantanal Wildlife Trade

http://lcweb2.loc.gov/ Federeal Research Division of the Library of Congress. Bolivia-A Country Study.

Gasoducto de Integracion Bolivia-Brasil. Washington, D.C.: Report presented on the progress of the Bolivia-Brazil transnational gas pipeline, 1997. NTIS, BR-0218.

Moore, Winston. "Goni's Last Hurrah", Bolivia Investment and Trade, v.1, no. 2, (January 1997): 19-21.

Moore, Winston. "Enron's Regional Energy Role", Bolivia Investment and Trade , v.1, no.2, (January 2997): 4-5.

Salome, Karin. "Todos los medios", El Diario, 25 February 1997. Bolnet.