Years of underinvestment in Bolivia’s gas industry have left the South American country facing a severe fuel shortage, as energy prices rise ever higher owing to the ongoing war in Iran. The energy shortages and economic crisis follow years of poor decision-making by the government.
In 2006, then-president Evo Morales took control of Bolivia’s fossil fuel industry, renegotiating contracts with international oil and gas companies and benefiting from the revenue. Much of the country’s newfound wealth was invested in public spending programmes, expensive fuel subsidies, and the maintenance of a fixed currency exchange rate pegged to the U.S. dollar. Fossil fuel revenues contributed heavily to Bolivia’s economy for several years, supporting GDP expansion and the development of social programmes that helped halve poverty rates.
For many years, Bolivian’s were led to believe that they had more extensive gas supplies than they actually did. However, in recent years, Bolivia’s fossil fuel sector has suffered as reserves have dwindled and no successful gas discoveries have occurred. As of April, Bolivia has an estimated 3.7 trillion cubic feet of proven reserves. The fall in gas production led exports to fall by almost 60 per cent over the last decade. Bolivia continues to rely heavily on natural gas, which accounts for around 70 per cent of its electricity mix.
Meanwhile, little progress has been made in developing the country’s green energy sector, leaving it facing severe energy shortages. The fall in gas revenues has left the economy suffering terribly, as inflation soars and the price of imported goods becomes ever more unaffordable. Luis Fernando Romero, the former head of an association of economists in southern Bolivia, stated, “We failed to take advantage of a historic opportunity that brought in immense revenue.”
This situation is not uncommon, with many other oil-rich states having had similar experiences. Several Middle Eastern states have long depended on oil and gas revenues for economic growth, and most have only recently announced plans to diversify their economies to reduce reliance on fossil fuels. Several countries across the MENA region announced new economic strategies following greater talk of a global green transition, which could leave them missing out on vital oil revenues if they don’t take moves to diversify and invest in value-added sectors.
The lack of investment in Bolivia’s other domestic sectors has left it struggling to stay afloat as it runs out of fuel and is forced to pay high fuel import costs. President Rodrigo Paz warned that “International prices are forcing us to make complex choices.”
In September, Bolivia’s Congress approved a $1.9 billion loan from the International Monetary Fund (IMF), even though the terms of the deal require the government to impose strict austerity measures that could fuel social unrest. The loan received approval from the IMF’s Executive Board on October 2, and the government will now be required to cut its fuel subsidies and significantly reduce public spending. It has already increased fuel prices and is expected to scrap further gasoline subsidies from the beginning of next year. The loan is expected to unlock up to $4 billion more in financing from the World Bank and other lenders.
However, there are major concerns that the new financial plan will significantly increase the cost of living for households already struggling. Last December, the government reduced fuel subsidies, leaving little support for the most vulnerable Bolivians. This led to widespread protests as people called for President Paz’s resignation. In February, there was further social unrest after the distribution of poor-quality gasoline ruined thousands of vehicles. Then, in June and July, several weeks of road blockades by protesters occurred.
Meanwhile, to tackle the ongoing fuel shortages, Bolivia’s government announced plans in September to triple the fund financing refined fuel purchases, following similar announcements by Peru and Ecuador. This is expected to help mitigate diesel shortages and rising prices. Both Peru and Ecuador have increased fuel subsidies in recent months and are focusing on increasing production at state oil refineries to alleviate the price pressure of expensive fuel imports.
In July, Bolivia's Energy Minister Marcelo Blanco announced that the government had authorised the private sector to import and sell refined fuels to mitigate severe shortages. Then, in September, the government said that the state hydrocarbons firm plans to focus on exploration, extraction, and refining to continue developing Bolivia’s gas resources. However, experts warn that Bolivia could become a net fossil gas importer by around 2030.
As Bolivia continues to battle fuel shortages and seeks to support economic recovery by borrowing from international organisations, the government must focus on diversifying the economy by developing other value-added sectors to sustain long-term growth. In addition, the government must also develop Bolivia’s renewable energy sources to reduce dependence on expensive fuel imports and ensure the country’s energy security.
