Bolivia backs down to Petrobras

Carlos Valdez, Associated Press Writer

LA PAZ, Bolivia, Sept. 14, 2006 — President Evo Morales' leftist government suspended a measure that would have exerted nearly total control over foreign extraction and refining of Bolivian gas and oil after withering complaints from Brazil's state-run oil company.

Vice President Alvaro Garcia Linera said after an emergency meeting Thursday evening with Bolivia's hydrocarbons minister, Andres Soliz, that the measure decreed less than two days earlier had been "temporarily" frozen.

The two nations have been feuding over how much Brazil should pay for Bolivian natural gas since Morales declared on May 1 that he was nationalizing the country's hydrocarbon industry and would renegotiate contracts.

Brazil's state-run oil giant Petroleo Brasileiro SA, or Petrobras, has two refineries that process 90 percent of Bolivia's natural gas and is the biggest investor in what amounts to South America's second-largest gas reserves after Venezuela's.

Word emerged Wednesday that Bolivia had decided its state-owned oil company alone would deem how much Petrobras would profit from its services in commercializing Bolivian gas.

Petrobras responded angrily Thursday, saying the measure made "inviable" its business in Bolivia.

"It means we lose our cash flow," said chief executive Sergio Gabrielli, who had earlier in the day canceled a trip to Bolivia for high-level meetings aimed at resolving the escalating dispute.

Gabrielli said Petrobras will use all legal means to defend its Bolivian interests.

"We won't surrender our assets, we'll fight for them," Gabrielli said. "We want a fair price" in compensation, he said.

He added that President Luiz Inacio Lula da Silva of Brazil was upset that negotiations "seemed headed toward a mutual understanding, and suddenly we were taken by surprise."

Silva, who stands for re-election on Oct. 1, has taken intense political heat for perceived softness on Bolivia. On Thursday night, he said in a TV interview in Brazil that while he understands Bolivia's need to develop, Morales needs to adopt "more consistent international policies."

Garcia Linera admitted Thursday that the measure was designed to put pressure on negotiations with Brazil, though analysts don't expect Silva to seriously negotiate until after the election.

Brazil's mines and energy minister, Silas Rondeau, suggested rescheduling talks for Oct. 9 _ eight days after Brazil's presidential election.

Brazil gets about 50 percent of the natural gas it uses for power generation and fuel for cooking and cars from Bolivia.

Petrobras has invested about US$1.5 billion (euro1.2 billion) in Bolivian natural gas production since the mid-1990s, when Bolivia privatized the industry.

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Associated Press writer Alvaro Zuazo, and AP Business Writer Alan Clendenning in Sao Paulo, Brazil, contributed to this story.

Originally found at Houston Chronicle