A nationwide poll, held in Bolivia, gave support to the new president's policy on extractive indust

A nationwide poll, held in Bolivia, gave support to the new president's policy on extractive industry. Carlos Mesa came to power last year in the wake of massive opposition to former president "Goni" Lozado's proposal to pipe natural gas through Chile and Brazil. But is there in fact a new policy? The majority of the country's Aymara people - and others - oppose gas exploitation per se. Others want the resources fully nationalised. Mesa is likely to tread a "middle" path, seeking to increase royalties to Bolivia, but still remaining in hock to multinationals such as British Gas and BP. As for mining: there are no proposals to re-nationalise the country's silver, tin and gold operations or increase taxation on them.

Bolivian president proves sceptics wrong

By Richard Lapper, Latin America editor in La Paz, Financial Times

July 23 2004

Carlos Mesa seemed to be on a hiding to nothing last October when he became the latest occupant of the Quemado Palace, home to most of Bolivia's 82 presidents since its 19th-century independence.

His predecessor, Gonzalo Sánchez de Lozada, had just fled the country after an insurrection in El Alto, the sprawling dirt poor Aymara indian city that neighbours La Paz, the capital.

Plans to export natural gas - Bolivia's most valuable resource - through Chile, its historic enemy, had sparked widespread opposition to the liberal economic policies favoured in the 1990s. Divisions between the western highlands and gas-rich east and south were growing. With the country apparently on the edge of chaos, few thought that Mr Mesa, an independent journalist and historian, had the political experience to survive. Nine months on, Mr Mesa has proved the sceptics wrong - for the moment at least. Last Sunday, he won overwhelming backing in a referendum called to endorse his plans to develop Bolivia's gas reserves - the second largest in Latin America.

Radical calls for a repeat of the October protests to block the poll were ignored and the president won up to 92 per cent support on the five separate proposals laid before the electorate. "Bolivia demonstrated to the international community that it didn't want dissolution and break-up," Mr Mesa told the FT. "The entire country knows that these [radical] actions have no absolutely no support."

Rather than weaken his clout in Congress, Mr Mesa's independence has allowed him to distance himself from what he describes as an "exhausted" and "discredited" political system. He hopes to persuade Congress to approve a new oil and gas law that would ensure the state took a bigger share of revenues in tax and royalties, placating leftwing opposition. This would help him drive through a broader plan to increase gas exports and increase Bolivian use of gas, in turn reducing a yawning fiscal deficit and improving economic viability.

The president believes foreign capital and skills are essential for the sector's development. He is betting that companies - including British Gas and BP of the UK, Total of France, Repsol of Spain and Petrobras of Brazil - will choose to stay because they have invested $3.5bn (?2.8bn) over the last eight years. "It won't be easy, it won't be the same scenario as they expected some years ago," , says Mr Mesa. "But they want security for their investments."

Already, though, there are signs that the going will get more difficult in the next few months. The president persuaded Evo Morales, a radical, to support his referendum plan. But the Quechua coca growers' leader is now stepping up calls for outright nationalisation of foreign companies, reducing the possibility that his party, the leftwing Movement to Socialism, will support the president in Congress.

More seriously, it is far from clear that the foreign companies will take kindly to new rules that envisage an increase in the state's take to 50 per cent of revenues, especially since the average return on capital for the gas companies was only about 3.5 per cent last year.

Revival of the sector is at least partly dependent on the suspended $6bn liquid national gas project that originally envisaged exports through Chilean ports.

Mr Mesa had hoped to persuade energy-hungry Chile to make a territorial concession in return for gas but the president won only modest backing for this in the referendum. Chile, in any case, is not interested. This week Mr Mesa revived the idea of piping gas through Peru, an option dismissed by the industry as too expensive.

Negotiations are going to be tough. But for the moment - euphoric after Sunday's triumph - Mr Mesa is adamant: "I can't put forward the idea of exporting through Chile because this would generate a social explosion," he says. "This is not demagogy or populism it is realism."