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Jul 24, 2017 | 11:54 GMT

7 mins read

Old Rivalries Still Simmer Between Bolivia and Chile

The bitter rivalry between Chile and Bolivia has prevented movement on negotiations that would open up Bolivian exports through Chilean ports
For centuries, relations between Bolivia and Chile have been marked by their dispute over territory. Bolivia's defeat by Chile in the War of the Pacific (1879-83) left the country landlocked, and resentment between the two countries has grown since then. But there have been moments when tensions between the two have ebbed. One came in the early 2000s, when a 13-point bilateral negotiation agenda was drawn up. It called for giving Bolivia sovereign access to a Chilean port so it could export natural gas to markets outside South America and for the construction of a railway connecting both countries. But those negotiations hit a snag in 2013 when Bolivia decided to take a territorial claim against Chile to the International Court of Justice, and the talks were put on hold.
Nonetheless, Bolivian President Evo Morales and his Chilean counterpart, Michelle Bachelet, have decided to resume negotiations and agreed to meet July 25 in Santa Cruz, Bolivia. This will mark the first official bilateral meeting between the neighbors since 2013. (There have been other meetings, but they were held on the sidelines of international summits, including gatherings of the Community of Latin American and Caribbean States.) The recent agreement to meet came in the wake of a border incident between the Bolivian and Chilean police earlier this month; however, there are bigger reasons for the two countries to resume negotiations.

Bolivia Looks to the Sea 

Bolivia is a landlocked country, and gaining sovereign coastal territory is its main geopolitical imperative. To be able to diversify its exports beyond neighbors Argentina and Brazil, La Paz needs to improve relations with Chile so it can export natural gas not only to Chile, but also to markets outside South America. In the early 2000s, a partnership of BP, British Gas and Repsol/YPF planned to build a natural gas pipeline connecting Bolivian gas reserves in Tarija to the Chilean port of Patillos. The plan called for a liquefied natural gas plant to be built at the Chilean port so the gas could be exported to the United States and Mexico. However, the project never advanced because of Bolivia's insistence that it receive a portion of Chilean territory that it had lost in the War of the Pacific. An idea to revive the plan was floated in 2012 by Bolivian Sen. Eugenio Rojas, a member of the ruling Movement Toward Socialism party. Rojas argued that without alternate markets, increasing natural gas production in Brazil would eventually hurt La Paz as Brazilian gas purchases from Bolivia decreased.
Exporting Bolivia's Natural Gas
The impasse with Chile led Bolivia look for alternatives, such as in Peru. In 1992, La Paz signed an agreement to use the Peruvian port of Ilo; however, this initiative started to gain traction only this year. An additional problem for Bolivia is the size of that port, which is smaller than the northern Chilean port of Arica, restricting its usefulness. Besides, exporting from Ilo doesn't replace the need to use ports in Chile, which continue to be the main ones used by Bolivians. Bolivia's lack of direct access to the Pacific Ocean increases its cost of doing business because Bolivia has to pay to use Chilean ports. The arrangement also leaves Bolivia vulnerable to events in Chile. For example, last month, Bolivia reported an economic loss of more than $100 million because of a 10-day strike by Chilean customs officers. The strike stranded about 1,000 Bolivian vehicles at the border.
There were hints in January 2015 that the port negotiations could be resurrected. The Chilean newspaper La Tercera reported then that Bolivian and Chilean sources had confirmed that Bolivia would be willing to drop its territorial claim against Chile at The Hague in exchange for an enclave in the Chilean city of Pisagua, located in the northern part of the country. Bolivia would have sovereign access to this port and some land to build a plant for its natural gas and port facilities there. But Bolivia insisted on owning the road that connects the Bolivian city of Oruro with Pisagua. Because that would bisect its territory, Chile has rejected the proposal.

Beyond Argentina and Brazil

After four years of stalled negotiations, La Paz is again open to talks with Chile. Bolivia's dependence on Argentina and Brazil as its main natural gas markets has driven its willingness to negotiate. Brazil is Bolivia's main natural gas customer, accounting for more than 60 percent of Bolivia's gas exports. However, the Brazilian government has signaled that the contract between state-owned oil company Petrobras and Bolivia, which expires in 2019, will not be renewed. Brazil is also preparing a regulatory change that would remove Petrobras' monopoly over natural gas imports. This will pave the way for private energy distributors in Brazil to negotiate gas purchases directly with Bolivia. 
In a way, this could be good news for Bolivia because it could get better prices for its gas. However, Brazilian demand for Bolivian natural gas has dropped as its production has increased and as it has struggled with a two-year economic recession. As a result, Petrobras reported that its natural gas imports from Bolivia this year had decreased by about 45 percent, from around 30 million cubic meters per day to about 16 million. This decline has also been reflected in Brazil's overall trade with Bolivia. In the first half of the year, Brazil reported a trade surplus with Bolivia, its first in 15 years. Much of that resulted from a drop in Bolivian imports, which have fallen from $4.5 billion in 2013 to just $1.3 billion in 2016. Natural gas accounts for more than 90 percent of Bolivian exports to Brazil.
But Bolivia, which had been anticipating this trend, has focused on attracting investments and partnerships with Argentina and Brazil to beef up its electricity sector. La Paz wants to become a major electricity exporter to its South American neighbors and may sign an agreement with Brazil by the end of this year to build two hydroelectric dams with a total generation capacity of 3,600 megawatts near the Bolivian-Brazilian border. Most of their output would be exported to Brazil. Bolivia has a similar electricity export agreement with Buenos Aires and expects to conclude the construction of transmission lines to Argentina by June 2018. These investments in the electricity sector, however, are long-term projects and will not be able to make up, in the short term, for the revenue loss from its declining natural gas exports. 
Another threat to Bolivia's natural gas sector comes from Argentina, a market for 30 percent of Bolivia's natural gas exports. Over the last year and a half, some delivery shortfalls during the winter months led Argentina to question Bolivian natural gas reliability. Those concerns led Buenos Aires to open talks last year with Chile to evaluate the possibility of natural gas swaps between the two countries. In addition, the current Argentine administration is focused on developing its own production with the hopes that the country could once again become a natural gas exporter.

A Rocky Road Ahead

One of the main obstacles to the Bolivia-Chile negotiations may be the Chilean presidential election in November. According to the latest opinion poll, former President Sebastian Pinera leads the race with 39.8 percent support with center-left candidate Alejandro Guillier garnering 36.9 percent. During his previous term, the relationship between Pinera and Morales was tense, reaching a low point in 2013 when both countries decided to drop the negotiations.
The main point of contention at the time was Bolivia's decision to take its territorial dispute with Chile to the international court. While Chile may be open to granting some access to Bolivia for its natural gas industry, it will not agree to cede a large amount of its territory. That topic will be especially touchy for whoever comes to Chile to negotiate. Even if a deal can be reached, Bolivia still would have to build the costly infrastructure connecting its reserves to a Chilean port, a project that will take years to complete.
The bottom line is that Bolivia and Chile still have a long way to go before they can reach an agreement, but Bolivia's reduced trade with Brazil and Argentina will eventually push La Paz to the negotiating table. Bolivia is under pressure to start looking for other markets, but that search will be in vain if it can't get its natural gas to port.


Old Rivalries Still Simmer Between Bolivia and Chile
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