THE MARKET-ORIENTED REGIMES: BOLIVIA
| Jurisdiction | Derecho Internacional |
(Mar 1999)
THE MARKET-ORIENTED REGIMES: BOLIVIA
Servicios Legales S.C.
La Paz, Bolivia
INSTITUTE ON OIL AND GAS IN LATIN AMERICA
BOLIVIA
I.- INTRODUCTION
Bolivia's current hydrocarbons legislation is the result of a very interesting and radical process begun in 1985.
That year the elected president, Dr. Victor Paz, began his inaugural speech with the following words: "My fellow citizens, our country is dying in our hands". What prompted such a dramatic, but hardly understated warning was the fact that until August 1985 Bolivia had reached 24.000% annual inflation and the government and companies were on the verge of having to pay salaries twice a day just to try maintain the purchasing power of those salaries. The country was on the brink of absolute economic, political and legal chaos.
Within six months the new administration brought inflation down to 14% while achieving 3.5% GDP growth and eventually handed over the government to the following administration with inflation at 10% per annum without sacrificing growth.
Bolivia now enjoys 5% annual inflation with a 4.2% rate of GDP growth.
These impressive results were achieved by means of enormous changes in the country's economy, taxes, and general investment climate. In turn, said changes were implemented through equally enormous modifications of Bolivia's legal infrastructure. It is beyond the scope of this paper to try to explain in greater detail the extent and nature of the changes, but suffice to say that the country's legal landscape, apart from the basic codified system (currently being modified), bears only some resemblance to the pre-1985 one.
A very important part of the new administration's plan was the transfer of all the government owned productive corporations to private hands together with the corresponding (and deemed to be all important) attraction of foreign capital and technology. The 1985 administration and the following ones realized Bolivia was competing for that foreign capital and technology with other countries in the continent and further abroad. Some of those countries could arguably offer better potential opportunities than Bolivia could at that time.
Thus when the time came to privatize Yacimientos Petrolíferos Fiscales Bolivianos (Bolivia's state owned oil company, hereinafter simply "YPFB"), the government began the process with a careful and thorough examination of other countries' legislation. Furthermore the government carried out a series of meetings and seminars with interested oil companies to try to address their concerns and requirements.
[Page 6B-2]
When the drafting commission was formed it received very precise instructions to produce a law as advanced as was politically feasible at that time and that it should strive to ensure legal stability for the existing and future investors.
The result of that process, within the framework of Bolivia's current economic and political stability, is a law that has proven to be attractive to investors and that now truly merits being called "market oriented".
II.- REFORM OF THE HYDROCARBONS LEGAL REGIME
Until the reform was implemented Bolivia's hydrocarbons sector was totally under governmental control.
Hydrocarbons Law No. 10170 dated March 28, 1972, was enacted by means of a Decree Law1 by a de facto government convinced the State was the ultimate provider and manager of natural resources.
Law 10170 very clearly stated that only YPFB could perform all hydrocarbons related activities in Bolivia and that its responsibilities included the implementation of all hydrocarbons policies as defined by the government.
YPFB could use the services of private companies to perform certain upstream activities by means of "Operations Contracts". The private companies that entered into such contracts with YPFB performed the contracted activities on behalf and in the name of YPFB.
The law also ratified the Constitutional precept that hydrocarbons reserves are the property of the State and title to them may not be transferred in any way or fashion.
Finally, under Law 10170, YPFB and all hydrocarbons related activities were regulated and supervised by the Ministry of Energy and Hydrocarbons
Law 10170 was modified by Law No. 1194, dated October 26, 1990. Law 1194 is a halfhearted attempt to create a more favourable environment for foreign investors. YPFB still retained the monopoly of all hydrocarbons related operations in Bolivia and upstream operations had still to be carried out by means of "Operations Contracts".
[Page 6B-3]
The novelty consisted of a new type of contract, the "Association Contract", whereby a private oil company invested its own resources for the exploration and exploitation of hydrocarbons. Once a commercial discovery was made YPFB could exercise a contractual and statutory option to back into the contract and by reimbursing half of the contractor's expenses acquire the right to share in the field's profits. The percentage participation of the parties was freely negotiable. Association Contracts where YPFB did not exercise its option were automatically converted to Operations Contracts. In fact very few Association Contracts were executed.
Downstream operations could be performed directly by YFPB or by private companies or by means of Shared Risk Contracts entered into between them. However, if YPFB was not going to perform downstream activities on its own, a special Supreme Decree was required on a case by case basis. The difficulty in obtaining a Supreme Decree practically ensured that only YPFB performed downstream activities. (For more on Supreme Decrees, please see footnote 2 below).
As before, the regulatory and supervising authority was the Ministry of Energy and Hydrocarbons, in this case acting through a new division thereof called the General Directorate of Hydrocarbons.
Eventually, and as is often the case with most government owned corporations YPFB proved to be technically and economically inefficient. Over time; available and easy to find reserves started to decline and new reserves became progressively more difficult and expensive to find and exploit, which further highlighted YPFB's inefficiency.
The new (and latest) Hydrocarbons Law No. 1689 dated April 30, 1996 (the "Law") does away with most of YPFB's monopolies, but it does not eliminate YPFB. The reason for YPFB's permanence is illustrative of the willingness of the Government to accommodate, to the extent possible, the requirements and concerns communicated by the oil companies to the drafting commission.
In order to understand the companies' concern it is necessary to comprehend one of the most important changes implemented by the Bolivian government. It is called the "Sectorial Regulatory System" better known by its Spanish acronym SIRESE (which stands for Sistema de Regulación Sectorial). When the privatization process began the government realized many of the activities being transferred to private hands were legal, de facto or natural monopolies that would need careful regulation and supervision (amongst other reasons, to protect consumers' rights). The executive branch of government, to a large extent, retained the regulatory role2 and assigned the supervisory role to SIRESE.
SIRESE is composed of a "General Superintendent" appointed by the President from a list of three candidates proposed by two thirds of votes of the upper chamber of Congress (senators). The
[Page 6B-4]
General Superintendent is appointed for a seven year term. Four "Sectorial Superintendents", appointed in a similar fashion but for a five year term, depend hierarchically from the General Superintendent. Said Sectorial Superintendents are in charge of the Telecommunications, Electricity, Water, Transportation and Hydrocarbons sectors respectively.
The method of appointment was conceived so as to ensure the maximum degree of political independence possible. Neither the President nor Congress can remove the General or Sectorial Superintendents without the equivalent of an impeachment process and for very specific causes.
In addition, each Sectorial Superintendency receives its income as a percentage of the revenues generated by the supervised companies. The Sectorial Superintendents then transfer a certain percentage of their income to the General Superintendent. The Superintendencies' budgets are not subject to the approval of the national treasury thus ensuring even further independence from political influence or lobby efforts on the part of the other entities of the executive or legislative powers.
Decisions issued by any of the Sectorial Superintendents can first be impugned before the same Sectorial Superintendent. Should that Sectorial Superintendent refuse to modify his/her decision, the decision can be appealed before the General Superintendent. Should the General Superintendent issue a...
To continue reading
Request your trial