23 Aug The Nuances of the 2006 Gas Nationalization
It is often claimed that Bolivia’s hydrocarbon nationalization process generated such immense wealth that the country’s current economic boom is entirely due to this measure. In fact, comparing the “neoliberal” past with the “blessed” present has become a staple of political discourse, particularly during public works inaugurations or when distributing government-funded gifts to the population. For this reason, I want to highlight some often-overlooked details that make a significant difference in understanding the reality.
Let’s start by examining the “official” data on state revenues from the hydrocarbon sector. The following figure presents these revenues (in millions of US dollars) for the period 2000-2011, clearly showing a substantial increase beginning in 2006. It’s no surprise that such figures fuel political rhetoric—whereas the sector’s contributions previously hovered around $300 million, they now exceed $2.5 billion. What an apotheosis!
Fiscal Contribution of the Hydrocarbon Sector (MM US$)
What is rarely mentioned, let alone analyzed or compared, is the total “pie” during this period—that is, the total gross revenues from natural gas and oil exploitation in Bolivia, measured at the wellhead. A comparison between the past and present without considering the “size of the pie” is highly misleading. To illustrate this point, let me use an analogy.
Imagine you are fortunate: you have good health, an education, a beautiful family, and a stable job that provides a decent salary, allowing you to live comfortably and debt-free. As a responsible citizen, you regularly pay taxes based on your income. Since your salary is modest, your tax payments are also moderate. Now, imagine an unexpected turn of fate—an uncle you barely remember names you as the heir to a vast fortune. After the initial shock, you and your family celebrate and begin planning a new life (some may argue that wealth complicates life, but let’s set that discussion aside for now). The fact is, now that you are a millionaire, you must also pay significantly higher taxes—because tax authorities never miss an opportunity. In this sense, would it be fair to say that your previous lower tax payments made you a bad citizen? Or would it make more sense to compare your tax payments to your actual earnings? Clearly, the latter. And this is precisely why we must compare tax payments with the size of the pie—because a biased comparison is simply not valid.
Now, let’s analyze the following figure, which not only presents total tax revenues but also (through the black line) shows the size of the pie. Here, things start making more sense. In the year 2000, the “pie” was $500 million, of which $220 million “went to the State.” By contrast, in 2011, the pie had grown to $3.9 billion, with $2.7 billion going to the State. Using our analogy, Bolivia’s oil sector in the early 2000s was like a modest-salary worker, but starting in 2006, Bolivia “inherited” a fortune. In reality, this windfall came from (1) higher international oil prices and (2) the full execution of a natural gas export contract with Brazil.
Wellhead Revenues and Fiscal Collection (MM US$)
Now that we’ve clarified that Bolivia’s fiscal boom is primarily due to a “larger pie,” it is also important to introduce nuances—the nuances of nationalization. Once again, it is misleading to attribute all state revenues from hydrocarbons to nationalization without distinguishing the different tax contributions. The next figure illustrates this point, showing that the sector’s contributions to the State consist of (1) royalties, (2) the Direct Tax on Hydrocarbons (IDH), and (3) nationalization-related revenues. If we carefully examine the data, we see that the bulk of fiscal revenues comes from the IDH (the white area), a tax created in 2005—a year before nationalization.
Fiscal Contribution of the Hydrocarbon Sector (MM US$)
This week, I spent a lot of time in meetings “downtown” in La Paz, stepping away from my usual workspace to walk the streets of my beautiful city. People rushed about buying, selling, negotiating, and simply living their daily lives. As I observed, I wondered: how many of them care about these matters? Nationalization, international prices, gas exports, taxation? In the end, what matters most is that “there’s money,” and that is enough to make them happy. I returned to my bubble, feeling somewhat melancholic, and sat down to write this blog, perhaps reflecting on existence itself.
S. Mauricio Medinaceli Monrroy
La Paz
August 23, 2012
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