South American leaders met yesterday for crisis talks on Argentina's border with Brazil following the occupation of foreign-owned gas fields by the Bolivian army.
The presidents of Argentina, Bolivia, Brazil and Venezuela met in Puerto Iguazú in an attempt to negotiate a solution to the energy crisis triggered by Evo Morales' decision to nationalise natural gas fields.
The summit was billed as a showdown between Néstor Kirchner of Argentina and Luiz Inacio Lula da Silva of Brazil, whose countries would be worst hit, and their South American counterparts, Hugo Chávez of Venezuela and Mr Morales.
Brazil imports more than half of its natural gas from Bolivia - around 30m cubic metres each day - and analysts say its state-owned energy giant, Petrobras, which froze all new investments in Bolivia on Wednesday, is set to lose around $1bn (£540m). Industry in Brazil's south, which depends heavily on gas imports, is also expected to suffer.
Lula, who openly supported Mr Morales' election, has come under repeated fire this week. He has refrained from openly criticising his Bolivian counterpart, saying only that "it was a strategic error for Brazil to become dependent on one single source of energy that is not ours".
"There will be no crisis, but a necessary adjustment for a suffering people who have the right to demand great power over their riches. We are not going to discover any old weapon in Bolivia to justify a fight," he said on Wednesday, in a reference to the US invasion of Iraq.
Petrobras' senior managers, however, have warned they will not accept any rise in natural gas prices and yesterday threatened legal action against the Bolivian government.
But Bolivia's energy minister, Andrés Soliz Rada, said his country would not budge on its demands. "Businesses that do not accept the country's conditions within six months will have to leave," he told El Mundo newspaper.
* * * South American Leaders Defuse Some Tension Over Bolivian Gas By MATT MOFFETT and GERALDO SAMOR Wall Street Journal May 5, 2006
PUERTO IGUAZU, Argentina -- The leftist leaders of four South American nations agreed yesterday to work to keep natural gas flowing throughout the region following Bolivia's nationalization of its energy industry.
But a statement by the presidents of Argentina, Brazil, Bolivia and Venezuela following a hastily arranged summit didn't offer details on prices that Argentina and Brazil would pay for prized Bolivian natural gas as La Paz tries to maximize its income. In declarations following three hours of discussions at this tourist town near the Brazilian border, the leaders said questions about gas prices and investments in Bolivia would be resolved at the bilateral level.
The joint statement, read by the meeting's host, Argentine President Néstor Kirchner, affirmed Bolivia's "sovereign right" to determine how it exploits its natural resources.
Bolivian President Evo Morales sent troops to seize energy installations on Monday, promising greater benefits to his impoverished constituents. "The presidents today all agreed to aid Bolivia economically," Mr. Morales said after yesterday's meeting. Mr. Morales's nationalization appeared influenced by populist Venezuelan President Hugo Chávez. Mr. Chávez had previously rewritten contracts with foreign energy operators in his country.
In declarations following the meeting, Brazilian President Luiz Inácio Lula da Silva tried addressing the apparent contradiction between his own moderate line toward Bolivia's action and the tougher posture adopted by Brazil's state-run oil group, Petroleo Brasileiro SA. Petrobras, as the company is known, has $1.5 billion invested in Bolivia and said on Wednesday that it is halting further investments there.
"Petrobras is free to decide whether to invest, or not, in Bolivia," Mr. da Silva said. "Its decisions will be made on the basis of sound business judgment."
The nationalization has highlighted economic and ideological tensions that pit Brazil and Argentina, which both import Bolivian natural gas and have moderate leftist governments, against Bolivia and Venezuela, big energy exporters run by more-radical administrations.
In a sign of those divisions, Messrs. da Silva and Kirchner showed up early at the meeting and spent 40 minutes discussing the impact nationalization might have on the price and supply of Bolivian gas, spokesmen said. Arriving together later were Messrs. Morales and Chávez.
"There are internal tensions," said the Venezuelan president, who has tried to rally the region around his populist vision. "Yet such tensions cannot persist when the political vision of great leaders dominates, when there is will for integration."
Analysts hadn't been expecting big results from the meeting. "I think they just want to open up some diplomatic space and then let the diplomats and lawyers take over," said Riordan Roett, a Latin America specialist at Johns Hopkins University in Washington. Mr. Morales, who was inaugurated in January pledging to lift the country out of poverty, "was being pushed by his base to do something dramatic," Mr. Roett says. "But you have to believe Morales isn't suicidal and isn't going to drive out investment from his major industry."
Mr. da Silva has faced growing criticism at home for not taking a harder stance against the region's more radical leaders. "Much more than Brasilia, Caracas today moves the pieces in the immense chess board of the subcontinent's intricate relations," said an editorial in the Correio Braziliense, a newspaper in Brasilia.
Separately, the Buenos Aires newspaper La Nacion reported that the Argentine government is studying new energy-conservation measures, including additional charges on heavy electrical users. In the wake of Argentina's 2001 economic collapse, Mr. Kirchner has maintained energy prices to consumers below international market prices, largely by breaking contracts with privatized utilities. But the economy's rapid growth the past three years and the lack of investment in the sector are raising fears of energy shortages, which have been exacerbated by turbulence in neighboring Bolivia.
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Summit fails to resolve Bolivia gas uncertainty By Jonathan Wheatley in New York and Elizabeth Johnson in São Paulo Financial Times May 4 2006
A regional summit called to defuse tension over Bolivia's plans to nationalise its natural gas industry ended in uncertainty on Thursday when the four leaders present failed to reach agreement on proposed price increases and instead announced the expansion of plans to build a controversial gas pipeline from Venezuela to Argentina.
The meeting followed Bolivia's announcement on Monday that it would take control of all concessions and installations operated by foreign companies in the country. Hydrocarbons companies including Petrobras of Brazil, Repsol of Spain, Total of France and BG and BP of the UK have invested about $3.5bn in Bolivia and Petrobras has spent an additional $2bn on a pipeline delivering Bolivian gas to Brazil and Argentina.
The companies have been given 180 days to negotiate new contracts.
Following the meeting, President Néstor Kirchner of Argentina said the price of Bolivian natural gas would be discussed in a "rational" manner and set at a level that would make investments viable. Luiz Inácio Lula da Silva, president of Brazil, said prices would be discussed "in the most democratic manner possible".
Bolivia has threatened to increase the price it charges for its natural gas by more than 50 per cent. Petrobras said it would take legal action to prevent any price rise and resort to international arbitration if necessary.
The statements left industry leaders in Brazil concerned that prices could soon be increased.
"We simply cannot accept higher prices," said Saturnino Sérgio da Silva of Fiesp, the São Paulo state federation of industry. "Many industries migrated to natural gas to become more competitive and cannot afford an increase." He said Brazil must get tough with Bolivia to keep prices down.
The four leaders also agreed to work together to make possible a so-called "Southern Pipeline" stretching more than 9,000km between Venezuela and Argentina. The project is as controversial because is expected to cost about $23bn and would cross some environmentally sensitive areas.
Hugo Chávez, president of Venezuela, who travelled to the meeting together with President Evo Morales of Bolivia, said Bolivia would join Venezuela, Brazil and Argentina in making the pipeline possible. Bolivia had previously dismissed the project as impracticable.
"The nationalisation of Bolivia's hydrocarbons industry has allowed us to speed its entry into the project," Mr Chávez said.