Petrobras and the conflicts for resources in South America
Igor Fuser
Introduction
The recent conflicts over Petrobras´ investments in Bolivia, whose control and/or ownership have been taken over by the Bolivian government, bring into special relief the part played by this huge oil company in Brazilian foreign policy, as well as some dilemmas derived from its double role. On the one hand, Petrobras is a multinational company competing in the international oil and gas markets. On the other, it is an economic agent on behalf of national interests as defined by the Brazilian government in its capacity as holder of management control.
This paper examines some of the dilemmas and contradictions related to Petrobras´ activities in South America, concentrating especially on three countries: Bolivia, Ecuador and Venezuela. In the first two, Petrobras is at the heart of conflicts involving ownership of assets, tax burden on underground mineral resources and social and environmental damages entailed by oil and gas exploitation. In Venezuela, even without the onset of actual open conflicts, Petrobras´ investments have been affected by nationalist measures that have been reducing the company´s profit margins and general presence in the country.
The present paper links these current impasses, problems and conflicts to the circumstances surrounding the internationalization of Petrobras´ activities – the apex of the neoliberal reforms of the 90s – and to the subsequent emergence of political forces questioning the neoliberal model and manifesting themselves, in energy issues, through a so-called “nationalism of resources”.
Petrobras´ internationalization and South America
Operating in all continents with the exception of Oceania1, Petrobras appeared in 13th position in the worldwide ranking of oil corporations elaborated in 2004 by Forbes magazine. In this same year, it loomed as the 17th largest multinational company based on a developing country, according to UNCTAD´s World Investment Report. More recently, the company has seen a significant rise in its international status with the discovery of large oil reserves along the Brazilian coastline. Among hydrocarbon multinationals2, Petrobras is a company with unique features defying simplistic definition. On the one hand, it belongs to a group of large companies prospecting, exploiting and selling oil and gas on an international scale. On the other, ever since its creation and all along its development, it shared some important features 1 As of today, Petrobras operates in the following countries: Angola, Argentina, Bolivia,
Colombia, China, Cuba, Ecuador, United States, Equatorial Guinea, The Netherlands, Iran, Japan, Libya, Mexico, Nigeria, Paraguay, Peru, United Kingdom, Tanzania, Trinidad and Tobago, Turkey, Uruguay and Venezuela.
2 According to GIlpin´s definition (2002), shared by many authors, a multinational company is a
company with both ownership and management control of economic units in two or more countries.
with a whole array of similar companies all over the world – national oil companies (NOCs), created to defend their respective nations´ interests in the exploitation and trading of fossil fuels. Historically, these NOCs and the great multinational oil companies (the so-called Big Oil) have based their actions on markedly different views and interests – more often than not conflicting ones.
Petrobras was created on October, 3rd, 1953, when President Getúlio Vargas passed the famous Act no. 2004, establishing State monopoly over research and exploitation of oil and gas reserves, as well as refining and transportation. The company´s overseas expansion began with the creation, in 1972, of its international branch, Braspetro (merged to the main company in 2002). Nowadays, overseas activities are entrusted to the International Branch, created in 2000. Besides producing oil in other countries, the International Branch is responsible for refining, distribution and trading, procurement, gas and energy3.
In the 70s and 80s, Petrobras-Braspetro´s overseas activities concentrated on buying and selling oil and drilling wells, almost always in joint ventures. From 1985 on, the company shifted its focus from overseas operations in favor of neighboring South American countries, entering Colombia (1985), Ecuador (1987) and Argentina (1989).
Acceleration of investments abroad coincided with the end of State monopoly, in a process that reached its culmination with the Oil Act of 1997, under President Fernando Henrique Cardoso. This measure paved the way for the partial privatization of the company, with the opening up of its capital to private investors, beginning in the year 2000. Today, Petrobras is a semi-public company, both State-owned and private. It is State-owned in the sense that it is controlled by the Brazilian State, which holds the absolute majority of common shares with voting rights; in addition, its main officers are appointed by the President. But Petrobras is also a private company, since most of its capital – more than 60 % of its preferred stock – is in the hands of private investors, many of them foreign.
It was the prospect of an end to the State monopoly over the exploitation of Brazilian reserves that spurred Petrobras to look for new business opportunities abroad. The idea, according to its executives, was to reduce risks by diversifying assets and markets. This new stage of internationalization for Petrobras also coincided with the acceleration of South American economic integration brought about by Mercosur. Petrobras decided that its expansion was to focus on South America, in all its segments – exploitation and production, refining, transportation, trading, petrochemicals and energy production – with the aim of profiting by the nearness of the Brazilian market and the advantages of already existing trade agreements. In 1996, the company began to exploit gas fields in Bolivia, and concluded agreements for the construction of a pipeline connecting reserves in that country to the industrial park in São Paulo.
In the course of time, the company´s goals towards South America have become more and more ambitious. Petrobras cherished the idea of becoming one of the main actors in the Southern Cone gas market, while being seen by Brazilian diplomacy as a key-instrument for South American energy integration. The most telling 3 Beatriz Cardoso, “Internacionalização planejada”, in: Conjuntura Econômica, July, 2004.
examples in this process have been the acquisitions of companies in Bolivia and Argentina4 and, more particularly, the Brazil/ Bolivia natural gas pipeline (Gasbol), built by Petrobras between 1997 and 1999.
Petrobras´ Business Plan for the period 2007-2011 highlights the priority conferred on South American operations by giving pride of place, among corporate goals, to leadership in oil, natural gas, oil-derivatives and biofuels markets in Latin-America, acting as an integrated energy corporation, with selective expansion in petrochemicals, renewable energy and international activities5.
Spectacular figures reveal Petrobras´ progress in its activities outside Brazil. In 2000, its overseas oil and gas reserves amounted to 717,1 million boe (barrel of oil equivalent, a standard unit of measure for hydrocarbons). In 2003, overseas reserves reached 1,9 billion boe – a 330% growth in four years. In that same year, this amount made up 15 % of the sum total of Brazilian reserves, estimated in 12,6 billion boe. The breakthrough came about with the incorporation of reserves owned by Argentine-based Perez Companc, South America´s biggest independent oil company, acquired by Petrobras in 2002, in a deal that augmented in 70% the Brazilian company´s proven reserves abroad. With the incorporation of these assets, mainly located in Argentina and Bolivia, the average overseas production jumped from 74,6 thousand boe/day to 267 thousand boe/day in 20046.
Petrobras in the context of South American integration
By expanding its activities in South America, Petrobras has become, from the second half of the 90s, an important political and economic actor in the region. Nowadays, the company operates business in eight South American countries besides Brazil itself (Argentina, Bolivia, Colombia, Ecuador, Paraguay, Peru, Uruguay and Venezuela). Its activities in the region extend from prospection and exploitation of hydrocarbon reserves (oil and natural gas) to refining, transportation, distribution and retail. It is currently the biggest company in Bolivia and one of the biggest in Argentina.
Petrobras´ activities in South America have a relevant political dimension, whether for the interdependence it creates between Brazil and its neighbors, whether for its role in the South American integration process – a project based, among other things, in the shared use of energy resources.
Being controlled by the Brazilian State, Petrobras is an agent of Brazil´s foreign policies, acting in tandem with the diplomatic efforts on behalf of regional integration and for the maintenance of democracy and political stability in neighboring States. In the South American countries where it operates, Petrobras represents the most visible sign of Brazilian presence. In this way, it plays a role that far transcends its political and economical weight by acquiring a symbolic dimension mixing positive elements – as an instrument for the development of natural resources – with negative ones, generally associated with Brazil´s image as a country of hegemonic vocation (or “sub-4 The Petrobras Group – including the subsidiary companies Petrobras Argentina, Petrolera
Santa Fé and Petrobras Energia – is the fifth biggest company in Argentina, and the second biggest in the field of oil and gas, superseded only by the Spanish Repsol.
5 HTTP://www2.petrobras.com.br
hegemonic”, considering the supremacy exerted by the United States in the hemisphere) and, in the neighboring countries´ views, bent on establishing asymmetrically advantageous relations in its own benefit7.
Petrobras´ investments in South America are also influenced by its strategic role as a key player in providing energy to the Brazilian domestic market, including the supply of Bolivian gas through the pipeline between the two countries. Simultaneously with Petrobras´ rapid international expansion, Brazilian diplomacy consolidated its option for South American integration as a priority – a strategy from the beginning of the 90s, aiming at securing Brazil´s position on the face of challenges posed by competitive insertion in a global economy. In President Lula´s government, the importance of these ties with South America has been reasserted by intensification of trade and a search for the consolidation of a regional pole, able to develop the region´s potential in a multi-polarized world.
These efforts eventually led Brazil to adopt, amid a number of relevant questions, stances occasionally found to be at odds with preferences expressed by the government of the United States in its policies for the region. These divergences with Washington manifested themselves strongly in resistance to the Free Trade Area of the Americas (FTAA) such as proposed by the United States (Cervo and Bueno, 2002).
From a commercial standpoint, the strategy of developing closer relations with South American neighbors has proved effective – Brazilian exports to South America jumped from 14% in 2003 to about 20% in 2005 - and 91% of the 2005 exports were made up of manufactures8. In this process, Brazilian authorities have attributed particular importance to the infrastructure integration in transportation, energy and telecommunications. These concerns manifested themselves on an institutional level in the Initiative for the Integration of Regional Infrastructure in South America (IIRSA). Created in 2000, at the first Meeting of South American Presidents, IIRSA involves huge investments in infrastructure, but the hydrocarbon-related projects have seen very little progress so far in comparison to work already done in other fields, such as transportation and hydroelectric power. Specialists point out, as a major obstacle to IIRSA, political factors concerning the definition of laws and regulations for exploitation and transportation of energy resources. The current debate on energy integration registers a conflict between two opposed views (Alexandre and Pinheiro, 2005): Venezuela proposes a model favoring state-owned companies, with the creation of a big regional company. The Inter-American Development Bank (IDB) and some other South American governments defend greater participation by private companies – an option making the definition of clear laws and regulations absolutely paramount.
Another complicating factor for the effective implementation of IIRSA is the conflict entailed by recent modifications in the rules for hydrocarbon exploitation in Bolivia since the downfall of President Gonzalo Sánchez de Lozada, in 2003, a process that culminated in the nationalization of these resources in 2006. It is generally agreed 7 Maria Regina Soares de Lima (2005) points out, as one of the great obstacles to South
America´s regional integration, the “distrust syndrome” towards Brazil, shared by most South American countries. According to this author, “the ingrained fear of ‘Brazilian expansionism’, often nurtured by internal political forces in neighboring countries, may significantly harm the Brazilian movement of coordination of collective regional action.”
that Bolivia, due to its important gas reserves and proximity to the main consumer markets, cannot be neglected in any project for regional infrastructural integration. Conflicts related to the internationalization
Petrobras´ internationalization generates or heightens tensions directly or indirectly related with its aforementioned double role – state-defined and private-modeled. As a state-owned company, Petrobras is necessarily committed to goals and policies of the Brazilian State. These goals have a domestic dimension, in which permanent national interests such as the development of the country and energy security are at stake, and a foreign one, currently involving the search for South American regional integration9. At the same time, Petrobras is a company aiming to maximize profit on behalf of its 170,000 shareholders.
In its operations abroad, Petrobras functions as any other multinational company. Commitment to the development of the host country or to the well-being of its population will exist only as a secondary concern, subordinate to the loyalty maintained (at least theoretically) towards its shareholders, even those with no voting rights. In practice, Petrobras´ activities abroad embody the contradictory character typical of interrelations between multinationals and States where they operate.
A series of recent episodes suggests the existence of tensions and even of contradictions in Petrobras´ activities on other South American countries. The present paper will mention, particularly, four of these situations.
a) In Bolivia, in 2006, Petrobras has received a severe blow with the transfer of control over hydrocarbon reserves to the Bolivian State. President Evo Morales adopted measures such as taking over equity control of two Petrobras refineries and rising taxes on gas from 50% to 82%. At that occasion, Morales stated that not only Petrobras, but all foreign companies exploiting the Bolivian underground were having profits well above the margins allowed by Bolivian legislation and violated pre-established agreements. These acts of the Bolivian government – whose developments still hang on negotiations – created an impasse on the Brazilian side. If Brazilian authorities took a vigorous stance in defense of Petrobras´ interests, as demanded by important domestic actors, they could endanger strategic goals related to regional integration. By adopting an accommodating stance, President Lula´s government gave primacy to the maintenance of the grand principles of its foreign policy. As to the Bolivian hydrocarbon nationalization policy, Brazil demands a privileged treatment, due to the importance of Petrobras as the biggest company in that country, to its role in the discovery and development of gas reserves there and to the fact that its presence in Bolivia is not the result of a mere commercial venture, but of bilateral diplomatic agreements. The conflict is compounded by supposed frauds committed by Petrobras when claiming the discovery of the gas fields in San Fernando, in 1996 – allegedly in order to augment its share in the revenue of those operations.
9 In December, 2002, at the height of the conflicts between Hugo Chavez´ government and
officers of PFVSA, Petrobras decided to send a tanker to Venezuela to mitigate the effects of a gasoline shortage that was paralyzing Venezuela´s economy at that point.
b) In Venezuela, the government of President Hugo Chavez altered, over the last three years, the rules for foreign oil companies operating in the country (Petrobras among them), acquiring equity and management control over foreign investments in hydrocarbons and drastically extending participation of the Venezuelan State in oil revenues10. Chavez, having had the upper hand in his confrontation with PDVSA executives and senior officers in 2002/2003, has been securing State control over the company and using its revenues as an instrument to finance his social programs and to extend Venezuela´s international influence, especially in South America and over the Caribbean (Ellner and Hellinger, 2003; Gott, 2005).
c) In Ecuador, Alfredo Palacio´s enfeebled government defied opposition from the World Bank and the United States by passing, in 2006, a Hydrocarbon Act raising the proportion of oil revenues appropriated by the State, with shares ranging from 18% up to 50% in some cases11. In this country, Petrobras is the butt of a campaign moved by native and environmentalist organizations in order to prevent it from extracting oil in the Yasuní National Park, an environmentally-protected area belonging to the Huaorani indians. In 2004, Ecuador´s Ministry of Environment suspended Petrobras activities in the region and, in the following year, President Lula sent a letter to the President of Ecuador manifesting his concerns with this measure and highlighting Petrobras´ role for the development of the country (Leroy and Malerba, 2005). On April, 2007, Lula and the new President of Ecuador, Rafael Correa, finally signed an agreement for the exploitation of the disputed area, but other Petrobras investment projects in the country are yet pending, and the company´s activities in Ecuador still elicit strong opposition from social movements and environmentalist organizations.
“Nationalism of resources” and the turning of tables
A theoretic contribution of great relevance for the understanding of current conflicts between transnational corporations and States possessing energy raw materials may be found in the work of economist Bernard Mommer. This author considers the opposite perspectives influencing relationships between, on the one hand, multinationals and developed countries as oil consumers and, on the other, exporting States in the realm of so-called “developing” countries.
The producer countries have been adopting a set of rules summarized by Mommer as “permanent sovereignty over natural resources”. This perspective is based on the idea that the nation owns the natural resources found under its territorial jurisdiction, possessing, therefore, full legitimacy to define rules for their exploitation so as to channel for the State the maximum possible revenue. In contrast to that, the liberal agenda – adopted by consumer countries and multinationals – emphasizes the rights of the investors, without considering the question of the territories where those resources are to be found. According to the liberal view, raw materials are seen as “natural” assets, with the owner States being entitled to collect taxes over the profits 10 Robert Collier, “Chavez drives a hard bargain, but Big Oil´s options are limited”, The San
Francisco Chronicle, September 24, 2006.
resulting from their exploitation, but without exercising the prerogatives inherent on sovereignty. The rules of the game are imposed by investors and consumers. In the regime based on national property rights, in contrast, the host States dictate the terms for exploitation of the resources.
These two views translate into two very different, often conflicting regimes or sets of rules. In the case of Petrobras, the current conflicts do occur because, contrary to what one would believe on hearing the company´s spokesmen, the expansion of Petrobras´ investments in South America does not take place in a void. When entering a new country, Brazilian capital establishes interactions in a new scenario, with particular economic, social, political and cultural characteristics – it is by no means an expansion towards abstract markets or sources of raw materials. This consideration is the more relevant the greater the impact of these investments for the host country´s society. In the case of Petrobras – a company exploiting natural resources historically identified as symbols of wealth and sovereignty – this factor acquires a decisive weight, all the more so when the company – a foreign multinational after all – acquires monopolistic traits in the local economic scenario, or gets involved in conflicts concerning the environment, or native communities.
In order to gain a proper understanding of the conflicts raised over the last years, it is essential to consider the context in which Petrobras entered the South American countries where it operates. The Brazilian company´s internationalization followed the spread, throughout all Latin America, of the neoliberal economic orientation known as the Washington Consensus. The adoption of neoliberal policies in the 90s influenced not only the changes in Brazilian domestic policies affecting Petrobras – end of State monopoly, opening up of the company´s capital, bringing of domestic prices to international levels – but also the political and economic scenario in foreign countries recipient of Petrobras´ investments.
In other words: Petrobras´ expansion to the neighboring nations has taken place in the wake of the privatization (complete or partial) of other South American energy companies, and followed the opening up, in all the countries of this region, of energy reserves and domestic fuel markets to exploitation by foreign companies12.
Petrobras´ internationalization has also benefited from a long stretch of low prices in the world energy market. Between the second half of the 80s and the end of the 90s, hydrocarbon market quotations averaged less than 25% of current prices. In South American producer countries, as in other parts of the world, the monetary depreciation of oil and natural gas reinforced the standpoint of those who saw these resources as mere commodities, breaking, at the same time, the resistance of segments of civil society favorable to their maintenance under State control as “strategic” assets, that is, economically vital and, most importantly, non-renewable resources.
In the first half of the current decade, the South American political scenario exhibited a stark contrast with the former years, marked as they were by a heightening 12 The one partial exception is Venezuela, where PDVSA (Petroleos Venezuelanos S.A)
remained in the hands of State, but acquired, along the 90s, a growing autonomy, going on to operate as a private company, even as significant reserves of Venezuelan oil were handled over to foreign companies as concessions. (Mommer, 2003; Gott, 2005)
of neoliberalism. Foreign conditions favorable to Petrobras´ regional expansion became much more unstable, to say the least.
The policies recommended by the Washington Consensus failed conspicuously in their promises of growth and began to be viewed with growing suspicion, intensified by Argentina´s economic debacle in 2002. As a result, American influence dwindled and, all through South America, politicians defending a total or partial reversion of neoliberal policies gained momentum. A new wave of governments, elected with political platforms centered on a critique of the Washington Consensus, was raised to power in several countries, giving birth to a trend which some commentators of neoliberal inclination disparagingly called “neopopulism” (Villa and Urquidi, 2006).
These governments have followed divergent paths regarding macroeconomic measures, with greater or lesser attachment to the main guidelines of the neoliberal model. But there are important novelties. One of them is the creation of alternative integration projects, such as Alba (Bolivarian Alternative for the Americas) or Unasul (Union of South American Nations). A phenomenon of major importance is the revival of “energy nationalism” or “oil nationalism”, to wit, state policies emphasizing a search for maximization of hydrocarbon profits for producer countries, either through the imposition of taxes on concessionaire companies (generally foreign) or through downright nationalization of reserves13. This “energy nationalism”, related to a series of factors such as the rising oil prices of the 90s, the changes in the balance between suppliers and consumers in favor of the former ones and an increasing perception of imminent shortage of energy resources, is now manifesting itself on a global scale, prompting many producer countries to unilateral revision of contracts and agreements14.
Unfortunately for Petrobras executives and shareholders, this revision has a prominent place in the anti-liberal agenda now in debate – and, in some cases, in actual implementation – in South American countries where the company operates. In societies still coping with the trauma of a colonial and neocolonial past, the possession of mineral resources still remaining after four centuries of systematic plundering has acquired an importance that far transcends the purely economic aspects. More than just energy resources and potential exports, oil and natural gas are a symbol of sovereignty and, in some cases, of national identity.
Conclusions
Petrobras´ experience in Spanish-speaking South American countries involves a variety of dilemmas, conflicts and challenges. In Bolivia, a number of troubles involving exploitation, trade and transportation of natural gas and oil refining activities made themselves felt; in Ecuador, an environmental conflict pits Petrobras against 13 Danna Harman, “Latin States seek more control of oil”, The Christian Science Monitor, May
18, 2006.
14 Bill Farren-Price, “Risks for producers in flexing new muscle”, International Herald Tribune,
local authorities and social movements; finally, in Venezuela, the company acts in two parallel spheres – as one of several multinationals having their activities curtailed by the Chavez government, and as a partner of the Venezuelan oil company, in business and in a whole series of projects in South America15.
I conclude, then, by the current studies on this subject, that the issues faced by Petrobras in its international operations in South America are not isolated problems, but are related with the very revival of “energy nationalism”. In most South American countries where it operates, Petrobras faces an increasingly adverse ambience, sometimes manifested in unilateral revision of agreements by local governments or in pressures by social forces questioning the privatization of hydrocarbons and/or environmental standards in the exploitation of these resources.
As far as may be ascertained, these negative factors had not been anticipated by Petrobras when it started to invest in these countries. The company´s internationalization was decided and began to materialize at the apex of neoliberal economic reforms in South America, in the middle of the 90s. This period was marked by the dissolution of the oil regime consolidated between the 50s and the 70s, based on State monopoly and on a conception of these resources as a key element for sovereignty, development and cultural identity. This nationalist model began to decline since the second half of the 80s. Not much after, governments engaged in the Washington Consensus adopted a new oil regime that saw hydrocarbons as simple commodities and established a massive presence of foreign investments in the sector. The consolidation of liberal governance in the exploitation of oil and gas was a precondition for Petrobras´ entry in these countries, which began to offer favorable circumstances to its investments. As liberal governance is put in check by nationalist governments and political and social movements, Petrobras´ internationalization in South America faces a challenge that may lead its officers to revise their expectations as to the company´s operations in the region.
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15 Petrobras is one of the 28 private companies, almost all of them foreign, that went on to invest
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