TheThe George Washington University George Washington UniversityWashington D.C.Washington D.C.March - 2002March - 2002

Overcoming barriers to investment in the

A view from the Southern Cone

ScenarioScenario

Since Bolivia is a gas exporting country, my presentation aproaches the subject from the point of view of gas reserves and gas transportation.

Eastern EuropeEastern Europe

37.89%37.89%

Western EuropeWestern Europe

3.01%3.01%

Latin AmericaLatin America

4.73%4.73%

North AmericaNorth America

4.90%4.90%

Far EastFar East

6.91%6.91%

AfricaAfrica

7.46%7.46%

35.10%35.10%

Middle EastMiddle East

WORLDWIDE NATURAL GAS RESERVESWORLDWIDE NATURAL GAS RESERVES

Source: OGJ Worldwide Production Reports 1-Jan-01Source: OGJ Worldwide Production Reports 1-Jan-01 Bolivia De GOLYER & Mac NaughtonBolivia De GOLYER & Mac NaughtonJanuary 2001January 2001

VenezuelaVenezuela

46.4 46.4 %%

ChileChile

1.1.44%%

EcuadorEcuador

1.21.2 %%

ColombiaColombia

2.2.22%%

BraBrazzilil

2.2.55%%

4.2%4.2%

PerPeruuTrinidad & TobagoTrinidad & Tobago

6.76.7%%

BoliviaBolivia

17.3 17.3 %%

MéxicoMéxico

9.6 9.6 %%

ArgentinaArgentina

8.68.6%%

LATIN AMERICA: NATURAL GAS RESERVESLATIN AMERICA: NATURAL GAS RESERVES

Source: OGJ Worldwide Production Reports 1-Jan-01Source: OGJ Worldwide Production Reports 1-Jan-01 Bolivia De GOLYER & Mac NaughtonBolivia De GOLYER & Mac NaughtonJanuary 2001January 2001

1.81.8

3.23.2

5.35.3

10.910.9

20.020.0

58.858.8

100.0100.0

%

4.4 4.4

8.0 8.0

13.3 13.3

27.4 27.4

50.0 50.0

147.6 *147.6 *

250.7250.7

TCF

ChileChile

BrasilBrasil

PerúPerú

ArgentinaArgentina

BoliviaBolivia

VenezuelaVenezuela

TOTALTOTAL

Country

Natural Gas : Natural Gas : CertifiedCertified Reserves in South America Reserves in South America

Fuente: YPFBFuente: YPFB

5.695.698.588.58

6.626.62

32.2132.21

46.8346.83

Growth since 1997 Growth since 1997

800%800%

50.0050.00

InversiónInversiónTotalTotal

5 –6 billones de US$5 –6 billones de US$

4,240 Millas naúticas West Coast AustraliaWest Coast Australia9,900 Millas naúticas9,900 Millas naúticas

Islas Sakhalin Islas Sakhalin 4,000 Millas naúticas4,000 Millas naúticas

S.A. Hydrocarbon PositionS.A. Hydrocarbon Position

Exporter Importer

Oil Gas Oil GasVenezuela Yes Yes Colombia Yes Guyana YesEcuador Yes

Bolivia Yes Yes Argentina Yes Yes Peru Yes YesChile Yes YesParaguay Yes YesUruguay Yes Yes Brazil Yes Yes

Hydrocarbon Supply and DemandHydrocarbon Supply and Demand

Hydrocarbon importing countries in S.A. purchase their oil requirements from Venezuela, Colombia or Ecuador.Brazil is the only country with major purchases from the international market.Gas is exported from Bolivia and Argentina

Conclusion:S.A is capable of supplying its hydrocarbon needs with significant export surpluses

Cuiabá

Bolivia - Brasil

Mexico – U.S.A.interconnections

TransportationTransportationSystemSystem

Existing Existing International International Gas PipelinesGas Pipelines

GasAndes

Pacífico

NorAndino

Atacama

Methanex

International International Gas PipelinesGas Pipelines

Uruguaiana

International International Gas PipelinesGas Pipelines

.

Mexico – Itsmo Centroamericano

Colombia - Venezuela

Bolivia - Paraguay

Bolivia - Chile

Projected Gas Pipelines Projected Gas Pipelines

De la Integración

Transportation SystemTransportation System

Investments in physical integration will Investments in physical integration will encourage the energy integration in the encourage the energy integration in the regionregion

To have a free flow of energy To have a free flow of energy among the countries it is necessary among the countries it is necessary to promote the physical integration to promote the physical integration of gas pipelines.of gas pipelines.

Conclusion:

To overcome the Investment barriersTo overcome the Investment barriers

The investing Corporation needs:

•Significant hydrocarbon potential•Reasonable Infrastructure•Stable Laws of Hydrocarbon•Political stability•Contract and Tax stability•Reasonable Return on the Investment•Acceptable Environmental Laws•Compatible Regulations

To overcome the Investment barriersTo overcome the Investment barriers

The host country needs:

•Technical and Financial Capabilities•Parent company guarantees•Government take between 35-50%•Surtax inclusion•Apply country regulatory system•Apply country environmental Law•Accept and recognize social needs of the people

Obstacles to investmentObstacles to investment

The absence of compatible regulations as well as the The absence of compatible regulations as well as the disparity of legal and institutional frameworks disparity of legal and institutional frameworks

Restrictions of different hydrocarbons lawsRestrictions of different hydrocarbons laws

Bolivia, Law 1689Bolivia, Law 1689

Transfers Transfers UPSTREAM activities to private activities to private investment through joint venture contracts.investment through joint venture contracts.

Establishes a transparent process for the Establishes a transparent process for the nomination of exploration areas.nomination of exploration areas.

Eliminates any restrictions for the import, export Eliminates any restrictions for the import, export and domestic marketing of hydrocarbons and its and domestic marketing of hydrocarbons and its byproducts.byproducts.

Opens Opens DOWNSTREAM activities to private sector activities to private sector investment.investment.

Obstacles to investmentObstacles to investment

Restrictions of different hydrocarbons lawRestrictions of different hydrocarbons law

Exploration, Exploitation and Marketing are Exploration, Exploitation and Marketing are activities reserved to the Stateactivities reserved to the State

Transport, Storage and Distribution: Transport, Storage and Distribution: activities open to private investmentactivities open to private investment

MexicoMexico

Construction, operation and ownership of systems.Marketing, exports and imports

Open access to the pipeline system

Two political trends clearly defined coexist in Latin America:

A comparison between two approachesA comparison between two approaches

State Oil companies, that increase their participation in the economy

Brazil, Mexico, Venezuela and Ecuador

Increased their revenues due to the high oil prices

Two political trends clearly defined coexist in Latin America:

A comparison between two approachesA comparison between two approaches

Countries where privatization of state owned companies took place

Argentina, Bolivia and Peru

Increase in the investment in exploration and exploitation over the last five years

Protection of the landProtection of the land

Indigenous Territories

Protected Areas

Exploration & Exploitation

Approximately 40%, 420.000 sq km, of Bolivia´s territory is closed for investment

The Caño Limon oil pipeline, 230.000 bpd of The Caño Limon oil pipeline, 230.000 bpd of capacity, runs 780 kilometres from Colombian's capacity, runs 780 kilometres from Colombian's oil fields north-eastern Arauca department, near oil fields north-eastern Arauca department, near Venezuelan border, to the port of CoveñasVenezuelan border, to the port of Coveñas

Caño Limon is jointly operated by Colombian state Caño Limon is jointly operated by Colombian state oil company Ecopetrol and the U.S. oil company oil company Ecopetrol and the U.S. oil company Occidental PetroleumOccidental Petroleum

TerrorismTerrorism

Colombian case

These attacks can be compared with the worst marine spills:

TerrorismTerrorism

Since 1986 there has been 700 attacks again the pipeline which caused an overalll spillage of 2.2 million barrels of oil.

1967: Torrey Canyon off land´s end in England spilled 830,000 barrels.

1978: Amoco Cadiz off the Brittany coast of France spilled 1.6 million barrels of oil.

1989: Exxon Valdez in Alaska spilled 240,000 barrels.

Concluding remarks

Infrastrcture is required to continue with the process of integration thus making investments possible.

Equilibrium between an open market economy and the social responses to satisfy the needs of the countries.

To overcome barriers to private investment in energy it is crucial to promote the sustainability of democracies.

Concluding remarks

Terrorism is a barrier to which we do not have an answer today but it is related to education and to the understanding of a new social state of affairs in the world .

Concluding RemarksConcluding Remarks

The understanding of the major corporations of this new social state of affairs will help in overcoming the investment barriers in Latin America

www: energia.gov.boemail: enerhid@energia.gov.bo

Protection of the land – Bolivian caseProtection of the land – Bolivian case

Pipeline San Miguel – San Matías

Indigenous TerritoriesIndigenous Territories Protected AreasProtected Areas

Modification of the route to reduce the Modification of the route to reduce the impact on the Chiquitano forestimpact on the Chiquitano forest

Constitution of the Constitution of the foundation for the foundation for the Chiquitano forest Chiquitano forest (US$ 20 million) (US$ 20 million) **

Implementation of Implementation of the Indigenous the Indigenous Development Plan Development Plan (US$ 2.0 million)(US$ 2.0 million)

Program of Program of reforestationreforestation

Pipeline Bolivia - Brasil

Indigenous TerritoriesIndigenous Territories Protected AreasProtected Areas

Participation in the Participation in the Trust Fund (US$ Trust Fund (US$ 1.7)1.7)

Implementation of the Implementation of the Indigenous Indigenous Development Plan Development Plan (US$ 2 milllion)(US$ 2 milllion)

Indigenous TerritoriesIndigenous Territories Protected AreasProtected Areas

*: OPIC’s requirement*: OPIC’s requirement