Conflict over Natural Gas in Latin America

Brazil opposes new rules by Bolivia
Socialist Luis da Silva clashes with Radical Socialist Evo Morales

Brazil canceled a high-level meeting in Bolivia aimed at resolving an escalating dispute over how much control the Andean nation should assert over the Bolivian operations of Brazil's state-owned oil company.

Mines and Energy Minister Silas Rondeau and Petrobras chief executive Sergio Gabrielli backed away from plans to fly to the Bolivian capital on Friday after Bolivia's Ministry of Hydrocarbons unexpectedly set new conditions for international companies extracting gas and producing petroleum products. Petrobras said that under the rules announced Wednesday its Bolivian refining business would no longer be viable. Rondeau then decided to cancel the meeting and suggested rescheduling it for Oct. 9. — eight days after Brazil's presidential elections.

Brazilian President Luiz Inacio Silva was upset that negotiations "seemed headed toward a mutual understanding, and suddenly we were taken by surprise by this development," Rondeau said. Polls show Silva is expected to garner more than 50 percent of the vote, summarily beating his main challenger, the center-left former Sao Paulo state Gov. Geraldo Alckmin, and avoiding a runoff.

But the new wrinkle in the Brazil-Bolivia dispute gave Alckmin fresh political ammunition to attack Silva, and he accused him of being too cozy with Bolivian President Evo Morales, a strident leftist who took office in January. Alckmin said Lula should have acted more forcefully during the petroleum impasse to defend Brazil's interests and Petrobras' profits but was 'submissive, weak and omissive.' "President Lula would rather cuddle up with Bolivia," Alckmin told reporters in Sao Paulo.

It was not clear whether the rescheduled round of negotiations would occur in Brazil or Bolivia. The two nations also are involved in a long-standing dispute over how much Brazil should pay for Bolivian natural gas. Petrobras has two refineries that process 90 percent of the Bolivia's fossil fuels, and is also one of the largest natural gas players in Bolivia, which has South America's second largest reserves after Venezuela.

The new rules call for Petrobras to deposit all money from petroleum produced at the refineries into an account at the Bolivian Central Bank. Then the government will decide how much Petrobras will get. Complicating the issue, Bolivian Hydrocarbons Minister Andres Soliz Rada said Wednesday that Petrobras has already reaped more than enough profits from its Bolivian refineries for Bolivia to justify assuming a 50 percent stake in each one without paying. The rules did not contain language referring to Bolivia's frequently stated position that it plans to assume control of the refineries, but Bolivia's state-run news agency said Tuesday night that the government would do so.

Brazil and Bolivia have been feuding over the nationalization plan ever since Bolivian President Evo Morales announced it in May and sent troops to stand guard outside operations owned by Petrobras and other international petroleum companies. The dispute deepened a few weeks later, when Morales accused Petrobras of operating illegally in the country. Morales and Silva patched up the differences, but on-and-off negotiations have failed to determine the future of Petrobras' Bolivian operations and the price Brazil pays Bolivia for the gas.

Brazil gets about 50 percent of the natural gas it uses for power generation and fuel for cooking and cars from Bolivia. Petrobras, or Petroleo Brasileiro SA, has invested about US$1.5 billion (€1.2 billion) in Bolivian natural gas production since the mid-1990s, when Bolivia privatized the industry.

Petrobras shares were down 2.7 percent in late Thursday afternoon trading on Sao Paulo's Bovsepa exchange.

AP Business Writer Alan Clendenning contributed to this story from Sao Paulo, Brazil; Associated Press Writer Alvaro Zuazo contributed from La Paz, Bolivia