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Bolivia

Prepared by CEADES
ENRON Strategy Session, Baltimore April 08 - 2002

ENRON'S OPERATIONS IN BOLIVIA [espanol]

Introduction

International oil corporations began operating in Bolivia during the 1920s when representatives of the Bolivian government secretly negotiated and prepared concessional contracts for the North American company Richmond Levering, which subsequently transferred its rights to Standard Oil Company of New Jersey (SOC) in 1931, violating articles of the illegal and unethical contract signed with Bolivia. A new Supreme Resolution authorized SOC's presence in Bolivia that permitted Rockefeller's corporation to operate until 1937. Historically, SOC was involved in the Chaco war (1932-1935), during which SOC and SHELL promoted a fierce conflict between Bolivia and Paraguay over control of oil reserves. The war resulted in the death of over 50,000 Bolivian soldiers and an entire generation of Paraguayan men. In 1935, in the midst of the war, it was discovered that SOC had secretly constructed a pipeline through which oil was exported to Argentina and Paraguay; in this manner, in 1937 a long legal process culminated, which allowed the Bolivian state to "confiscate all the goods, possessions, equipment and material" from the U.S. company; this consolidated consciousness regarding national sovereignty over natural resources and empowered the Bolivian state oil company (YPFB) to become the key economic leader of a national development plan. However, U.S. economic interests did not stop their pressure; in 1952 they imposed the so-called Davenport Code as a norm of the oil sector, achieving the re-admission of transnationals, this time the companies Glenn McCarthy and Gulf Oil, which obtained concessions to construct and operate the export pipeline to Chile, a project that benefited them until 1969, the year of the "second nationalization of oil".

In a recurrent manner, sixty years after SOC was expelled from Bolivia, ENRON (Bolivia) C.V. (an outgrowth of SOC itself), this time associated with SHELL Overseas Holding Limited, became a "strategic partner for Bolivia" for capitalization of the Transportation Unit of YPFB, "TRANSREDES", which became the owner of the entire network of gas pipelines, oil pipelines, and local poliducts. Since 1994, the presence of ENRON and SHELL in Bolivia has been characterized by deplorable ethical conduct, predominated by illegal actions, corruption, political influence, systematic violation of the economic, social, and cultural rights of indigenous peoples, and environmental disasters that are unprecedented in the history of the country. The following is a review of the facts that demonstrate the urgent need to halt the functioning of these companies, demand reparations to Bolivians for damages and injuries that have been provoked, and undertake an investigation to be oriented to the redefinition of national and international policies to impede these acts from recurring elsewhere on the earth.

Illegality and illegitimacy of capitalization

Capitalization is an economic mechanism used to strengthen and expand the patrimony of companies through injections of new resources from sales of shares, new credits, or contributions from new partners; generally they try to obtain more money to extend operations, maintaining ownership of the company. In Bolivia, capitalization was the mechanism chosen by the Inter-American Development Bank, World Bank, and Export Credit Agencies (OPIC and KWF) to facilitate the process of privatization of state companies, policies that were resisted by the majority of the population. According to promoters, the essential difference between privatization and capitalization was that in capitalization fresh resources did not imply sale of the company to the private sector, but rather a contract of shared risk in a mixed company in which half of the ownership remained as patrimony of the State (of all citizens?) and in which financial contributions of new partners did not go to the State for unknown purposes, but rather which would serve to strengthen the mixed company. In addition, the incorporation of strategic partners would ensure transparency and efficiency in the development of the capitalized companies.

But, in fact, the entire process of capitalization of YPFB, and especially TRANSREDES S.A., was illegitimate because it was damaging to the interests of the country; secret because there was not social control over the proceedings; antidemocratic because it was imposed upon the country in a manner lacking consultation and despite disagreement on the part of organizations from Bolivian civil society; and illegal because it violated the political constitution of the state and other effective national laws, and did not even respect the very guidelines of the multilaterals (IFIs). Serious indications of corruption exist.

The first step questioned with the process of capitalization is the signature of the "Temporary Contract of Association with Shareholders Pact" (Contrato de Asociación Accidental con Pacto de Accionistas) signed by ENRON and the Government of Sanchez de Lozada December 9, 1994 with the objective that ENRON develop and achieve financial closure for execution of the Bolivia - Brazil pipeline. Nonetheless, today we know that previously the Brazilian state company PETROBRAS had already offered to construct the main pipeline in the modality of "key in hand", through which the participation of ENRON did not make sense. However, it was insisted in the contract under the pretext that Bolivia needed a partner that permitted it to negotiate better conditions with Brazil? In effect, today we know that there already existed a memo of understanding with ENRON signed previously and that the very contract was secretly signed in Miami, subject to the laws of New York state, remaining unbeknownst to the institutions and people of Bolivia during two years when it was denounced amid the national scandal.

After the fall of ENRON a Special Investigation Commission of Bolivian National Congress have found the following evidence of irregularities in the contract:

* Violated the Political Constitution of the State (CPE) and the Bolivian Hydrocarbons Law, which require that all oil contracts with YPFB be signed under Bolivian law. The Decree that approves the signature of the contract established that this ought to have been carried out in the city of La Paz, but it was carried out in the United States.
* Violates article 118 of the CPE, which establishes that arbitration be conducted in the International Chamber of Commerce, not the Supreme Court of Justice of Bolivia.
* The legal character of the contract does not exist in the Commerce Code of Bolivia
* ENRON was neither registered nor enabled to function in Bolivia and therefore could not have been selected. ENRON still did not have legal incorporation status (personaria juridica) in Bolivia two years after the signature of the contract.
* The company Crown Agents, in charge of selection, issued a report recommending contracting ENRON one week after the Memo of Understanding had been signed between YPFB and ENRON, and did not inform about the qualification of the offers of other companies that supposedly had participated in the process of selection.
* The resolution of the Board of YPFB authorizing the contract was issued after the contract was signed.
* Contradicts the anti-trust principle prohibited by the CPE, to deliver existing and future pipelines only to ENRON, limiting the participation of other interested parties.
* With 40% ownership of the Main Pipeline in the Contract in addition to 50% of the ownership of YPFB conceded to ENRON through capitalization, 70% control of the pipeline was ceded, violating the very principle of Capitalization.
* ENRON received a credit for $US 6 million before the signing of the contract.
* Finally, ENRON never obtained money for construction of the Pipeline, which was undertaken by Petrobras. Without investing a dollar, ENRON and SHELL are owners of the most important energy integration project in Latin America.

Corruption and Political Influence

Capitalization was directed by a powerful group of interests comprised of companies tied to the Mining Company of the South (COMSUR), whose principal shareholder is Gonzalo Sanchez de Lozada, former president of Bolivia (1994-1997), Banco Industrial S.A. (BISA) and U.S. companies CITIBANK and ENRON, all related to each other. The same shareholders are owners of BISA and COMSUR, and participated in the process of capitalization of the National Energy Company (ENDE) associated with ENRON. Citibank has been a partner with COMSUR since 1970 and currently is the owner of CITITRUST of the Bahamas, the current depository for resources from capitalization.

Members of these companies were named members of the Trusteeship Administration Committee (Comité de Administración de Fudeicomiso) of CITITRUST. That is, they are in charge of making investment decisions regarding the $US 1,871,000,000 that came from the resources of capitalization. Other members were named Superintendents of the system of sectoral regulation.

With respect to SHELL's participation, it is known that it was invited at the suggestion of the then Bolivian government to avoid criticisms that it was done by increasing the capital share of ENRON in the pipeline; the brother of the then Minister of Capitalization Alfonso Revollo represented SHELL in Bolivia.

Violation of Economic, Social and Cultural Rights

During the construction of the pipelines, which are the property of ENRON and SHELL, hundreds of indigenous and small farming communities were affected. They have systematically violated their right to opportune and informed consultation, to receive just compensation for usufruct of lands and social and environmental damages, and to direct participation in the administration of natural resources. They have violated and restricted indigenous communities' access to resources in their ancestral territories. The right to participate in the long-term benefits was not incorporated into any of these projects.

To the contrary, capitalization has increased poverty. Available data indicate that the annual earnings of the capitalized oil companies have averaged (1986 - 1996) $US 226 million. In the last 20 years the resources that have come from YPFB have sustained education, public health, and other investment projects. The relative importance of the contribution of YPFB to the Treasury (TGN, Tesoro General de Nación) varied between 47% and 52%; on the other hand, the annual average that oil companies contribute is only $US 36.6 million, and, in the last administration they have declared a deficit, seriously limiting the social policies of the state.

With regards to the minimal amount collected by the Treasury, there are three controversial points; first, the general markdown of taxes for oil companies from 32% to 18%; second, the criteria of re-categorization of oil fields was applied, dividing them into new and existing reserves, with a tax difference of 18% for those that are new and 50% for those that already exist. What is extraordinary is that the most important gas reserves, such as San Antonio and San Alberto, are categorized as new despite the fact that they had been discovered by YPFB various years earlier. Third, there are serious indications that the oil companies are declaring their taxes for less than they really export, which is related to the weakness of the state regulatory organ to supervise operations, which, as already indicated, is the target of criticisms regarding political influence. Finally, it is useful to point out that the current policy of corporations, which is supported by interested neoliberal governments, is to export the maximum amount of Bolivian oil and gas in the shortest amount of time possible; to achieve this they are promoting construction of new pipelines and expansion of existing ones. If the volume of exports is increased, the duration of reserves will be reduced. Considering patterns of capitalized companies contributions to the Treasury there is little possibility that the benefits of the business will be invested socially or that the enormous poverty of the Bolivian peoples will be alleviated. Under current conditions, capitalization is not a policy of sustainable development for Bolivian society.

Environmental Disasters

Under ENRON and SHELL's management at least three large environmental disasters have occurred as a result of the construction of gas pipelines and the poor maintenance of [existing] oil pipelines. In the Cuiaba Lateral Gas Pipeline Project not only have they systematically violated the rights of affected indigenous communities, provoking serious conflicts that stem from mobilizations, camp takeovers, and civic strikes, but also have provoked the destruction of the Chiquitano Dry Forest, an ecosystem that is rich in biodiversity, and considered unique in the world. The construction of lateral roads and the right of way, which cut through the forest, have condemned it to disappear. Currently, invasion by numerous "illegal companies" has already begun to depredate it. At the same time, ENRON and SHELL have denied incorporating the direct participation of indigenous communities in the administration of the conservation plan, marginalizing the principal local actor who had guaranteed the sustainability of the forest for hundreds of years before the entrance of corporations. The indigenous organization have initiated a series of legal actions that have achieved influencing the state to declare the Fundacion de Conservation, created by the multinational corporations illegal, and there are serious indications of corruption since the principal operator of ENRON and SHELL, in this case too, is next to kin of the ex Minister of the Presidency of the government of Sanchez de Lozada, which was responsible for capitalization.

The deficient maintenance of the network of oil pipelines due to the policy of low investment by corporations has provoked a historical record of socio-environmental conflicts with affected communities. Between February 1997 and December 2001 there were at least 12 demands or denouncements, including gas leaks and contaminating oil spills, the most serious of which was the rupture of the oil pipeline Sica Sica - Arica, where a spill of 29,000 barrels of reconstituted oil contaminated more than 270 kilometers of Rio Desaguadero and Lake Poopo, affecting approximately 120 communities and seriously contaminating water for human and animal consumption and irrigation water, agricultural soils, natural prairies and pastures, and aquatic fauna that is fundamental for local food security. The company hid and misrepresented information, impeding the undertaking of the environmental audit; during the disaster the department of community relations of TRANSREDES, a subsidiary of ENRON and SHELL, promoted the division and fragmentation of community organizations.

In July of the same year the oil pipeline Cerrillos - Chorety ruptured in the department of Santa Cruz, where the crude spill in the Río Parapetí affected hundreds of Guarani indigenous families that are completely dependent on the river, affected their only water source, their animals and crops. A corresponding environmental audit was not carried out and the company opted to distribute potable water in barrels with quotas of 30 liters per family every two days, imposing an aid policy without considering the dignity and sustainability of the indigenous communities.

In conclusion, all of the facts demonstrate that the corporations ENRON and SHELL in Bolivia, with the support of agents of neoliberal governments have established an oil and gas exploitation policy based on the principal of natural resource extraction at the cost of impoverishment and future unsustainability for the Bolivian people.

VSIE, ceadescz@roble.scz.entelnet.bo