The Bolivian
oil and gas industry is primarily governed by the new Hydrocarbons Law No. 3058
of May 17, 2005, (“HL”) which replaced the former Hydrocarbons Law No. 1689 of
April 30, 1996. Although the HL has been duly enacted along with new
regulations, some regulations are still in the process of being drafted. The
main aspects of the new law are as follows:
Article 5
(paragraph one) states that “By virtue of a sovereign mandate expressed by the
Bolivian population through the response to question 2 of the Binding
Referendum of July 18, 2004, and in adherence to article 139 of the Political
Constitution of the State amended as of April 13, 2004, the total amount of
hydrocarbons at wellhead are recovered in favor of the Bolivian State”.
Article 5
(paragraph two) of the HL states that “Parties to joint venture agreements
entered into with YPFB per the Law of Hydrocarbons No. 1689 must mandatorily
convert their agreements into new forms of agreements within 180 days that the HL
is enacted”.
Through the
above provisions the Bolivian State has unilaterally imposed an expiration date
to the Joint Venture Agreements (“JVA’s”) currently in place between YPFB (the
state oil and gas company) and private oil and gas producers. Thus, the HL
requires that private producers terminate their current agreements and enter
into new forms of agreements with YPFB by November 15, 2005. The private sector
is obviously not content with this legal imposition, but failure to convert
into new forms of agreements may trigger the reversion of gas fields to the
State.
Article 16 of
the HL states that “Hydrocarbon deposits in whatever state or form they may
lay, are of the direct, perpetual and inalienable domain of the State. No contract may confer the property
over hydrocarbon deposits, over hydrocarbons at wellhead or over hydrocarbons
at the point of measurement. The party to a Shared Production Agreement,
Operational Agreement or Association Agreement must deliver to the State the
total amount of hydrocarbons produced within the established contractual term”.
Article 138 of
the HL defines “wellhead” as “The point of egress of all fluids produced by the
well before they are sent to a treatment system”, and defines “point of
measurement” as “The place where hydrocarbons that have been exploited at the
field are measured after they have been treated for transportation”.
Articles 53 al
57 of the HL creates and regulates the Direct Tax on Hydrocarbons (“DTH”) applicable
to the production of hydrocarbons at wellhead, measured at the point of
measurement. The obligation to pay
the DTH is generated at the point of measurement and the contributor shall be
any individual or entity that has produced the hydrocarbons that are being
measured.
The DTH rate is 32% of the total production of hydrocarbons measured at
the point of measurement. The DTH applies in a non-progressive and direct manner
allowing no deductions or credit offsets.
The DTH applies identically to the existing 18% royalty rate. Hence, both measures in effect create a
royalty rate of 50%. Notwithstanding the fact that the JVA’s contain a royalty
stability clause, the DTH is currently being applied through specific decrees
and regulations.
As a result of the HL, the Bolivian
tax structure for hydrocarbons has changed dramatically. The taxes are as
follows: royalties (18%), DTH (32%) income tax (25%), and withholding tax
(12.5%).
The Bolivian
Constitution states that all hydrocarbons including natural gas located in
Bolivian territory are of the original domain of the Bolivian State. Rights to explore and exploit such
resources must be granted by the Bolivian State. YPFB acts on behalf of the
Bolivian government, and the Superintendency of Hydrocarbons serves as the
regulatory authority for the distribution of oil and gas.
The import,
export and commercialization of hydrocarbons and natural gas are not subject to
any special requirements. Foreign investors have the same rights and
obligations as national citizens or entities.
The export of
gas to worldwide spot markets is not subject to any special restrictions. As long as the gas export commitments
to Brasil and Argentina are duly complied with, producers are free to sell (or
not) their gas to any willing national or international buyer.
It should be
noted that although the spirit of the HL aims at restructuring and
strengthening YPFB in an effort to return it to its former role as a dominant
player throughout the oil and gas industry, it should not be confused with a
law that allows the nationalization of private companies. These types of
measures would necessarily require a new law and amendments to the
Constitution.
The new Shared
Production Agreements, Operational Agreements and/or Association Agreements,
which will replace the JVA’s should soon be executed, but as of now, the
contents of these agreements are still being discussed and have not been
publicly disclosed. Also, by virtue of existing bilateral investment treaties
part of these negotiations involve possible arbitration claims by private
producers against the Bolivian State.
Although per
the JVA’s all private producers may at any time file arbitration claims against
the State, only those companies who have coverage through bilateral investment
treaties have triggered the arbitration clause contained therein.
This may be attributed to the fact that the arbitration clause contained in the
JVA’s, specifies that the arbitral site shall be the city of Santa Cruz,
Bolivia.
As a result of
upcoming presidential elections, some candidates have called for radical
measures such as the nationalizations of all gas fields. At the same time,
private producers have widely outspoken their absolute rejection to certain
provisions of the HL. These elements have brought uncertainty as to the future
of the oil and gas industry. The only thing that has remained a sad certainty
is that Bolivia’s push to export and monetize its vast gas reserves has and
will continue to be, greatly hindered throughout this whole process.
Diego
Rojas Moreno
