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Political Risks_Nationalizations in Bolivia

The starting point is law no 3058 passed on 17 may

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The starting point is Law No. 3058 passed on 17 May 2005. Article 5 of this law provided that property in all oil and gas resources then in production vested in the State of Bolivia. All oil and gas companies operating in Bolivia were given 180 days from the date of this law to enter into new contracts with the state energy company, YPFB. Pursuant to these new contracts, YPFB assumed responsibility for the commercialisation and production of oil and gas reserves. This law was the precursor to the nationalising statute of 1 May 2006. Supreme Decree 28701 recites that the 180-day period prescribed in Article 5 of Law No. 3058 has expired and that "as a measure of national sovereignty, and following the mandate from the Bolivian people expressed
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in the Referendum held on 18 July 2004 …, all oil and gas resources in the country are hereby nationalised." Significantly, Article 1 of the Decree declares that "the State acquires ownership, possession and total and absolute control of these resources." Article 3 provides that the only companies that can continue operating in the country are those that comply immediately with the terms of the nationalisation Decree. These companies are given a further 180 days to enter into new contracts with YPFB, failing which they will not be able to continue operating in the country. During this transitional period, oil and gas fields that produce more than 100 million cubic feet per day will have to pay 82% of their production value to the State, leaving them with a mere 18% to cover the cost of operations and investment. Two important fields operated by Petrobras are immediately affected. Even if others are not affected by this onerous provision, they will have to enter into new contracts surrendering control to the Bolivian State within the allotted time and attempt to secure a negotiated solution to their claim for compensation. Otherwise, at the end of the 180-day period they will have to cease operating in the country. Can the companies affected by the nationalisation recover their losses other than by securing compensation from the Bolivian State? Political Risk insurance is designed to protect foreign investors from losses arising from expropriation, selective discrimination, currency inconvertibility and political violence. Policy wordings available in the commercial market vary. Some wordings require "total expropriation" suggesting that partial loss of title or "creeping" expropriation (that is, indirect acts of expropriation that do not immediately result in loss of ownership or control) is not sufficient. Other wordings provide cover for losses caused directly by an "Expropriatory Act." This is defined in one wording as "an act or series of acts occurring within the policy period not limited to expropriation but including also confiscation,
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