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Bolivia: Cementing new friendships

President Evo Morales is making some headway with efforts to bolster dwindling foreign investment in the country's energy sector

A decade ago, Bolivia was one of South America's most exciting exploration plays, but a mass exodus of Western companies occurred three years ago when the leftist government nationalised the hydrocarbons industry and made investment terms much less favourable.

But energy minister Saul Avalos said in February that he expected oil and gas investment would total around $0.53bn this year – less than the $0.58bn attracted in 1999, but a marked improvement on 2006's $120m, when the government was elected, and $330m in 2008.

Much of the rise in investment will be the result of Morales's wooing of Russia's Gazprom and Venezuelan PdV, both of which are eager to take advantage of the near absence of Western firms to strengthen their international profiles. According to the government, PdV and state-owned YPFB will invest $240m in gas exploration, but it is Gazprom that is making the biggest inroads into the sector.

Last September, the Russian firm and France's Total signed a gas-exploration agreement that the government claims could result in investments of up to $4.5bn in the Acero field, in the southeast of the country. Gazprom, which has signed various other exploration agreements, said in February it had discussed the possibility of joining Petroandina, an upstream joint venture between YPFB and PdV.

In addition, a delegation from Gazprom went to La Paz last month for discussions with the energy minister and signed a memorandum intended to provide a framework for the development of the country's gas industry until 2030. This was followed by a visit by Morales to Moscow, where he discussed with Russian President Dmitry Medvedev a proposal for Gazprom to build a gas-pipeline network across Bolivia. The two leaders also discussed co-operation in the mining and hydro-electric power sectors, according to Medvedev.

The terms being discussed have not been revealed, but analysts say they are likely to be much less lucrative for foreign partners than those on offer before 2006. But the attractions that once excited private-sector oil companies remain in place: The country has the continent's second-largest proved gas reserves, estimated at around 0.8 trillion cubic metres, and is next to the big markets of Argentina and Brazil, to which Bolivia is already the largest gas supplier.

But many Western and Latin American firms, still smarting from their eviction from the country, are likely to remain wary of returning. Perceptions of political risk are unlikely to improve either, after Morales' plan for a new constitution, designed to give greater rights to the majority indigenous population in the continent's second-poorest country, received backing from voters in January. That is likely to exacerbate tensions between the country's wealthy elite and the eastern provinces, where much of Bolivia's resource wealth is buried.

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