Expropriations in Bolivia
Just when you thought it was safe
Evo Morales nationalizes a Spanish electric company
May 5th 2012 | LA PAZ | from the print edition
WHEN Labour Day came and went in Bolivia on May 1st 2011, investors breathed a sigh of relief. Evo Morales, the president, had announced a nationalisation on the holiday every year since he took office in 2006. But last year he chose instead to repeal and symbolically bury a copy of the 1985 decree that began a series of pro-market reforms. Most observers assumed he was done with expropriations.
That calm now looks complacent. On May 1st Mr Morales nationalised Transportadora de Electricidad (TDE), Bolivia’s national power-grid company, which was owned by Spain’s Red Eléctrica Española (REE) and supplies 72% of the country’s power. He said the firm had underinvested and that he would “recover what is ours”—the same rhetoric Cristina Fernández, Argentina’s president, used two weeks earlier after expropriating 51% of YPF, an oil company, that belonged to Spain’s Repsol.
Mr Morales first rattled investors when he tore up hydrocarbons contracts on Labour Day in 2006. Two years later he confiscated Entel, an Italian-controlled telecoms firm. His stage-managed takeovers, with banners and the military occupation of corporate buildings, have funded popular increases in social spending.
Bolivia has always promised fair compensation to expropriated firms. But its offers have fallen short of independent valuations. In March Britain’s Rurelec, which ran the Guaracachi power-generation plant Mr Morales confiscated in 2010, announced that it would file a $142m arbitration claim against the government.
After nationalising the most profitable of Bolivia’s “strategic” companies, however, Mr Morales seemed to realise he stood little to gain financially by expropriating the rest. He has since done more to try to repair Bolivia’s reputation as a destination for investment than have either Ms Fernández or Venezuela’s Hugo Chávez, his closest foreign ally, and now plans to issue new bonds to foreigners for the first time in 90 years. He has kept on good terms with the gas industry since reaching a new deal with it on revenue-sharing in 2006, and recently doubled the price oil companies will receive per barrel.
In recent months Mr Morales has found himself in political hot water, facing a strike by government workers and protests by indigenous and disabled-rights groups and doctors. Reinstating his nationalisation ritual promised a brief respite.
However, unlike Ms Fernández, he tried to minimise the fallout. He chose a puny target in TDE, which makes up just 3% of REE’s profits. (YPF accounted for 21% of Repsol’s.) He gave Spain advance warning, whereas Ms Fernández refused to meet Repsol. And perhaps to accentuate the contrast with Argentina, on the same May 1st he met none other than Antonio Brufau, the head of Repsol, to inaugurate a natural-gas facility. Though critical of the move, the Spanish government has emphasised the differences between the two cases.
The biggest drawbacks for Mr Morales may well prove to be domestic. TDE was already a regulated utility with low profits. And the government’s record on running nationalised industries is patchy. Blackouts have become more common since it took over power generation in 2010. If Mr Morales wants to avoid more unrest, he will have to run TDE as well as REE did.