###

The diplomat asserts that the current challenges in energy integration between Bolivia and Brazil include legal security, contract stability, and concession timelines. He adds that another issue is the "government take," which refers to the Bolivian government's share and profit in the case of foreign investment in hydrocarbons.

ISSUE 135 | 2024

Vesna Marinkovic U.

1You have mentioned having a personal and long-standing connection with the energy integration process between Bolivia and Brazil. To provide some context, could you briefly tell us about your relationship with this process?

Thank you very much. I have been in this career for 30 years, always with a great passion for South American issues, especially regarding integration. Integration is a process under construction, which will continue to develop for a long time in South America. What fascinates me about our continent is our complementarities and potential. Few places in the world can achieve productive synergy and integrate production chains as efficiently as here.

Historically, our ports have played an important role in connecting us with the outside world, and many times the opportunity to promote integration within the continent was missed. I was head of the Mercosur sector at the embassy in Buenos Aires when Mercosur was going through its institutional construction process. I participated in the negotiations of the Ouro Preto Protocol in 1994, which gave legal personality to Mercosur and also defined a common external tariff for the bloc.

I was head of trade promotion in Guyana and Venezuela, and chargé d'affaires in Venezuela and Hungary. I was also at the embassy in Paraguay, where one of Brazil's largest energy integration projects was built, the Itaipú hydroelectric plant, which is crucial for Brazil's energy supply. In Venezuela, Brazil has an energy integration through the import of energy from the El Guri hydroelectric plant. Now, I’m in Bolivia, and I also know Guyana, which is transforming into a major hydrocarbon producer. These topics fascinate me from a professional perspective.

2In your opinion, what are the factors that complicate energy integration in South America, especially between Bolivia and Brazil? Are there issues related to trade regulations or the diversity of institutions in each country?

The challenges vary in nature and scale. To begin with, at the macroeconomic level, there are very strong external forces that have hindered the progress of energy integration in South America. One reason for this is that South America is theoretically a continent self-sufficient in energy. If the rest of the world disappeared due to some climatic or geological event, we could supply ourselves with our own energy sources, which is not the case in other parts of the world. This historical factor must be considered, as there are external pressures to prevent South American integration.

The second factor is that energy integration is like "blood integration," as energy is like the lifeblood of countries. Integrating with neighboring countries requires a high degree of concord and political intelligence, and the construction of shared destinies. Brazil has played a positive role in this regard. For example, the first major energy relationship was with Paraguay through the Itaipú hydroelectric plant, built during the 1970s. Despite geopolitical rivalry and strategic fears at the time, the military government chose to integrate Brazil and Paraguay through this successful project.

In Bolivia’s case, integration has been present since the mid-20th century. For instance, the 1867 treaty already contemplated infrastructure connections, and in 1903, Brazil committed to building the Madeira-Mamoré railway. Although this project was completed, it did not generate the expected results in terms of development and bilateral transportation integration due to the collapse of rubber prices from the second half of the 1910s onwards.

3Regarding what you just mentioned, what relevance did the 1938 agreement between Bolivia and Brazil have in the process of railway and energy integration?

In 1938, Brazil signed a crucial agreement with Bolivia that included the construction of the Santa Cruz-Corumbá railway, with a connection to Cochabamba and the Bolivian railways that extended to the Pacific. From this agreement, the idea of a bioceanic railway corridor emerged. It was also proposed that the railway would transport hydrocarbons from Camiri, Bolivia, to Brazil, as at that time, the regions of Mato Grosso Norte and Sul lacked a secure energy source. In 1957, the Roboré agreements were signed, in which Brazil sought to involve Petrobras in investments to supply gas and oil in Bolivia.

“...energy integration is like a 'blood integration,' as energy is like the lifeblood of countries...”

4What difficulties did the Roboré agreement face in involving Petrobras in Bolivia?

The Roboré agreement was very complicated to implement in Brazil, as Petrobras had been created only four years earlier, amidst significant geopolitical pressure. The creation of Petrobras and the oil monopoly in Brazil were controversial and led to internal conflicts, which even contributed to the suicide of President Getúlio Vargas in 1954. However, President Kubitschek decided to move forward with the integration process with Bolivia, although there were internal attempts to sabotage Petrobras' involvement. Despite these obstacles, the project was resumed years later thanks to the potential of the energy relationship between Brazil and Bolivia.

Without a doubt, Bolivia still has significant hydrocarbon potential that must and can be developed. This requires not only investment in exploration but also a redesign of the entire sectoral policy, framing it within a new long-term energy policy that aligns with the challenges facing the planet, the region, and the country.

5Currently, what challenges persist for energy integration between Bolivia and Brazil?

The current challenges include legal security, contract stability, and concession terms. There is also the issue of the "government take," which refers to the participation and profits of the Bolivian state in the event of foreign investment in hydrocarbons. These elements are crucial for attracting investments and developing new gas fields in Bolivia. The positive aspect is that so far we have managed to overcome geopolitical barriers that have always been present and will continue to be.

6 Considering the decline in Bolivia's natural gas reserves, both countries are reconfiguring their trade relationship in terms of gas supply: Bolivia is ceding its gas infrastructure, in place since 1990, and Brazil is importing gas from Argentina, utilizing this infrastructure. Does this imply that you will be buying gas at a higher price and a decrease in gas revenue for Bolivia?

I cannot speak for Bolivia's position, but I can offer some insights. Bolivia has significant gas potential, not only in the Sub-Andean region but also in other parts of the country. Developing or not developing that potential is a decision for the Bolivian government and people. According to information we receive from our economic agents in Bolivia, there are available gas fields. To exploit them, it is essential to improve legal security and clearly define the conditions for the participation of the Brazilian private sector.

Brazil is interested in participating in this process and actually sees it as key. However, the obstacles are related to the issues mentioned earlier. Political awareness in Bolivia is necessary to advance these matters and benefit mutually. Brazil needs Bolivian gas because it can be imported at a lower rate than what we are currently paying, which would increase the competitiveness of several industries in Brazil, such as ceramics, glass, and chemicals.

Furthermore, if a competitive price could be achieved, we could produce fertilizers in Brazil using Bolivian gas. The central-west region of South America—Santa Cruz, Beni, Mato Grosso, and Mato Grosso do Sul—is currently one of the largest agricultural powers in the world, but Brazil imports 90% of the fertilizers it needs, primarily from China, Russia, and Ukraine. If the gas issue is resolved in Bolivia, the country could become a major supplier of urea for Brazil, adding value with low investment.

At the moment, I don't think the use of Argentine gas is negative; on the contrary, it can be very positive. Bolivia could take advantage of this Argentine gas to increase urea production and export it to Brazil. I understand that this means losing added value in the direct production and export of gas, but that is a decision for Bolivia. I believe both exporting gas and producing urea can be done if an appropriate agreement is reached.

Consequently, Bolivian natural gas continues to be part of the commercial relationship equation between Bolivia and Brazil, although regulatory changes are needed, especially concerning the "government take," to incentivize greater investments in Bolivia. Although Bolivian gas reserves have decreased, Brazil's interest in the resources remains, not only to import gas at a lower rate but also to use it in petrochemical production. Currently, Bolivia is acting as a transit channel for Argentine gas to Brazil, which reconfigures its role as an exporter.

On the other hand, it is important to mention that Brazil has the capacity to obtain offshore gas from the oceanic Pre-Salt fields. However, Petrobras prefers, for strategic reasons, to use that gas in its own offshore fields. This makes it more convenient for Brazil to import gas from Bolivia, produced onshore, as it is more accessible and convenient due to its location in South America.

Consequently, a strategic alliance between Bolivia and Brazil will always be very important for Bolivian development. Just as Brazil-Paraguay and later Brazil-Uruguay integration has brought great benefits, Bolivia could benefit enormously from the resources and investments that energy integration would bring. The relationship between Bolivia and Brazil has significant potential for economic growth and energy stability for both countries.

Geopolitically, the world is in a very complex situation. Energy dependency on other continents is extremely complicated. However, South America has all the conditions to ensure its energy security. What is happening in the Middle East and the Caucasus could disrupt energy flows, which is a serious concern. For this reason, building a stable energy relationship between Brazil and Bolivia could be key to providing resources for development, as Petrobras investments did in the past.

7 For the moment, what is being done regarding hydroelectric power between Bolivia and Brazil?

During President Lula's recent visit to Bolivia last July, Brazil's Minister of Mines and Energy, Alexandre Teixeira, negotiated a protocol with then-Minister Franklin Molina. This protocol allows the Brazilian hydroelectric plants of Jirau to supply electricity to the Bolivian cities of Pando, such as Riberalta, Guayaramerín, and Cobija. Additionally, Bolivia agreed to work with a common water quota for these hydroelectric plants, referred to as "quota 90," which will ensure the necessary supply to increase the productivity of these dams.

This bilateral agreement will reduce the use of fossil fuels to power the thermal plants that currently supply energy to these cities. This is beneficial for both countries, as it helps meet carbon and climate change goals.

8What is your assessment of the event organized by the Consulate General of Brazil in Santa Cruz de la Sierra, APEXBRASIL (Brazil's investment promotion agency), and the Bolivian-Brazilian Chamber of Commerce?

The event has been related to Bolivia's entry into Mercosur. Many people question the benefits this could bring, but I firmly believe in the potential of integration. Beyond economic gains, the most important aspect is the ability to sit down and discuss a common future, and that is priceless.

In a context where countries often do not communicate, it is essential to maintain an open dialogue, even when there are disagreements. This is especially important in South America, where a minimum of contact and dialogue is needed to avoid isolation. From the moment we discuss a common future, bonds of trust are created that allow for sensitive integrations, such as in energy.

Bolivia has significant gas potential, not only in the Sub-Andean region but also in other parts of the country. Developing or not developing that potential is a decision for the government...”