Bolivia’s Gas Nationalization: Opportunity and Challenges (3)

National Level

At the national level, the government spends oil and gas revenues on a program called the Juancito Pinto Stipend that gives about $25 a year to the families of each child enrolled in primary school.  The program aims to encourage school enrollment and defray school supply costs.  In addition, as mentioned earlier in this series, the Bolivian legislature approved a Morales administration proposal on November 27 to spend 30 percent of the direct hydrocarbons tax (IDH) on a Renta Dignidad payment to Bolivian senior citizens.3   Ongoing negotiations between the Morales administration and departmental prefects may modify this measure.

Beyond these two programs, which have been publicized as the fruits of increased oil and gas revenues, it is not clear which other initiatives benefit from these revenues.  The oil and gas revenues go into the general treasury, making it impossible to match programs with funding sources.4

However, one can calculate the share of Bolivian government spending that comes from oil and gas income.  Oil and gas revenues accounted for a sizeable 19 percent of the national budget, according to calculations from the Bolivian government’s 2007 national budget.

The Ministry of Public Works’ new Viviendas Solidarias (Solidarity Housing) program may benefit in part from increased oil and gas funds.  The $600 million program, primarily financed by pre-existing housing fund, provides home construction loans to families who would have difficulty getting loans from a commercial bank.

An analysis by Fundación Jubileo of the 2007 national budget found that 65 percent of the national government’s share of the direct hydrocarbons tax and royalties goes to fund government administration and recurring expenses while only 35 percent goes to investment projects.7   Fundación Jubileo argues that gas revenues should be used for investment in the economy rather than recurring expenses because these resources are non-renewable.  The organization also points out that since gas prices fluctuate and may drop, they are not reliable to cover recurring expenses.

Indigenous Development Fund

A 2005 supreme decree reserves five percent of the IDH for an indigenous development fund.8   To implement this fund, the Bolivian government established a board of directors comprised of three representatives of indigenous organizations from the highlands and three from the lowlands.  Unfortunately, the groups have not been able to reach agreement on the distribution of funds.  The highland indigenous groups, which represent a much larger indigenous population than the lowlands, want the distribution to be based on population size while the lowland indigenous groups suggested the distribution between the highlands and the lowlands be split evenly.9

Departments

The advent of the IDH in 2005 meant that departments that had not previously received any income from the oil and gas sector began to receive large infusions of funds.  Those who had already been receiving funds through royalties saw large increases.  As shown in the graph below, the departments as a whole saw their budgets almost triple in the space of three years.  The second graph shows that oil and gas revenues make up a huge portion of the departmental budgets, 78 percent in fact.10   The departmental governments are highly financially dependent on the national government.  Transfers from the national treasury, including revenues from oil, gas, mining, and forestry, make up 98 percent of the departments’ budgets.11{mosimage} {mosimage}

A Fundación Jubileo report found that the departmental governments are spending 60 percent of oil and gas revenue on recurring expenses and only 40 percent on investment projects.12  Investment projects include constructing roads, assisting small business, and building power plants while recurring expenses are ongoing operating expenses such as salaries.  Fundación Jubileo reports that departmental governments have increased investments in response to its report.13

Given that such a large portion of the departmental budgets come from oil and gas revenues, looking at the overall budgets gives a good sense of how the departments are using these revenues.  The pie chart below shows the spending of all nine departments by category of project.  Road building is the largest expenditure, comprising 45 percent of departmental spending.  Unfortunately, the road construction industry in Bolivia is known to suffer from corruption and contracts sometimes go to those with close ties to the government.14 {mosimage}
While not representative of Bolivian departments as a whole, Santa Cruz provides an example of departmental spending from gas and oil revenues.  The chart below shows the Department of Santa Cruz’s allocation of its receipts from the IDH.

 

Santa Cruz Department Allocation of 2007 Income from the IDH15

 

Bs.

$US

%

Highway Construction

164,661,092

21,219,213

60.8%

Health

29,577,506

3,811,534

10.9%

Investment Projects*

27,185,378

3,503,270

10.0%

Agricultural Research Center (CIAT)

16,791,511

2,163,855

6.2%

Other Health

11,966,391

1,542,061

4.4%

Police

8,492,638

1,094,412

3.1%

Vaccinations

6,743,630

869,024

2.5%

Jails

3,500,000

451,031

1.3%

Departmental Road Construction

1,383,344

178,266

0.5%

Cleaning and Improving Rivers

576,434

74,283

0.2%

Total

270,877,924

34,906,949

100.0%

Assigned Budget

211,267,901

27,225,245

 

Experts note that departmental governments generally lack the administrative capacity to use the massive new infusion of funds to effectively carry out projects.  The Ministry of Finance reports that some $700 million, the equivalent of a year’s worth of the main oil and gas tax, are sitting in departmental, municipal, and university bank accounts.16   In the face of citizen protests that the department was sitting on funds received from oil and gas, the department of Tarija decided to give about $320 to each family, a politically popular move.17   According to the Minister of Planning and Development, the two departments with the largest oil and gas revenues, Tarija and Santa Cruz, have spent the lowest percentage of their 2007 budgets.18  Between January and August, Tarija executed 34.9 percent of its budget while Santa Cruz spent 35.4 percent of its budget.   Tarija and Santa Cruz are the two departments that are the most stridently opposed to the Morales national government and the IDH cuts.  The Morales administration has used the figures of large dollars left unspent by departments as an argument for shifting funding away from the departments and towards municipalities.  While the low percents indicate a lack of administrative capacity, it is dangerous to measure departmental government effectiveness solely by how quickly budgets are spent.

Municipalities

It is much harder to characterize the Bolivia’s municipalities’ spending due to the sheer number of them and a lack of existing analyses.  However, anecdotes can illuminate the type of spending from oil and gas revenues seen at the local level.

For example, the municipality of Caraparí, in Tarija department, sits on top of the largest known gas reserve in Bolivia.  The municipality’s budget for 2007 is a hefty $29 million.  With a population of 12,000, that amounts to $2,400 per capita.19   For comparison purposes, the annual salary of a Bolivian teacher with ten years of service is $3,000.20   Civil society groups, such as the civic committee (similar to a chamber of commerce), the small farmers’ union, ranchers, the women’s center, and others, organized to propose projects to meet the population’s needs.  They succeeded in persuading the local authorities to put in place 80 projects in the 43 communities that make up the municipality.21   Projects include building new bridges and paving roads and opening a health center to combat Chagas disease, a tropical parasitic disease common in the area.  Perhaps the largest project is using gas revenues to install three electricity generating turbines.  Nevertheless, unemployment is a major problem in the municipality, meaning many families continue to live in poverty.

In Santa Cruz municipality, which includes the city of Santa Cruz, oil and gas revenues are being spent on building schools, urban roads and arterials, and water infrastructure projects.  Santa Cruz, like other Bolivian municipalities, uses a participative planning process in which neighborhood level groups propose projects for their neighborhood and the municipal government compiles the requests.  Interestingly, the sum of all of the neighborhood requests is less than the total amount of funds available.  A government official explained that this is because the neighborhood groups are focused on only their immediate context, while it is the larger projects, above the neighborhood scale, that are more expensive.22

In Oruro, the government is using oil and gas revenues to build streets, improve public plazas, assist miners, and plant vegetation to prevent erosion.23   Civil society groups have proposed that the government fund a system to monitor air and water quality – important issues due to the environmental impacts of mining in the area.24

Conclusion

According to the Ministry of Planning and Development, the Bolivian people expect that the increased revenue from oil and gas will be distributed in a way that will benefit the people, generate employment, and change the conditions of inequality and exclusion.25   It is too early to judge whether or not the revenues will be able to meet these lofty goals.  The revenues are currently funding stipends for primary school students and senior citizens as well as road construction and other projects.  It is difficult though, to discern a cohesive plan that could guide the use of revenues to ensure that they are used to best meet the government’s articulated national development goals.  While Bolivia has a National Development Plan, the national government does not have a specific plan for the use of the increased oil and gas revenue, according to government official and nonprofit experts.  Bolivia would benefit from a national debate over how best to use the revenues.  Unfortunately, the debate so far has focused on political wrangling between the national and departmental governments over revenue distribution rather than on how best to use the resources to benefit all Bolivians.

 


1  Republica de Bolivia Ministerio de Hidrocarburos y Energía, Nueva Política Hidrocarburífera del País: Distribución de I.D.H., Regalías, y Participaciones, La Paz, Bolivia, March 2007, p2.
2  For an explanation of how these revenues are distributed between the different levels of government, see Andean Information Network, Part II: Political Conflict over Gas and Oil Tax Revenue Distribution, December 4, 2007.3 See Andean Information Network, Part II: Political Conflict over Gas and Oil Tax Revenue Distribution, December 4, 2007.
3  Author interview with Marcelo Martínez Céspedes, Expert in International Commerce and International Relations, Ministry of Planning and Development, October 25, 2007.
4  Budget figures from: Honorable Cámara de Diputados Comisión de Hacienda y Fundación Jubileo, Presupuesto General de la Nación e Inversión Pública, 2007, p15-16.  The direct hydrocarbons tax (IDH) brought in 5,941 million Bs. and the special tax on hydrocarbons (IEDH) brought in 1,489 million Bs.  Royalties from all sources, including mining and forestry as well as oil and gas brought in 3,713 million Bs. of which, according to calculations from Ministry of Hydrocarbons publications, 3,509 million Bs. was from oil and gas.  Oil and gas revenues from the IDH, IEDH, and royalties brought in 19 percent of the national budget.
5  Author interview with Marcelo Martínez Céspedes, Expert in International Commerce and International Relations, Ministry of Planning and Development, October 25, 2007.
6  Fundación Jubileo, Jubileo, January/February 2007, pp6-8, http://www.jubileobolivia.org/pdfs/Revista%20Jubileo%206.pdf
7  Decreto Supremo 28421.
8  Autor interview with Carlos Arze, Centro de Estudios para el Desarrollo Laboral y Agrario (CEDLA), October 24, 2007.
9  Interview with Elizabeth Lopez, Red Umavida, October 25, 2007.
10  Calculated from base data in graph of departmental budgets by income source.  Graph from Ministerio de la Presidencia, Viceministerio de Descentralización, Propuesta de Regionalización, PowerPoint Presentation, September 2007.  The figure does not include capital income, financing sources such as loans, or transfers from the national government for health, education, and social projects.
11 Ibid.
12 Fundación Jubileo, Jubileo, January/February 2007, pp. 6-8, http://www.jubileobolivia.org/pdfs/Revista%20Jubileo%206.pdf
13 Author interview with René Martínez, Fundación Jubileo, October 25, 2007.
14 Autor interview with Carlos Arze, Centro de Estudios para el Desarrollo Laboral y Agrario (CEDLA), October 24, 2007.
15 Figures provided during author interview with José Padilla, Asesor de Minería, Hidrocarburos, y Energía, Prefectura de Santa Cruz, October 18, 2007.
16 La Prensa.  “Las movilizaciones por el IDH se extienden por 7 regiones.”  October 26, 2007.
17 Author interview with Jubenal Quispe, Maryknoll, October 23, 2007.
18 Agencia Boliviana de Información.  “Prefecturas de Santa Cruz y Tarija son las que menos ejecutan recursos de inversión pública.”  October 30, 2007.
19 El Deber. “Caraparí Despierta de su eterno letargo.”  November 20, 2006.
20 USA Today.  “Bolivian President Slashes Salary for Public Schools.”  January 28, 2006.
21 El Deber. “Caraparí Despierta de su eterno letargo.”  November 20, 2006.
22 Autor interview with Anibal Jerez Lezana, Director Adjunto, Oficialía Mayor de Administración y Finanzas, Gobierno Municipal Autónomo de Santa Cruz de La Sierra, October 18, 2007.
23 Author interview with Ely Lopez, Red Umavida, October 25, 2007.
24 Ibid.
25 Author interview with Marcelo Martínez Céspedes, Expert in International Commerce and International Relations, Ministry of Planning and Development, October 25, 2007.