25 Jun Diesel imports in Bolivia: When changing the clock hands becomes more important
Whether the clock hands turn to the right or the left, time passes, and diesel imports in my country grow every day. The kind reader might wonder why I start this post with such an odd phrase. It turns out that in Bolivia (my country), the government recently decided to reverse the direction of the clock on the main congressional building (now called the assembly), making the hands run counterclockwise. The Bolivian government explained the reasons behind this unusual decision, and as you might expect, it sparked controversy. Interestingly, proving Einstein’s theory wasn’t necessary to make a clock in Bolivia run backward—only a political decision was needed.
Unfortunately, important decisions in my country are far from being as simple as reversing the clock’s direction. These important decisions are usually medium- and long-term endeavors and, therefore, offer little political reward. One such decision concerns achieving self-sufficiency in liquid fuels, particularly diesel. With that in mind, let me share some relevant statistics.
According to the following figure, in 1999, Bolivia’s hydrocarbon imports amounted to slightly less than $60 million annually. However, by 2013, those imports had skyrocketed to a staggering $1.237 billion, equivalent to 4.1% of GDP. It’s worth noting that the GDP growth rate for that year was 6.8%, so this level of fuel imports is no trivial matter.
What factors contributed to this situation? There are several, and I will outline a few:
In 2005, when Congress was warned that imposing a 50% royalty on hydrocarbon production would make oilfield exploration and exploitation unviable, leading to a sharp increase in diesel imports, the warning was dismissed as insignificant. Congress then approved (amid cheers and chants) a hydrocarbons law taxing gas and oil production at a rate of 50%—yes, 50% of gross production value.
Subsidized gasoline and diesel prices result in demand exceeding “real” demand. As expected, price subsidies increase consumption and decrease production, creating a growing “snowball” effect.
President Morales’s government made its best efforts (ironically, very neoliberal ones) to reverse this trend. In 2010, it decreed a “gasolinazo” (a sharp increase in gasoline and diesel prices) that lasted only a few days, signed highly advantageous contracts for oilfield exploitation under the so-called nationalization process, offered “tax holidays” for new investments, and provided incentives for oil production. In short, many private investment support instruments were deployed but proved ineffective. From my perspective, the solution doesn’t lie in a presidential decree or supreme resolution.
Other factors, involving informal and illicit activities, remain to be addressed—if I dare discuss them in a future post.
I genuinely believe that the ultimate goal of any public policy in the energy sector should be to achieve self-sufficiency for the domestic market—in plain terms, to avoid importing energy. As I discussed with a good friend recently, it would be a Pyrrhic victory to say we have “recovered Bolivia’s hydrocarbons” while jeopardizing our position as net energy exporters. If current trends continue, the poor Bolivian president of 2022 will face enormous difficulties, and unfortunately, few will associate the dire economic situation then with the missteps being made now.
While neighboring countries strive to achieve energy self-sufficiency and allow their adventurous tourists to visit without needing a visa, in my country, we are busy reversing the direction of clock hands. I wanted to end this text with a phrase like “only time will tell,” but reflecting on the clock in Bolivia’s assembly, that phrase feels like a bad joke. So, I’ll conclude by saying that if in the coming years, petroleum (or derivative) imports exceed natural gas exports, we will have effectively destroyed the work of thousands of people who invested in a better future. Damn, this makes me feel terrible! The old dilemma of ants versus grasshoppers.
S. Mauricio Medinaceli Monrroy
Santa Cruz de la Sierra
June 25th, 2014
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