Bolivia: dilemmas of a landlocked country

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Bolivia is, and has long been, dependent on extraction of minerals and hydrocarbons for economic survival. From 2003-13 Bolivia benefited greatly from high energy prices. In contrast to past periods of commodity bonanza, Bolivia has spent this windfall wisely and stands to weather the downcycle with high reserves and low levels of debt. Bolivia is also seeking to diversify its economy and add value to its exports of energy. As mentioned in a previous post ( the government is carrying out plans to build up its petrochemical capability with an ammonia and urea plant and a liquids separation plant that will produce LPG for domestic consumption and export.

Bolivia is also seeking to breakaway from its dependence on its two main customers for natural gas: Argentina and Brazil. Combined they purchase 70% of Bolivia’s gas production, which is delivered to them via pipeline. To diversify, Bolivia needs to transport its natural gas beyond the reach of pipelines, in the form of LNG. But LNG terminals need to be on the coast, and Bolivia doesn’t have one. So Bolivia needs to resort to one of its neighbors to its West to build a plant on the coast. Peru is busy developing its own reserves of natural gas along its Southern coast. That leaves Chile. And Chile is not just another neighbor.

Of maritime loss

Bolivia used to have a coastline. It shared access to the Pacific Ocean with Peru and Chile, but lost its coastline in the War of the Pacific against Chile in 1897. Peru lost land to Chile as well, and as the map shows, Bolivia also lost some territory to Argentina. Bolivia has not forgotten this.

Source: Wikipedia

Borders before and after the War of the Pacific. Source: Wikipedia

Bolivia has recently asked the International Court of Justice to weigh in on its quest to recover from this territorial loss, by officially recognizing Bolivia’s sovereign right to have access to the sea and forcing Chile to negotiate a resettlement. Over the years Chile has made offers to improve on the peace treaty of 1904, mainly in the form of a corridor linking Bolivia to the sea with varying degrees of sovereignty for Bolivia, but none prospered, either because they did not offer full sovereignty or because Peru opposed it (Peru has its own border dispute with Chile). A few years back, Chilean architects suggested a 150 km tunnel under the Peru-Chile border abutting in an artificial island close to the shore that would belong to Bolivia, but that idea did not materialize either.

In the mean time, and as a matter of principle, Bolivia refuses to sell natural gas to Chile. Unlike Argentina and Brazil, Chile does not have any hydrocarbon resources of its own and depends heavily on fuel imports, and could provide stability of demand for Bolivia and an outlet for the growing production that is expected to result from new exploration. But Bolivians won’t have it. In 2004 the people of Bolivia voted in a referendum that asked for their opinion on a number of questions related to their hydrocarbon reserves, among them, whether they supported the then president Carlos Mesa’s policy of using the country’s energy resources to negotiate access to the sea. The answer was yes, by 55% to 45%, and it was interpreted as a mandate to not sell natural gas to the neighboring country until the matter is settled.

And so it has been: it was recently revealed that in 2006 Bolivia refused an offer from Chile to buy gas at triple the international price. Bolivia has also insisted that Argentina agree not to pass on to Chile, via the pipelines that link the two countries, any of the gas it imports from them. Discussions continue between Chile and Bolivia to reestablish diplomatic ties, severed since 1978, with possible participation of Pope Francis as a guarantor of a coastline deal. Maybe he can arrange something.


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