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09 September 2002
Plans are afoot for Bolivian gas to be exported to both Mexico and California. Under the Pacific LNG Project, natural gas will be transported through pipelines to a port in the Pacific Ocean, where it will be liquefied and transported by ship to the shores of Mexico. In Mexico it will be regasified and distributed throughout the country and in California.
The project is based on an exclusivity agreement (with an original deadline of May 2002, which has already been put back several times) between (i) the Pacific LNG consortium comprising three companies - Repsol YPF (37.5%), British Gas (37.5%) and Pan American Energy (35%); and (iii) Sempra Energy.
The project is proving to be controversial in Bolivia. Sensitive diplomatic issues have arisen from the need to choose a port by which the gas will reach the Pacific Ocean. Bolivia's two options are Chile and Peru.
Peru has reportedly offered the port of Ilo, for which Bolivia previously signed a treaty denying Peruvian sovereignty. An area of 200 hectares was rented to Bolivia under the treaty for 99 years. However, this is not a large enough area for the project. Ilo has offered a surface area of 1,560 hectares in renewable concession for 99 years and under Bolivian sovereignty, in return for the gas and an oil pipeline, and construction of the liquification plant.
The applicable law would be Bolivian, thus avoiding the issue of double taxation and other tricky legal matters. Another advantage is that Ilo does not experience northern Chile's seasonal earthquakes. The main disadvantage of Ilo is that its location is far from the Bolivian gas fields. A lengthy pipeline would be required, incurring increased construction costs (although the Peruvian ambassador in Bolivia has indicated that Peru is willing to consider absorbing the extra costs in order to facilitate the project).
If anything, the choice of a Chilean port is even more complicated. The Chilean government has offered the port of Mejillones, following a great deal of competition between the port cities of northern Chile.
Chile was dismayed by the fact that Bolivia requires the application of its laws in the chosen port. Nevertheless, some media reports indicate that Chile has agreed that the taxes resulting from the sale of the gas will be paid to Bolivia.
The most emotive issue is the fact that Bolivia and Chile currently have no diplomatic relations. This dates back to 1879 when Chile won the department of Litoral, in which the port of Mejillones is located. The choice of Mejillones would symbolize an acceptance of Chile's sovereignty over the territory that Bolivia lost in the War of the Pacific. However, many Bolivians would find this difficult to accept.
Bolivia's continual stalling over the choice of port is threatening to affect the agreement between the consortium and Sempra Energy. For example, the price of the gas at delivery point cannot yet be confirmed, as it will vary depending on which port is chosen. If Bolivia misses this opportunity, it will have to wait 15 years for another chance to penetrate the Californian market. Moreover, Bolivia would be dependent on Brazil as its main purchaser of natural gas.
There is a heightened sense of urgency since four other locations are competing for the Californian market, namely:
Of the four, Camisea appears to be more prepared for the project than Bolivia, while the Sakhalin Islands boasts an operational liquification plant.
The new Bolivian government has been granted 30 days in which to familiarize itself with the project negotiations, and an additional 90 days to decide on the port of export.
For further information on this topic please contact Ricardo Indacochea or Iver Von Borries 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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Iver Von Borries