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01 August 2005
On May 19 2005 Congress finally approved the new Hydrocarbons Law (3058/2005) (for further details please see "Tax Uncertainty: New Hydrocarbons Law Under the Microscope" and "Congress Proposes Controversial Hydrocarbons Law").
Article 31 of this law designates the following activities to be of public interest and national use:
'Public interest' is defined as the utility or convenience of the majority before the minority, society before the individual, the state over its subjects, "and is understood by public utility as a particular convenience for collectivity".
Article 14 of the new law indicates that the transportation, refinement, storage, commercialization and distribution of refined petroleum products and process plants in the internal market are considered to be public services. These public services must be operated in a regular and continuous manner in order to satisfy the needs of the population and industry.
One such public service regulated by the new law is the state-owned petroleum company Yacimientos Petroliferos Fiscales Bolivianos (YPFB). YPFB should provide all guarantees for the hydrocarbons sector. However, YPFB has stated that it cannot hold enough guarantees in order to operate in accordance with the public interest requirements set out by the law.
A public service is a technical process operated by a public entity (in this case YPFB) for the public in a regular and continuous manner in order to satisfy a public need.
A legal framework setting out minimum safety measures and guarantees for the oil sector is needed in order to allow the hydrocarbon industry to carry out its main activities as normal. However, the government has not set out such a framework, as the new Hydrocarbons Law has not yet been fully approved by the Executive Authority. Therefore, the hydrocarbon industry is still facing major uncertainty.
The statutes passed by the Executive Authority contain transitional regulations, for example Supreme Decree 28173, which states that the Superintendency of Hydrocarbons is in charge of the downstream sector. The superintendency will provisionally use the regulations that were passed for the old Hydrocarbons Law (1689/1996) until the government passes new regulations.
However, the government has not announced plans to pass any such regulations, raising the question of how the superintendency and the oil industry can work in the absence of regulations. Supreme Decree 28173 does not indicate whether the superintendency may apply the regulation that was passed to regulate the old Hydrocarbon Law. However, so far the superintendency has applied Supreme Decree 28173 without the written approval of the government in the absence of a new supreme decree. As a result, although the Administrative Procedure Law establishes the presumption of legitimacy for any act originated by a competent authority, the hydrocarbons industry is currently operating within an uncertain legal framework due to uncertainties created by the new Hydrocarbons Law. Bolivia does not currently have any form of legal regulation to deal with the transportation of hydrocarbons. Nevertheless, the superintendency is continuing to apply old regulations and this may cause problems regarding requests for concessions. The lack of regulation could even render illegal the administrative resources under the superintendency's jurisdiction.
Currently in Bolivia there is much legal uncertainty, and it is possible that statutes could be wrongfully enforced when determining which statue to apply under the public administration criteria. This could generate financial costs for privately owned petroleum companies, including possible legal actions against the government or third parties.
The only foreseeable solution to the uncertainty in the hydrocarbon industry is for Congress to pass, as soon as possible, a new supreme decree indicating that all actions taken by the superintendency under Supreme Decree 26116 are legal.
For further information on this topic please contact Alonso Indacochea at Indacochea & Asociados, Abogados by telephone (+591 3 535 356) or by fax (+591 3 581 200) or by email (email@example.com ).
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Alonso Indacochea P de Z