Brazil Caves in to Bolivia and Brazilians Feel It in Their Pockets

Bolivia nationalized oil and gas operations Brazil will pay about 11% more for natural gas from Bolivia under a deal presidents Luiz Inácio Lula da Silva and Evo Morales signed Thursday in Brazil and that could resolve a year of tense relations between the South American nations.

Brazilians will pay more for electricity, automobile fuel and cooking gas as a result of the accord reached by Lula and Morales after marathon negotiations in Brazil where the Bolivian president was on an official state visit.

"Brazil will never suffer gas shortages," assured Morales and Lula described the energy relationship between the two nations "of fundamental importance for the integration of our economies. We want it to continue as the driving force of our energy partnership."

Under a complicated formula, Bolivia will receive about US$ 144 million more per year from Brazil for the gas, said Bolivian Hydrocarbons Minister Carlos Villegas. Brazil paid Bolivia nearly US$ 1.3 billion for Bolivian gas last year.

Analysts said both parties made concessions, with Bolivia failing to get the steep price increase it was seeking, and Brazil paying somewhat more than it wanted. The face saving deal also helps both presidents overcome the long year of public acrimony.

Evo Morales was swept to power in late 2005 promising to hike gas prices for Argentina and Brazil and deliver the proceeds to citizens of his poor nation.

Morales had long claimed that Bolivia essentially "subsidizes" gas sales to Brazil, but Brazilian officials have long contended the current price system was compatible with market prices. Bolivia has South America's second largest reserves of natural gas behind Venezuela.

Socialist Lula who was criticized during his re-election campaign for being too soft on Morales, can say that he has secured enough energy to keep Brazil's growing economy from running out of steam, improved relations with an important neighbor and asserted himself as a regional leader.

Latin America's largest economy, Brazil gets about half its natural gas from Bolivia, some 26 million cubic meters per day. The financial and industrial center of São Paulo is even more dependent on the gas flow. And while Brazil is working to tap other sources, it will likely be years before it weans itself from Bolivia.

Brazil's state oil corporation Petrobras is the largest producer of Bolivian gas and the biggest foreign investor in the Andean nation.

With the price hike controversy over both presidents seem intent on deepening their energy relationship, with new joint ventures such as a bio-diesel plant in Bolivia, and possibly several hydroelectric projects along shared border rivers.

"We will be partners in the renewable energy revolution, in petrochemicals and in hydroelectric power generation," emphasized Lula.

Brazilian Foreign Minister Celso Amorim said it is also possible that Petrobras may soon announce new investments in Bolivia. Petrobras froze new investments after Morales last year announced plans to nationalize Bolivia's energy production chain and demanded a controlling stake in the operations of foreign companies that produce Bolivian natural gas.

President Morales was scheduled to return to Bolivia Wednesday but the visit extended into the night in Brasí­lia, resulting in the deal and the announcement that Morales would sign the agreement with Lula da Silva on Thursday, February 15.

Lula da Silva and Morales also signed agricultural accords, including deals to sell Brazilian foot-and-mouth vaccines and tractors to Bolivia.

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