To the amazement of practically everyone in the region, it is clear that the Bolivians managed to put one over on the Brazilians when they signed the gas supply contract in 1999. The Brazilians seemed to have been panicked by the thought that their industrial base would be hamstrung by a lack of electricity unless they signed up with the Bolivians. The Bolivians saw them coming and managed to commit the Brazilians to both high prices and high volumes.
The Brazilians have been chafing at the terms of the deal ever since their economy started to slow down 18 months ago and it became clear that the dash for gas was something of an expensive miscalculation.
The government has been scaling back its plans for gas-fired power stations for at least the past year.
Prices. The Brazilians' big beef is discovering that they have been paying the Bolivians more than twice as much as the Argentines used to: the Brazilians have been paying US$1.94 per million British Thermal Units while the Argentines had been paying US$0.82 per million BTUs.
The Brazilian executive secretary at the mining and energy ministry, Mauricio Tolmasquim, travelled to Santa Cruz at the beginning of July to start the renegotiation of the contract. Although the details were not made public, its is clear that Brazil wants to cap the price of Bolivian gas. In return, it will guarantee a minimum price.
The Bolivian government has been inclined to stand on its principles and stick to the letter of the current contract. Tolmasquim's innovation is to offer to commit Brazil to increasing its purchases of Bolivian gas in return for a lower unit cost. Tolmasquim said that Brazil could see demand for gas increasing from industry, transport, and electricity generators.
Details. According to Bolivian officials, Brazil has asked Bolivia to cut the price of the gas it buys by 30%. Furthermore, Brazil wants to cut the volume of gas it buys. Brazil should be buying 18m cubic metres a day now, increasing this to 36m cubic metres by 2007. Now the Brazilians want the maximum capped at 30m cubic metres in 2007. Actually, Brazil is now buying only 12m cubic metres a day.
Bolivian officials say that Brazil is offering to compensate Bolivia for the lost revenue. Exactly how this will be done is unclear. Brazil has already built up a debt of US$100m under the take or pay contracts. Brazil has not taken the gas it ordered so it should pay up. The Bolivians say that they will insist that Brazil clears, at least, its existing debt.
Response. The Bolivian deputy energy minister, Mario Requena, was guarded about the nine-point Brazilian offer. He said that it was not just about prices and volume but also about expanding the market and the overall relationship between Bolivia and Brazil.
What the Brazilians have offered to do is:
* set up a ministry of oil, natural gas and renewable fuel
* invest in expanding the gas pipeline network and commission new pipelines
* get the Brazilian state oil company Petrobrás to invest in distribution
* rejig refineries so that they can use gas as a feedstock for petrochemicals
* support new uses for gas
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