Brazil Threatens to Use Arbitration Court After New Bolivian Surprise

State-controlled Brazilian oil company Petrobras has released an official note criticizing the Bolivian government for imposing new rules on production and commercialization of its gas and oil.

The measure, which nationalizes the whole productive chain of the oil sector, is part of Ministerial Resolution  207/2006, published Wednesday, September 13, by Bolivia’s Ministry of Hydrocarbons and Energy.

The new rule establishes that foreign oil companies, like Brazilian Petrobras, must hand over the liquid fuels to YPFB, the state owned oil company, which then will take care of all domestic and international commercialization of the product.

Petrobras in its note denounces the Evo Morales administration’s decision saying that it "makes totally unfeasible the company’s business in that country".

Brazil and Bolivia have been at odds with each other since May 1st when President Evo Morales enacted a "Supreme decree" nationalizing assets and reserves of all oil companies in Bolivia.

Since then, the two countries have been dancing around the issues, with YPFB making its case to change the rules and raise prices on the gas sold to Brazil and Petrobras refusing to go along.

Petrobras says that it would be suffering losses in Bolivia if it weren’t for the high prices of oil in the international market right now and the adoption of modern technologies for operating and managing the Bolivian side of the company.

Petrobras informed that its average earnings have been US$ 14 million for an initial investment of US$ 105 million. "These values belie charges that the company has had "extraordinary benefits".

Petrobras also criticizes Bolivia for seizing the company’s cash flow, saying: "This decision puts in risk the maintenance of financing previously undertaken by the company and, consequently, the normal course of its activities."

The new rules call for Petrobras to deposit all its Bolivian earnings into the Bolivian Central Bank. The Brazilian share’s of the money will then be decided by the Bolivian government.

According to Brazil’s Minas and Energy Minister, Silas Rondeau, President Luiz Inácio Lula da Silva was surprised by the Bolivian government’s decision and explained the president’s reaction: "He reacted because the announcement was a complete surprise. He held a firm posture to show that things cannot be this way."

Rondeau told reporters that in the last few weeks Brazilians and Bolivians seemed close to reach an agreement through discussion and understanding. The unilateral decision from the Morales administration came completely out of the blue to believe the Brazilian minister. Brazil now is also threatening to take the case to an international arbitration court.

Rondeau cancelled his trip to La Paz where he was going to participate in a meeting between Brazilian and Bolivian negotiators. He has called his counterpart in Bolivia proposing a new encounter on October 9, after the Brazilian general elections on October 1st, and also after Brazil has the time to digest the latest news from Bolivia.

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