Bolivian president Morales
Juan Karita  /  AP
Bolivia's President Evo Morales, right, accompanied by Vice President Alvaro Garcia, wave from the balcony of the presidential palace in La Paz Monday. Morales ordered soldiers to occupy Bolivia's natural gas fields and threatened to evict foreign companies unless they give Bolivia control.
updated 5/2/2006 12:12:29 PM ET 2006-05-02T16:12:29

The European Union warned Tuesday that Bolivia’s decision to nationalize its natural gas industry could hurt world energy markets.

Across Bolivia’s border, Brazilian President Luiz Inacio Lula da Silva called an emergency meeting to assess the impact on Brazil — the biggest buyer of Bolivian gas and the owner of Petroleo Brasileiro SA, one of Bolivia’s biggest gas producers.

President Evo Morales ordered troops Monday to surround 56 natural gas installations throughout the Andean nation and threatened to evict foreign companies unless they gave Bolivia control over production within six months.

The decree fulfills Morales’ election promise to increase state control over the country’s natural resources, which he says have been “looted” by foreign companies. It also solidifies his role alongside Venezuela’s Hugo Chavez and Cuba’s Fidel Castro in Latin America’s new axis of leftist leaders opposed to U.S. and corporate influence in the region.

Morales was elected in a landslide in December and took power in January.

On Monday, he said the nationalization of the hydrocarbons sector “was just the beginning, because tomorrow it will be the mines, the forest resources and the land.”

While EU nations import little natural gas from the South American country, bloc spokesman Ferran Tarradellas Espuny said the move “may have a negative impact on markets, because the markets are now subject to considerable pressure as far as prices are concerned.”

Morales’ announcement followed a trend by oil- and gas-rich Latin American nations to exact a larger share of profits from the extraction of fossil fuels.

Ecuador is arguing with Washington over a new oil royalties law. Last month, Chavez ordered the seizure of oil fields from France’s Total and Italy’s Eni SpA when the companies failed to comply with a government demand that operations be turned over to Venezuela’s state oil company, Petroleos de Venezuela SA.

Bolivia has South America’s second-largest natural gas reserves after Venezuela.

Morales ordered all foreign companies to turn over most production control to Bolivia’s cash-strapped state-owned oil company, Yacimientos Petroliferos Fiscales Bolivianos, or YPFB. Engineers with the Bolivian company were ordered to installations and fields tapped by the foreign companies, and Morales said the companies have six months to agree to new contracts or leave Bolivia.

Immediately after Morales spoke, about 100 soldiers took control of the Palmasola refinery in the eastern city of Santa Cruz. Most stood before the gates of the refinery, which is run by Brazil’s Petroleo Brasileiro SA, or Petrobras.

Brazil is Bolivia’s biggest natural-gas client, followed by Argentina, and Brazil’s demand has been rising rapidly due to power generation, cooking and automotive needs.

Petrobras President Sergio Gabrielli said officials were seeking “to secure our rights” to Bolivian gas and the $1.6 billion Petrobras has invested in Bolivia since the mid-1990s. He called the decree by Morales “a unilateral measure adopted in an unfriendly way.”

Speaking before thousands of supporters at the presidential palace, Morales thanked the armed forces for supporting his decree and said “foreign petroleum companies that announced they will freeze their investments can leave.”

Foreign companies extracting and exporting Bolivia’s gas have invested about $3.5 billion over the last decade.

But new investments largely have been frozen since last year over concerns about what Morales’ nationalization plan would mean for producers.

The European Commission said it also would study the impact on Bolivia’s economy and on foreign investors there. Besides Petrobras, most of the biggest natural gas players are European. They include Britain’s BG Group PLC and BP PLC, Petrobras, Spanish-Argentine Repsol YPF SA, France’s Total SA and U.S.-based Exxon Mobil Corp.

Repsol shares fell 2 percent to $29.29 in Madrid on Tuesday, but the news did not affect shares of the other companies. Analysts say Repsol’s rights to gas in Bolivia represent about a third of the company’s total oil and gas reserves, a much larger percentage than the other companies’ reserves.

Multinational companies that produced 100 million cubic feet of natural gas daily last year in Bolivia will be able to retain only 18 percent of their production, with the rest being given to the Bolivian state-owned company.

In Madrid, Spain’s government expressed “deep concern” about the decree to nationalize the sector.

“The government hopes that in the 180 days period announced by the Bolivian president for foreign companies to regularize their current contracts, there is authentic negotiation and dialogue between the government and the different companies in which each other’s interests are respected,” Spain’s Foreign Ministry said Monday.

Landlocked Bolivia must sell to its neighbors because it lacks a pipeline to ship gas to the Pacific Ocean and from there to Asia, Mexico or the United States.

In the past, YPFB produced Bolivia’s natural gas, but it was reduced to an administrative role in the mid-1990s after the industry was privatized.

Some industry experts expressed serious doubts about Bolivia’s ability to run the gas fields.

“They have no technicians; no trained people,” said Andres Stepkowski, a petroleum consultant in Santa Cruz.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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