Bolivian voters approve new constitution as government continues to nationalize oil assets

By Fernando Cabrera Diaz
4 February 2009

Bolivian President Evo Morales has claimed victory in the 25 January 2009 national referendum on a new constitution for the Andean nation.  The constitution passed just days after the Bolivian leader announced his government was finally taking control of the Chaco Petroleum Company, as part of the ongoing nationalization of the country’s natural resources.

The new constitution aims to further solidify government control over the country’s vast natural resources and denies the jurisdiction of international tribunals to hear disputes over investments in the hydrocarbons sector.

In particular, Article 351 declares that the State will “assume the control and direction over the exploration, exploitation, industrialization, transport and commercialization of natural resources.”

Article 366 states that in the important hydrocarbons sector Bolivia will not recognize any instances of foreign jurisdiction and foreign companies will not be allowed to go to international arbitration.

The new constitution enshrines Bolivia’s policy of nationalizing ‘strategic resources’ which began in May of 2006, when Morales announced that the country would be nationalizing the hydrocarbons sector.  After the announcement, Morales began to negotiate agreements with foreign companies in which the state-owned petroleum company YPFB would take a majority ownership in existing projects.

Some of those negotiations ended successfully before the government-imposed 30 April 2008 deadline.  In May of 2008, for instance, Bolivia announced that an agreement had been reached with the Spanish company Repsol to nationalize the gas production company Andina.

However in cases where the government was unable to reach an agreement with investors, it proceeded to take control of assets by force. These companies included hydrocarbons logistic company CLHB, owned by Peruvian group Graña y Montero; Chaco Petroleum Company, owned by Pan American Energy, a unit of British Petroleum; and pipeline company Transredes, controlled by Dutch Shell and the Houston-based Ashmore Energy International.

Bolivia ultimately reached deals with Ashmore Energy and Shell to avoid litigation over Transredes, but Peruvian group Graña y Montero announced in November that it may resort to international arbitration seeking US$40 million in compensation over the loss of CLHB. Meanwhile, Pan American Energy announced on 26 January 2009 that it will defend its interests in Chaco in all available forums.

Under Morales, Bolivia also nationalized the country’s largest telecommunications company Entel, owned by Telecom Italia. The company responded by commencing a claim at the International Centre for Settlement of Investment Disputes (ICSID). ICSID’s jurisdiction is in dispute, however, as Bolivia does not recognize the Centre’s jurisdiction, having withdrawn from the ICSID Convention in 2007.

Critics of the nationalization policy and the new constitution warn that Bolivia, the poorest country in South America, risks losing much needed foreign investment.

The constitutional referendum pitted Morales’ government, which enjoys broad support from the traditionally marginalized Amerindian majority, against the European-decedent minority based in the natural resource-rich eastern departments of Tarija, Pando, Santa Cruz, and Beni.

In 2007, the governments of these 4 departments began a pro-autonomy movement, which resulted in the passing of autonomy statutes that purport to give these departments more control over their natural resources.  The autonomy statutes are not recognized by the federal government, however. With the new constitution giving the federal government more control over natural resources, an escalation in this struggle seems inevitable.

Over 60% of voters approved the new constitution, according to figures released by the National Electoral Court, in a vote that was generally regarded as free and fair by international observers.

In a separate ballot item, voters also overwhelmingly agreed to limit future landholdings to 5,000 hectares, according to the Electoral Court. Bolivia has the highest measured level of income inequality outside sub-Saharan Africa according to the United Nations Development Programme.