Soft Revolution in the Andes

Political Upheaval Spells Uncertainty for Industrialization

By Simon West

The inauguration in September 2017 of Bolivia’s US$1 billion Bulo Bulo fertilizer plant in central Cochabamba Department was, at first blush, the start of a new era of petrochemical development in the Andean nation.

The world-scale, export-oriented facility, with its capacity to produce 2,100 tonnes per day of urea and 1,200 tonnes per day of ammonia, was “the most important project in Bolivia’s history,” then-hydrocarbons minister Luis Alberto Sanchez told journalists, one that would “transform agriculture, the economy and the concept of industrialization.”

Four years earlier, the government had unveiled a multibillion-dollar plan to industrialize its natural gas reserves through an ambitious petrochemical construction program.

State-controlled oil company Yacimientos Petroliferos Fiscales Bolivianos, or YPFB, alongside its industrial division, Empresa Bolivia de Industrializacion de Hidrocarburos, or EBIH, were charged with building more than a dozen plants for polyethylene, polystyrene, aromatics, methanol and other petrochemical production.

A US$700 million liquids separation plant in southern Tarija Department would provide many of those projects with ethane, propane and butane feedstock, filtered from natural gas supplies heading to Brazil and Argentina.

The plans were a showpiece of former President Evo Morales’s bold socialist agenda; proof that an oil and gas sector that he had nationalized shortly after coming to power in 2006 could succeed where decades of neoliberal policies had failed.

Fast forward to late 2019, however, and a chain of domestic political events that culminated in Morales’s forced resignation and exile after almost 14 years in power has threatened to derail gas industrialization and related project cargo work.

Change of Guard

Morales, a leftist icon in Latin America, was ousted by conservative opponents in what some have dubbed a soft revolution following his disputed fourth-term re-election victory in October that sparked countrywide protests.

The result of the election, which was marred by irregularities, according to a report by the Organization of American States, or OAS, was overturned by the Senate in November, and a new interim government led by conservative former Sen. Jeanine Anez will oversee a rerun of the vote scheduled for May.

Morales, who claimed he was a victim of a military coup, is barred from running for president again, and is living in exile in Argentina.

Experts claim the former leader’s impressive economic and social gains were overshadowed by an authoritarian streak, apparent in the way he ran for a fourth term in defiance of constitutional limits.

“His biggest mistake was the referendum in 2016 to change the constitution and force through his candidacy (for a fourth term), and then creating new rules that impeded his political opponents,” said Marcelo Arequipa, a political analyst based in Bolivia’s capital city, La Paz.

Powerful rivals, such as ex-President Carlos Mesa, who ran against Morales in October’s election and has indicated he would stand again in May, have pledged to rethink the petrochemical plans if given the chance, citing fatal flaws.

Others have accused the government of misleading the public.

Wilman Cardozo, an assemblyman in Gran Chaco, the proposed site in southern Bolivia of a US$2 billion propylene and polypropylene plant, told journalists that gas industrialization was a ploy designed to garner votes for Morales.

“The previous administration had, as they say, a political propaganda,” Alvaro Rios, Bolivia’s hydrocarbons minister from 2003 to 2004 and senior partner at energy consultancy firm Gas Energy Latin America, told Breakbulk.

Shadow Over Industrialization

But doubts about the viability of industrializing Bolivia’s natural gas had surfaced well before Morales’s downfall.
Of all the major proposals put forward in 2013, none have progressed past the technical studies stage; the Bulo Bulo plant remains Bolivia’s only up-and-running world-scale petrochemical achievement.

Detractors point to three key reasons for the failure: YPFB’s lack of financial clout amid lower commodity prices, ill-defined markets and commercialization strategies and, crucially, dwindling natural gas reserves and production.

According to Jorge O. Buhler-Vidal, director of Polyolefins Consulting, a newly installed YPFB administration is reviewing its reserves mainly to ensure the country is able to continue shipping gas to Brazil and Argentina.

“Unfortunately for Bolivia, both neighboring countries have developed other sources of natural gas, such as lower cost LNG (liquefied natural gas) imports and, for Argentina, the newly developed Vaca Muerta fields. Therefore their needs for Bolivian gas are not as critical as they used to be,” Buhler-Vidal said.

The annulment in December of a public tender to carry out the front-end engineering design for the Gran Chaco polypropylene facility is the latest petrochemical setback, with YPFB claiming the proposals it received had failed to meet bidding requirements.

Construction plans had been scrapped altogether in early 2018 after authorities said further studies were required to analyze new technologies and potential markets, only for a new tender to be launched in August last year.

A YPFB spokesperson was unable to update Breakbulk on the future of the plant.

“I firmly believe these projects are going to get sidelined, they are just not going to get done,” Rios said. “Any new activity undertaken by YPFB is going to focus on consolidating existing projects and generating enough raw material, as this is a major problem for these types of plants. For now, it’s a pipedream to talk about additional petrochemicals in Bolivia.”

Even the Bulo Bulo plant, built by South Korea’s Samsung Engineering, has suffered feedstock shortages and technical issues that have forced several unplanned shutdowns since it came online. The facility is operating at just 30 percent to 40 percent of its installed capacity.

“Commercial engineering has to be carried out to bring the plant closer to its design capacity so it can generate sufficient resources, cover operating costs and recover capital. I think the plant has been poorly managed by YPFB,” Rios said.

Benefitting from Regional Delays

Despite the hurdles, delays in getting rival petrochemical projects off the ground in neighboring countries provide a spark of hope for Bolivia.

Impressive feedstock developments in Argentina and Brazil have yet to translate into any significant downstream expansion, while Peru’s plans to build a regional petrochemical hub were derailed three years ago after the government annulled a contract with Brazilian conglomerate Odebrecht to build a US$5 billion pipeline that would provide proposed plants in the south of the country with natural gas feedstock.

According to Buhler-Vidal, amid competition from U.S. and Asian firms, only one regional complex for polyethylene and polypropylene production would be necessary to supply Bolivia and South America’s Pacific coast.

“The potential markets are therefore still available,” he said.

While petrochemical expansion stalls, other industrial sectors in Bolivia are strong enough to pick up the slack for breakbulk movers, despite a slowing economy that is expected to grow this year by 3.8 percent compared with 3.9 percent last year and 4.2 percent in 2018.

Luis Vacaflores, head of special projects and logistics at Inbolpack, a Bolivia-based company that transported heavy breakbulk pieces for the Bulo Bulo plant, said power generation and agribusiness have surpassed the oil industry as the key sectors for project cargo.

The buildout of Bolivia’s energy sector, in particular, has been a boon for logistics companies, although the fate of the Morales administration’s US$27 billion investment plan to boost generating capacity to 6 gigawatts by 2025 remains unclear.

Some 30 hydroelectric, wind, solar, combined cycle, biomass and geothermic construction projects are under study in Bolivia, according to state-owned electricity company Empresa Nacional de Electricidad, or ENDE.

The previous government also invested heavily in transport infrastructure, although the logistical challenges of shifting cargo to remote corners of Bolivia persist.

“Obviously international design and construction standards were met when the country’s roads were built, but what was not taken into consideration was a future in which there was the possibility of industrialization and consequently the movement of factories and power plants and other equipment,” Vacaflores said.

“When it comes to transporting special equipment and components with exceptionally large weights and dimensions, operations are complicated.”

The landlocked country also has to rely on Pacific Coast ports such as Arica and Iquique in Chile and Ilo and Matarani in Peru for exit and entry of cargo, although for some projects, such as Bulo Bulo, heavy components are transported by barge up the Parana River from Uruguay to small ports on the border of Brazil and Bolivia.

Foot ofF the Gas

For now, though, the political upheaval in Bolivia has created a temporary demand lull for project cargo transport across all industrial sectors.

Evert Schipper, a Bolivia-based executive at Dutch firm SDW Shipping, the leading shipping line to the west coast of South America, said that 2014 to 2018 were “good years” for breakbulk and project cargo.
“It fell down a little bit in 2019,” said Schipper, whose company transports about 2,000 units of used trucks and machinery each year from Europe to Bolivia.

“Right now you can see that also there are no new tenders. A temporary president is just leading the country to new elections, so I think all the projects that were already being executed are being executed, but all the rest have been put on hold.

“But the country is in development, everything is going up, and I am optimistic.”  

Image credit: Inbolpack.

Colombia-based Simon West is freelance journalist specializing in energy and biofuels news and market movements in the Americas.