Watchdog warns of ‘dangerous’ trend on energy

Bolivia’s energy nationalisation policy has sent a chilling message to international oil companies that will jeopardise future investments in the country, the International Energy Agency warned on Wednesday.

The west’s energy watchdog said some Latin American countries were “embarking on a dangerous path” by altering their relationships with multinational energy companies. It also highlighted a worrying trend of energy nationalism that was closing markets to consumer countries, such as Spain and France.

The warning came as Luiz Inácio Lula da Silva, Brazil’s president, said he would insist on defending his country’s contractual rights to obtain Bolivian gas and Condoleezza Rice, US secretary of state, criticised “demagoguery”.

Mr Lula da Silva and the presidents of Bolivia, Venezuela and Argentina will meet on Thursday in the Argentine border town of Puerto Iguazu to try to resolve the crisis sparked by a nationalisation decree by Evo Morales, Bolivia’s president.

Twenty-one foreign energy companies operate in Bolivia, among them Petrobras of Brazil and Repsol YPF of Spain, BG and BP of the UK, and Total of France.

“The initial reaction is chilling,” William Ramsay, deputy director of the IEA, told the FT’s partner newspaper Expansión.

Mr Ramsay warned Bolivia against following the Venezuelan example. “If you don’t get the balance right between the companies’ interest and the country interest, the country ultimately will lose. Look at the production capacity of Venezuela: it has fallen dramatically. That is the price.”

Venezuela has increased its grip on its oil industry and confiscated oilfield operations of Eni of Italy and Total. At the same time, Ecuador has also changed its oil contracts.

“They are initiating a process that could be dangerous,” Mr Ramsay said. “They are not necessarily making a mistake, but they are embarking on a dangerous path.”

Outside the energy sector, resource companies are becoming increasingly concerned about the potential for radical natural resource policies in Latin America, a region that holds about a quarter of the world’s copper, as well as significant reserves of iron ore, gold and other minerals.

Alex Turkeltaub, managing director of the Frontier Strategy Group, said mining companies had begun to worry that Bolivia’s gas nationalisation could be the beginning of a wave of similar measures in other sectors. “They are much more worried about what will happen in Peru if [Ollanta] Humala [the nationalist close to Venezuela’s President Hugo Chávez wins [the election],” says Mr Turkeltaub.

Mr Chávez was travelling to Bolivia late Wednesday to meet President Morales and discuss the nationalisation.

Brad Ockene, a lawyer in the New York office of Lovells, predicts a surge in arbitration cases as a result of tough new oil and gas contracts in Venezuela, Bolivia and Ecuador.

Under the terms of bilateral investment treaties signed under the so-called Washington Convention in the 1960s, companies can take complaints about contract violations to the International Centre for the Settlement of Investment Disputes at the World Bank.

Additional reporting by Leslie Crawford in Madrid