My previous post on the Bolivian hydrocarbon nationalization of 2006 made it seem like nothing changed. And in terms of the security of supply (in price or quantity), not much did. Ditto, the industry wasn't really nationalized. Rather, the decree gave Bolivia's state hydrocarbon company, YPFB, a mandated 32% share of the output of the San Alberto and San Antonio fields, on top of a 2005 law that cancelled the preferential tax treatment the previous law had granted new gasfields. Thus, Brazil's equanimity in the face of “nationalization.”
In other words, the nationalization was in fact a tax hike, and a rather large one. According to work by Luis Carlos Jemio, the state's take of gross revenues jumped from 28% in 2004 to 41% in 2005 and 65% in 2006.
How high is that? Well, I just spent more time than I should have estimating the total value of taxes (including corporate income taxes) paid to the federal and state governments by oil and gas companies operating in Alaska. The result? In 2006, they paid 25% of their gross revenues (or 50% of their declared profits) in taxes and royalties. Now, these estimates do not include gasoline taxes, or any other taxes on refined products ... because the Bolivian figures don't either. They also do not include the tax hikes that the Palin administration just pushed through, but those hikes will only up the figure on gross revenues to 26%.
In other words, Bolivian tax revenues went from around the level found in Alaska to almost 2½ times that level. There really was a revolution. (And now you understand why the gas-producing provinces in the east are so damn upset.)
Was it a good idea? I'm undecided. Investment in exploration boomed in 1996, with the passage of the law favoring new fields, but started declining in 1999 and was down two-thirds by the time 2005 rolled around. If one makes the assumption that geology drove that decline, then Morales hiked taxes at just about the right time. If no more investment is coming anyway, why worry about discouraging it?
To be fair, foreign direct investment in exploitation (not exploration) did collapse in 2006. That said, Bolivia could potentially make up for that via service contracts and the like.
The reason that I'm undecided is that I don't know how much of the exploration decline was due to geology, and how much was due to the increasing political instability in Bolivia.
But I'm not that undecided. In this case, I think a massive tax hike on the industry was fully justified, and probably the best thing for the people of Bolivia. Now if only they can figure out how to divvy up the new revenues without blockading roads or shooting at each other ...
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