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07 March 2005
As a result of the Gas Referendum held on July 18 2004, the National Congress voted to modify the hydrocarbon legislation, repealing the Hydrocarbons Law (1689/1996). The proposed changes are the result of structural changes in the country, as well as a series of state and regional demands for autonomy.
The diverse social sectors and political parties in Bolivia have been arguing for a law that allows the state to regain control of hydrocarbons - the current Hydrocarbons Law grants to the petroleum companies the ability to claim, explore, exploit and commercialize all hydrocarbons found at the wellhead of the reservoirs. Article 5 of the proposed modification to the current law disposes of this right, with the clear intention of realizing this long-awaited goal.
In order to achieve this, the proposed modification requires a controversial contractual migration, which would damage the principles of legal certainty that are designed to regulate the state. The modification document states that the holders of joint venture contracts entered into with the government in 1996 (the year of promulgation of the current Hydrocarbons Law) must acquiesce to this proposal.
Apart from any problems that may be raised by a legal analysis of the proposed modification to determine whether it would benefit joint venture contract holders, if the state passes the modification it will commit an error by changing the rules under which the current investors agreed to invest. This puts future foreign investment in Bolivia at serious risk.
Another proposed modification aims to strengthen Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the state-owned hydrocarbons company.
The current Hydrocarbons Law establishes that YPFB, as the state's representative, grants to the joint venture contract holders the right to explore and exploit the hydrocarbons fields and to commercialize whatever they obtain. YPFB assumes no risk and no investment obligation. In order to recover the hydrocarbon resources and to manage the destination of the resources, the modification requires YPFB to play a more active role and to participate directly in all activities of the hydrocarbons industry, in order to recover and manage the destinations of these resources.
The social sectors have not accepted the current taxation position, instead arguing that a larger burden be imposed on the oil companies. The main reason for this is that the hydrocarbons tax is deductible from the companies' taxable profits.
This is an important time for Bolivia's economic growth. The players in the economy are eagerly awaiting developments in this social, economic and political battle - it is hoped that no errors will be committed merely in order to please certain sectors, as has happened in the past.
For further information on this topic please contact Riccardo Indacochea or Fernando Alvarez at Indacochea & Asociados, Abogados by telephone (+591 3 535 356) or by fax (+591 3 581 200) or by email (firstname.lastname@example.org or email@example.com).
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Ricardo Indacochea San Martin
Fernando Alvarez G