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Government Negotiates Gas Prices with Brazil - International Law Office

International Law Office

Energy & Natural Resources - Bolivia

Government Negotiates Gas Prices with Brazil

April 02 2007

Following the commencement of the nationalization of the Bolivian hydrocarbons industry, President Evo Morales highlighted the need to increase the price of gas sold to Brazil (for further details please see "Government Moves to Increase Natural Gas Profits"). As a result, the government has executed an agreement with the Brazilian government increasing the price of gas British thermal units (BTU) exported from Bolivia to Cuiaba in Mato Grosso, Brazil. Previously, the price was $1.09 per BTU. Under the agreement, from April 2007 the price will be increased to $4.20 per BTU.

However, the gas exported to Cuiaba represents only 4% of total Bolivian gas exports to Brazil (just 1.2 million cubic metres daily of total exports of 30 million cubic metres daily), as gas is also transported from Bolivia to Sao Paulo through two pipelines: the Yabog pipeline, operated by Transredes, and the Gasyrg pipeline, operated by Transierra, both of which are connected to the Bolivia-Brazil pipeline, owned by Gas Transboliviano SA. The gas transported by these pipelines represents the other 96% of sales to Brazil and the price will remain at $1.09 per BTU.

The newly agreed price between the Bolivian and Brazilian governments corresponds to international price levels. Although it applies to only a small share of the market, the new price acts as a test case for applying the increase to the whole Brazilian market.

In addition, Brazilian company Petrobras has agreed new investments in Bolivia and the Brazilian government is reportedly willing to establish a biodiesel plant at the Bolivian border with Brazilian technical support. In return, experience gained by Bolivia in farming investigations would be passed on to Brazil. Although during negotiations neither government has referred to the nationalization of the two largest Bolivian oil refineries, in this case preferential treatment may be given to Petrobras.

The considerable increase in the price of some of the gas sold to the Brazilian market not only represents key new revenue for Bolivia, but also opens up the possibility of negotiating a higher price for the whole Brazilian market. However, Petrobras is likely to be patient during negotations with Bolivia, particularly in light of the fact that, as stated by José Sergio Gabrielli, president of Petrobras, "Bolivia is a strong gas provider that supplies about 50% of the Brazilian combustible market, mainly in Sao Paulo".

For further information on this topic please contact Rodrigo A Henriquez Essmann at Indacochea & Asociados, Abogados by telephone (+591 3 535 356) or by fax (+591 3 581 200) or by email (rhenriquez@indacochea.com.bo).

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