June 01, 2005 | By Keith Martin in Washington, DC
BOLIVIA is bracing itself for lawsuits after it increased government levies on oil and gas produced in the country from 18% to 50% and directed that exploration contracts signed with the government must be renegotiated.
There is speculation that mining projects will be the next target.
The Bolivian president let stand in late May a new law, passed overwhelmingly by the Bolivian Congress, that would impose a 32% tax on oil and gas at the wellhead on top of an 18% royalty that the government already collects. The law also reinstates YPFB as the national petroleum company with ownership over reserves. The company had been reduced to only a regulatory role after Bolivia privatized the oil and gas sector in 1998. Exploration contracts with the government will have to be renegotiated within a 180-day transition period. Oil and gas companies have said they will sue for breach of contract and illegal confiscation. Any political risk insurance policies the companies possess could affect the claims they make in the lawsuits.
Meanwhile, there have been calls in Congress to impose a 10% royalty on mining. The country is expecting a sharp drop in the amount of foreign investment. Huge street demonstrations could lead to renationalization of hydrocarbons.