Move to nationalise oil industry taking hold

Tamsin Carlisle

• Last Updated: January 24. 2009 8:16PM UAE / January 24. 2009 4:16PM GMT

Despite slowing international investment, the leaders of a number of energy exporting countries have put oil industry nationalisation back on their agendas.

The move reflects growing economic insecurity and a political desire to place the blame on the US and other western nations.

Yesterday, Bolivia seized ownership of a foreign oil and gas producer, and Cuba revoked a production sharing contract with a Canadian oil firm.

Both developments have surfaced within days of Libya’s president saying he would consider nationalising the North African country’s petroleum industry, as its budget comes under pressure from lower oil prices.

“With this decree, we nationalise all the shares of oil company Chaco,” the Bolivian president, Evo Morales, said yesterday during a speech at the company’s offices in the town of Entre Rios. “Little by little, we are taking back our companies.”

Mr Morales signed the nationalisation decree after entering the Chaco offices with a unit of soldiers. “Oil companies are not respecting Bolivian standards,” he said. “We want partners, not bosses.”

The decision raises Yacimientos Petroliferos Fiscales Bolivianos’s holding in Chaco, a BP affiliate that mainly produces Bolivian gas, to 99 per cent from 49 per cent, with 1 per cent still in private investors’ hands.

The state-owned Bolivian company acquired nearly half of Chaco’s shares last May in a negotiated transaction influenced by Bolivia’s nationalisation of 16 oil and gas companies in the previous two years and its seizure last year of a foreign-controlled pipeline company. Mr Morales subsequently ordered the BP unit, Pan American Energy, to transfer part of its remaining 51 per cent stake in Chaco to the Bolivian government, but talks over the transfer broke down.

Pan American said yesterday it would defend its Bolivian interests “in all available forums”.

Bolivia is the Andean region’s biggest gas exporter, shipping gas to its neighbours, Brazil and Argentina.

Chaco’s nationalisation occurred two days before Bolivia was due to hold a referendum on a new constitution that Mr Morales had championed, which would define Bolivia as a socialist state and give greater powers to the country’s indigenous majority.

In another socialist state, Cuba, the national oil company, Cubapetroleo (CUPET), has agreed to pay US$220 million (Dh808m) to two Canadian companies producing oil in Cuban waters under a 25-year production sharing agreement that was to expire in 2018.

Pebercan said on Friday its contract had been revoked and it had agreed to transfer all its Cuban assets to CUPET on receipt of a $140m payment. Its partner, Sherritt International, would receive $60m, Pebercan said.

Pebercan announced its exit from Cuba, which will cause the company to take a charge against its first-quarter earnings. On Friday, Russia and Cuba signed an agreement to co-operate on oil and gas projects.

Moscow recently has been strengthening its ties with leftist Latin American states such as Cuba and Venezuela, underscoring the heightened political tensions between the Kremlin and western governments. Friday’s developments, just three days after the inauguration of the US President, Barack Obama, seemed to indicate that those tensions are unlikely to dissipate without direct White House engagement and that countries such as Cuba are happy to move back into the Russian sphere of influence.

In a talk to students at Georgetown University in Washington DC on Wednesday, the Libyan leader, Muammer Qadafi, said he was considering taking greater control of Libya’s oil and gas sector, and that low oil prices could result in Libya nationalising the holdings of foreign oil firms.

International oil companies operating in Libya said they had not been contacted by Tripoli over such a move, and several expressed scepticism. “Repsol doesn’t believe nationalisation is a real possibility,” a spokesman for the Spanish oil company said.

Libya is among several oil producing countries that renegotiated oil concessions in recent years to extract more favourable terms for the host countries at the expense of their foreign partners. But many of those companies are now postponing investments under the new contracts because of sharply lower oil prices and the global economic crisis.

Against declining investment, industry sources said Venezuela had been soliciting new bids from western oil companies, promising them access to large oil reserves that the country privatised in 2006.

Meanwhile, Iraq, which is struggling to balance its needs for foreign technical and financial support for its energy sector against grass-roots pressure for oil industry nationalisation, may be having trouble attracting western partners under contract terms that most companies deem too risky. On Friday, the British company, BG Group, and Germany’s Wintershall said they had decided not to bid on oil contracts offered in Iraq’s first licensing round since the US-led invasion in 2003.

But Omar el Badri, a 1970s Opec secretary general now working as an oil and political analyst in Libya, said a groundswell of popular support for petroleum nationalisation in Middle Eastern countries such as Libya and Iraq should be taken seriously. The recent lack of western intervention in Gaza had led to ill feeling throughout the Arab world that could escalate into government actions such as asset seizures, he said.

So far, the UAE has shown no indication that it plans to nationalise oil assets, although the expiry of a number of long-term oil concessions within the next 10 years give it an opportunity to do so. Last week, the chief executive of Abu Dhabi National Oil Company said Abu Dhabi would renew a Japanese consortium’s oil concession due to expire in 2012. The state has not announced any decisions on concessions held by US and European oil producers.

tcarlisle@thenational.ae