Bolivian President Evo Morales based his 2005 candidacy on two promises: first, his government would nationalize natural resources, crucially natural gas and oil, and second, he would return the government to the country’s indigenous majority through a constituent assembly and new constitution.

Fifteen months into his presidency, his nationalization program, announced nearly a year ago on May Day, is in trouble.

Morales’ 54 percent winning plurality testified to his support among the poor and indigenous populations. Both had been mobilized in earlier struggles over oil.

Former President Gonzalo Sánchez de Lozada, during his first term, 1993-97, sold off components of the state petroleum company YPFB. As a consequence, the contribution of natural gas sales to government revenues fell from between 40 and 60 percent of the state’s budget to well under 7 percent by 2002.

In 2003, during Sánchez de Lozada’s second term, Bolivians fought government troops in the streets to block his scheme to hand over the nation’s natural gas to foreign companies. The protesters suffered 40 dead and hundreds wounded. El Alto resident Nestor Salinas said at the time, “They died to defend our oil and gas.”

Morales’ nationalization decree called for negotiations with foreign companies to be completed in six months. With time running out, 44 contracts were signed with 12 foreign companies on Oct. 28, 2006.

These contracts represented a major renegotiation of terms, but not an expropriation. A Morales majority in Congress ratified them immediately. The opposition-controlled Senate followed suit on Nov. 28 when all but three opposition senators were absent.

Tax income from oil companies has increased almost fourfold, yet today the contracts are on hold.

Energy Minister Andrés Soliz Rada resigned in September, charging the government with giving up too much to Petrobras of Brazil, purchaser of half of Bolivia’s gas exports. Two YPFB leaders also left amid corruption charges.

On Feb. 12 the government submitted an amendment to correct contract errors like incorrect company names, misplaced gas fields, and a secret agreement with Petrobras. Carlos Villegas, Soliz Rada’s replacement, resigned but later changed his mind. Blame fell upon inexperienced YPFB head Manuel Morales Olivera, who was fired on March 24.

Two days earlier Soliz Rada had joined opposition politicians in calling for a repeat of contract negotiations.

Right-wing forces claimed to be protecting national interests against incompetence. The struggle reflects the nation’s racial, geographic and class-based divisions. The eastern region, epicenter of opposition to President Morales, holds much agricultural land and most of the nation’s gas and oil deposits. Foreign corporations operate there, the majority population is of European descent, and separatism is rampant.

Soliz Rada criticized the October agreements as granting foreign companies tax deductions for operating costs and relieving them of financial risk. He charged that negotiations took place behind closed doors, that U.S. advisers were involved and that YPFB directors were left out.

The contracts call for Bolivia to sell gas cheaply to Brazil and Argentina to augment revenues, and to pay high international prices for hydrocarbon products sent back for domestic use.

Bolivia, he pointed out, signed shared-production contracts instead of so-called operating contracts. Under operating contracts, foreign companies take on financial risk. Shared-production contracts hand significant control to foreign companies, allowing them to count Bolivia’s oil reserves as their own assets, improving their stock market status and borrowing capabilities. Meanwhile Bolivia, less creditworthy, will have difficulties building facilities for processing hydrocarbon products and buying back refineries it lost.

Observers say the Morales team may yet put hydrocarbon nationalization back on track. The president is adept at responding to changing circumstances and his approval ratings are high.

Last week Morales said that if in another week Congress did not approve the petroleum company contracts, he would begin a hunger strike.

The Constituent Assembly concludes its one-year session Aug. 6, and the nation will vote on a new constitution in December, with new elections expected in 2008. Morales’ present term is up in 2011, but under a new constitution he will run again next year, spokespersons say, as long as social organizations nominate him.

The Bolivian Workers Central and Bolivian Social Democratic Party are already charting independent courses for elections in 2008. The latter group has invited Soliz Rada to join its deliberations.

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