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19 September 2005
Executives of leading Bolivian oil companies are facing a claim that seeks to void the joint venture contracts executed with Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the state-owned oil company.
According to the Hydrocarbons Law (1689/1996) (which is no longer in force), the joint venture contracts give oil and gas companies the right to explore certain areas and to exploit and commercialize the hydrocarbons extracted from those areas.
The basis for the claim is that these contracts lack congressional approval, which the Constitution requires in order for the contracts to enter into force. The claim results from a ruling(1) of the Constitutional Tribunal, which provides that the capitalization law - which is the departure point of the oil companies' investments - "does not authorize [the Executive Branch] to execute contracts for the exploitation of national wealth, among them hydrocarbon resources". The ruling also states:
"The new corporations of joint (public and private) economy, if they intend to develop the activity of exploring, exploiting or commercializing hydrocarbons, shall comply with the requirements, conditions and demands established by the Constitution and the law to obtain the concession, and for the issuance of the individual concession contracts on behalf of the state, the Executive Branch shall or should have obtained the corresponding authorization and consequent approval of the contracts from the Legislative Branch."
The new Hydrocarbon Law 2004 recognizes the existence of the joint venture contracts, defining them in Article 10 as "the contract executed with YPFB under Law 1689/1996". This law also mandates that joint venture contracts should be converted to the new forms of contracts described in the law. This conversion would enable the companies to continue operating the respective hydrocarbon fields.
Some lawyers believe that the legal recognition of existing joint venture contracts should be sufficient to avoid a declaration that they are void. Nonetheless, other lawyers maintain that this recognition does not have retroactive effect, making illegal the exploitation and commercialization of oil undertaken by oil and gas companies between the execution of the joint venture contracts and the coming into force of the new law. If the latter interpretation prevails, oil and gas companies will have to return to the state all the benefits gained from these operations during this period.
The possible voidance of joint venture contracts gives rise to the question of whether it is possible to convert a contract whose existence is under discussion in the courts.
This is only the first chapter in a process that could take years. Nevertheless, the result of the claim is of great interest to the government, the companies involved and the public. The process will almost certainly become political in nature as the upcoming presidential elections, scheduled for December 4 2005, draw closer.
For further information on this topic please contact Alejandro Pelaez Kay 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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Alejandro Pelaez Kay