Under the Bolivian Constitution, enacted in 2009, the Bolivian People hold exclusive ownership over any and all petroleum resources. Said ownership is an unalienable right and is not subject to any statute of limitations. The Bolivian State – as a representative of the Bolivian People – exercises ownership over said petroleum resources and has a constitutional commercialisation monopoly thereof. Any income generated by the commercialisation of said petroleum resources is considered state owned.

Furthermore, any contract, agreement or understanding that – either directly or indirectly, tacitly or expressly – infringes said provisions is considered null and void, and the parties thereto shall be considered traitors.

Bolivian law does not recognise provincial/state or local shared ownership over petroleum resources, but provincial/state governments have the right to a share of the economic benefits of petroleum commercialisation.

Under the term “Institutional Organisation of the Hydrocarbons Sector”, Bolivia recognises the following three main governmental agencies with national reach and authority, tasked with regulating, managing and even executing petroleum activities.

The Department of Hydrocarbons (DH)

The DH is also called the Competent Authority of the Hydrocarbons sector, and its capacities and mandates include the following:

• to formulate, evaluate and direct Bolivia's national policies for the hydrocarbons sector;
• to assess compliance with Bolivia's national policies for the hydrocarbons sector;
• to define petroleum prices for domestic consumption;
• to supervise, control and scrutinise all petroleum activities;
• to negotiate international treaties related to the sector in co-ordination with the Department of Foreign Affairs;
• to co-ordinate with provincial/state and local governments;
• to formulate environmental policies for the hydrocarbons sector; and
• to act as appeals tribunal in relation to decisions taken by the Bolivian National Petroleum Authority (ANH).

DH’s primary governing legislation is the Hydrocarbons Law No 3058 dated 17 May 2005, Supreme Decree No 29894, dated 7 February 2009 (as amended), Supreme Decree No 3058 dated 24 January 2017, and Supreme Decree No 3070 dated 1 February 2017.

https://www.hidrocarburos.gob.bo

The National Petroleum Authority (ANH)

The ANH is a public entity in charge of regulating, supervising, controlling and scrutinising all petroleum activities.

Its primary faculties and objectives include the following, among others:

• to protect consumers' rights;
• to grant licences to conduct regulated activities in the petroleum industry (such as transportation, importation, exports, refining and others);
• to approve tariffs and prices;
• to uphold competition standards in the market;
• to ensure the stable provision of petroleum products in the domestic market; and
• to track and register all entities that conduct business in the petroleum sector.

https://www.anh.gob.bo/w2019/

Yacimientos Petrolíferos Fiscales Bolivianos (YPFB)

YPFB’s main role is to act as the operational arm of the Bolivian State in all petroleum activities conducted within Bolivia and abroad. See 1.3 National Oil or Gas Company for a description of YPFB's roles.

https://www.ypfb.gob.bo

Bolivia's main national petroleum company is YPFB, which is also referred to as “YPFB Corporation”, since it holds equity ownership in all state-owned companies doing business in the petroleum sector. In fact, YPFB holds a majority participation in YPFB Chaco S. A.; YPFB Transporte S. A.; YPFB Refinación S. A.; YPFB Petroandina S. A. M.; YPFB Andina S. A.; Empresa Engarrafadora de Gas – Flamagas S. A.; Gas Trans Boliviano S.A.; YPFB Transporte S. A.; Transredes Do Brasil Holdings Ltda.; YPFB Logística S. A.; and YPFB Aviación EVP.

It is fair to say that YPFB has an important participation in upstream activities and has absolute control over all midstream and downstream activities in Bolivia.

Under the Bolivian Constitution, YPFB holds exclusivity rights – as the operational arm of the Bolivian State – to conduct all hydrocarbons activities, including the commercialisation of any petroleum production.

To conduct said activities, YPFB may enter into services agreements with public, private or mixed companies, under which the services provider will perform the agreed activities in the name of YPFB. YPFB is therefore the entity in charge of negotiating, entering into, and managing all upstream services agreements in Bolivia.

YPFB has (among others) the following capacities and mandates:

• to exercise ownership over all petroleum in Bolivia, in the name of the Bolivian State;
• to enter into services agreements for petroleum upstream activities on behalf of the Bolivian State;
• to negotiate services agreements for petroleum upstream activities;
• to manage said services agreements;
• to control exploration and exploitation activities;
• to enter into gas supply agreements for the external markets on behalf of the Bolivian State;
• to manage said gas supply agreements; and
• to negotiate the incorporation of public private companies either within Bolivia or abroad.

YPFB’s primary governing legislation is the Bolivian Constitution, the Hydrocarbons Law No 3058 dated 17 May 2005, Supreme Decree No 28324, 1 September 2005 (as amended), YPFB By-Laws and the Public Enterprises Law No 466 dated 26 December 2013.

The principal petroleum laws and regulations are as follows.

The Constitution

As approved by a Constituent Assembly and a Referendum, the Bolivian Constitution was enacted on 7 February 2009 and incorporated important provisions already included in the Hydrocarbons Law of 2005 while expanding state control over all petroleum activities. Under Bolivia's Constitution:

• the People of Bolivia hold exclusive ownership over all petroleum resources;
• YPFB is the only entity authorised to conduct and control petroleum activities (upstream, midstream, downstream and commercialisation) in Bolivia;
• private investors (either local or foreign) are considered mere services providers, conducting petroleum activities on behalf of YPFB;
• in order to gain access to upstream rights, investors shall either enter into services agreements with YPFB or create a joint stock company with YPFB;
• investors are bound to Bolivian laws, jurisdiction and authorities. Neither international arbitration nor diplomatic claims are acceptable; and
• petroleum can only be exported once the requirements of the domestic market have been satisfied.

Laws

The Hydrocarbons Law No 3058 dated 17 May 2005 (HL)

The HL is the result of a Referendum in which all of the five questions were aimed at modifying the previous petroleum regulations. Under the HL, YPFB – on behalf of the Bolivian People – recovered exclusive ownership over petroleum resources; upstream companies were compelled to increase the direct Government Take from 18% to 50% of the gross income generated by the sale of petroleum resources; new “types” of upstream production agreements were created: Shares Risk Agreements, Operation Agreements and Association Agreements; and international arbitration was barred from any new upstream agreement.

The Law for the Sustainable Development of the Hydrocarbons sector – Law No 3740 dated 31 August 2007

Under Law 3740, the Bolivian State created the foundations for a new Cost Recovering structure that will allow upstream companies to enter into the new types of upstream production agreements.

The Public Enterprises Law No 466 dated 26 December 2013

As a result of Bolivia's nationalisation process (conducted between 2005 and 2019), state flagship companies such as YPFB held controlling stock in many private companies. Without Law 466, said companies should have been transformed into public companies, which would have caused unavoidable burdens in their administration, decision making and risk management. Law 466 creates a different type of company (neither private nor completely public), which, despite being state owned, can face business decisions with increased flexibility. Unfortunately, state-owned companies are yet to complete their transition to public enterprises.

The Investment Promotion Law for Exploration and Exploitation Activities in the Hydrocarbons Sector (IPL) (as amended subsequently) – Law No 767 dated 11 December 2015

The IPL was enacted in an effort to encourage further investments in the upstream sector. It was sparked by a plunge in oil prices from mid-2014 to early 2015, and by the fact that a 50% direct Government Take (as the one charged in Bolivia) appeared excessive under said circumstances. In fact, the IPL reduced the Government Take by creating an indirect compensation for producers, subject to certain conditions being met.

The Investment Law No 516 dated 4 April 2014

The Investment Law clarified many matters that were left unresolved after the enactment of the new Bolivian Constitution in 2009. It provides a definition of “foreign investment”, recognises the many forms that can be used to channel foreign investment into Bolivia, and details the registration requirements that foreign investment needs to follow and the incentives that can be granted to certain type of investments.

The Conciliation and Arbitration Law No 708, dated 25 June 2015

Law 708 recognises investment arbitration and provides clear limits to investors that may decide to arbitrate against YPFB or Bolivia.

Supreme Decrees

Nationalisation Decree “Chaco Heroes” No 28701, dated 1 May 2006

This was enacted after Law 4058, but before the new Constitution. It was aimed at compelling all upstream players to “migrate” from a Joint Venture contract structure to Operation Agreements, allowing YPFB to take effective control over the entire petroleum industry in Bolivia.

Regulations on Reported, Approved and Recoverable Costs, Supreme Decree No 3278, dated 9 August 2017

The form in which YPFB would recognise and pay the costs of upstream operations was agreed upon in specific Annexes to the Upstream Contracts. Bolivia tried to re-negotiate said parameters, to no avail. In these circumstances, Bolivia was prepared to use legislation to unilaterally amend said Annexes.

Regulations on Sub-Contracts for Petroleum Operations, Supreme Decree 3398 dated 20 November 2017

Since Sub-Contractors' fees can be regarded as Recoverable Costs, and therefore can impact the amounts that Bolivia will be paying to an upstream Titleholder, Bolivia created more rigorous standards for said Sub-Contracts.

In order to gain access to upstream rights, private investors must either enter into Services Agreements with YPFB or create a joint stock company with YPFB.

Bolivia's 2005 Hydrocarbons Law provided for three “types” of upstream production agreements (Shares Risk Agreements, Operation Agreements and Association Agreements), but the 2009 Constitution superseded these provisions and they have become unusable.

The following general concepts govern Services Agreements:

• the companies that execute the contract act as “Titleholders”, a term that is defined by Bolivian law and means that said companies provide services to YPFB;
• YPFB acts on behalf and in the name of the Plurinational State of Bolivia and the Bolivian People;
• investment risk is to be borne completely by the Titleholders. The parties can only move on to the exploitation phase if the operation proves to be successful and the Titleholders make a commercially successful discovery. In the exploitation phase, Titleholders can finally receive compensation for the costs incurred during the exploration phase plus a profit;
• all the petroleum produced under the Services Agreement is owned by YPFB – Titleholders may not sell or market it;
• the terms and conditions under which the petroleum resources are sold (such as prices, buyer, exports or domestic markets, etc) are decided exclusively by YPFB; and
• in order for YPFB to take control over petroleum production a “Delivery Agreement” is also executed.

For the purposes of upstream interests, the Executive Branch has divided Bolivia’s territory into several so-called Contract Areas. In principle, Contract Areas can only be granted in favour of a private investor as a result of a proper bidding competitive process. Also, as an exception to the rule, the Executive Branch has the right to “reserve” some Contract Areas in favour of YPFB. These “reserved” Contract Areas can then be granted by YPFB to any eligible investor without a competitive process. From 2007 to 2010, the Bolivian Executive Branch did in fact “reserve” all the available Contract Areas in favour of YPFB, so eligible investors wanting to conduct petroleum upstream activities in Bolivia must negotiate directly with YPFB.

The Department of Hydrocarbons has enacted specific legislation (in the form of administrative resolutions) to regulate said direct negotiations. An “eligible” investor must show evidence of its financial and technical capacity, must not have defaulted any previous agreement with YPFB and must not be a party in any arbitration procedure against Bolivia.

The negotiation procedure includes two different stages. In stage one, the potential investor enters into a Study Agreement with YPFB, under which the potential investor agrees to conduct preliminary exploration and analysis activities in the relevant Area within one year. After the Study has been concluded, the parties could consider whether or not to enter into a Services Agreement.

If the study is positive and the parties agree to enter into a Services Agreement, the following steps need to be taken into consideration:

• the Services Agreement format is first negotiated between the private party and YFPB;
• once agreed upon, the Services Agreement must be authorised by the Bolivian Congress by means of a law;
• after being authorised by Congress, the Services Agreement is executed between the private party(ies) and YPFB;
• after its execution, the Services Agreement is submitted (again) to the Bolivian Congress for a second approval; and
• once this second law is enacted, the Services Agreement is finally delivered to a Government’s Notary, for its notarisation. A Services Agreement can only be considered valid, binding and enforceable after this last step has been taken.

The mandatory Government Take for upstream operations can be divided into two main groups: (i) Direct Tax on Hydrocarbons (IDH for its acronym in Spanish), royalties and participations; and (ii) additional contributions.

Direct taxes, royalties and participations are as follows:

• IDH – 32% on the gross value of natural gas and oil production sales;
• Provincial (11%) and compensation (1%) royalties – 12% on the gross value of natural gas and oil production sales; and
• National Treasury participation – 6% on the gross value of natural gas and oil production sales.

Additional contributions are as follows:

• patents – companies are required to pay a patent to YPFB during the exploration and exploitation periods, for the exclusive use of the contract area. YPFB pays the patents in advance to the Bolivian National Treasury on a yearly basis, and companies have the obligation to reimburse them. The rate of the patents depends on the exploration phase and on the extension of land under the relevant Services Agreement;
• YPFB Additional Participation – this is an additional and variable participation agreed between YPFB and the Titleholder in the relevant Services Agreements. It is paid annually during the exploration and exploitation periods. It is relatively low during the exploration period and increases during the exploitation period. The rate is calculated based on tables agreed upon as an annex to the relevant Services Agreement;
• additional contributions to regulators; and
• social programmes and compensation to indigenous communities near well sites, to be agreed upon with the relevant stakeholders.

Upstream operations are subject to the Corporate Income Tax (IUE for its acronym in Spanish) at a rate of 25% over the taxable net income obtained at the end of the fiscal year.

Said operations are also subject to Value Added Tax (IVA for its acronym in Spanish) at a rate of 13% over sales, and to Transactions Tax (IT for its acronym in Spanish) at a rate of 3% on the gross income.

Whenever Bolivian-sourced income is paid, credited or remitted abroad, the Corporate Income Tax – Beneficiaries Abroad (IUE-BE for its acronym in Spanish) would need to be withheld, at a rate of 12.5%.

In principle, upstream activities can only be carried out by YPFB. Companies entering into Services Agreements with YPFB are mere service providers.

YPFB has a right of first refusal (ROFR) to provide exploration or exploitation services to any upstream operator under any Services Agreement. YPFB is the owner of several drilling rigs and other related machinery, and tries to maximise its investment by exercising said ROFR.

YPFB has no other special rights at this moment.

Local content requirements applicable to upstream operations are mandatory; both the Bolivian Investment Law (Law No. 516) and the Bolivian Hydrocarbons Law (Law No. 3058) include specific provisions in that regard. Services Agreements further develop said requirements, including them as contractual obligations.

Those requirements can be summarised as follows:

• local employment – Bolivian nationals must account for at least 85% of the total employees of an upstream company; foreign nationals are limited to 15%. Upstream companies must also emphasise the hiring of Bolivian nationals from communities proximate to their operations;
• local goods, assets and services – the use of local goods and assets must be privileged, subject to quality standards and prices. The use of local services must also be favoured. Private investors must aim to transfer cutting-edge technology, machinery and equipment to YPFB, universities and other technology institutes; and.
• training programmes – upstream investors must establish internships and practice structures for YPFB personnel and university students.

In order to begin the Exploitation Phase (which includes development and production activities), Titleholders must declare a commercial discovery, and must then present the relevant development plan before YPFB. YPFB has the right to amend, reject or approve said plan. The terms of the development plan are discussed and agreed within the content of the Services Agreement by negotiations between the parties.

If the development plan is approved by YPFB, Titleholders have 180 days to begin the corresponding development operations (this timeframe has been negotiated by YPFB and sometimes Titleholders have agreed to reduce it considerably). Due to their inherent characteristics, development plans may be modified by the parties during operations.

Titleholders have the right to defer commencement of the development operations for up to two years, if certain conditions such as market availability or transportation facilities are not conducive.

If YPFB denies approval of the development plan (which is extremely unlikely), Titleholders will not have the right to appeal such decision.

Services Agreements contain specific clauses that apply to the relationship between Titleholders and YPFB, the most relevant of which refer to the following aspects.

Purpose

The purpose of the Services Agreement is the execution of exploration and exploitation operations by the Titleholders, within the Contract Area, at their sole risk and expense. To this end, the Titleholders will cover all costs and provide all the personnel, technology, facilities, assets and capital necessary for the performance of the exploration and exploitation operations, corresponding to each phase. YPFB will not assume any risk or liability with respect to exploration and exploitation activities or the results thereof.

Term

The term of the Services Agreements is limited to 40 years. In principle, this term cannot be extended. However, new legislation on the subject provides that an extension of the term may be negotiated under certain circumstances. Within the 40-year term of the Services Agreement, the document divides the activities that Titleholders may conduct into two periods.

The Exploration Period – Guarantee

The exploration period is divided into three phases, each of which is divided into specific timeframes:

• Phase 1: the first year to the third year. At the conclusion of the third year, if no commercial discovery has been made, Titleholders must return a percentage of the exploration area to YPFB.
• Phase 2: the fourth year to the fifth year. At the end of the fifth year, if no commercial discovery has been made, Titleholders must return a percentage of the exploration area to YPFB.
• Phase 3: the sixth year to the seventh year. At the end of the seventh year, if no commercial discovery has been made, Titleholders must return 100% of the exploration area to YPFB.

Regarding the maximum time allocated, formal agreements generally grant seven years for exploration activities in the so-called “traditional areas” (areas in a sector of the Bolivian territory where there have been confirmed discoveries and the production of hydrocarbons) and nine years for the exploration of “non-traditional areas”. The period for exploration activities may be extended under specific circumstances.

Annual work programmes and budgets must be presented by the Titleholders to YPFB, and must be approved by YPFB before the activities can be performed.

The work programmes and budgets provided to YPFB during the exploration period must comply with certain minimum work obligations. These obligations are valued in “Work Units for Exploration” (UTE for its acronym in Spanish), with 1 UTE currently valued at USD6,631. A minimum of 1,200 UTEs shall be carried out in each exploration phase.

A bank bond or a standby letter of credit must be provided by the Titleholder to guarantee compliance with its UTE obligations. If the Titleholder fails to comply with its UTEs obligations in any given phase, YPFB has the right to receive compensation amounting to the value of the omitted UTEs.

The Exploitation Period

The Titleholder must notify YPFB if it makes a commercial discovery. YPFB shall receive the corresponding development plan for its consideration, and the Titleholder can only begin development activities once YPFB has approved the plan. The terms of the development plan are regularly discussed and agreed upon within the context of the Services Agreement by negotiations between the parties.

If the development plan is approved by YPFB, the Titleholder has 180 days to begin the corresponding development operations (this term has been negotiated by YPFB and sometimes Titleholders have agreed to reduce it considerably). Due to their inherent characteristics, development plans may be modified by the parties during operations.

Parent Company Letter Guarantee

If the Titleholder fails to meet its obligations under the Services Agreement, the Titleholder's parent company must undertake them. In light thereof, the Titleholder’s parent company must produce a Guarantee Letter, which will be included as an Annex to the Services Agreement.

Payment to the Titleholder(s)

Any compensation to be paid to the Titleholder under the Services Agreement is contingent upon the commercialisation of petroleum by YPFB. From said commercialisation proceeds and after the 50% direct Government Take has been discounted and other agreed payments have been made to YPFB, the Titleholder has the right to recuperate all recoverable costs and generate a profit. Recoverable costs need to be approved by YPFB itself.

Domestic Supply Requirements

Supply to the domestic market has preference over exports. YPFB has the right to use petroleum meant for the export market in order to supply any deficiencies in the domestic market. Under Bolivian law, the prices of natural gas for the domestic market cannot exceed 50% of the prices for exportation markets.

Applicable Law and Dispute Resolution

All Services Agreements are subject to Bolivian law, and dispute resolution procedures need to be conducted as follows:

• extraordinary meetings between the technical people in charge of operations;
• experts’ determinations (for technical matters only), for which experts are appointed by the National Chamber of Commerce of La Paz-Bolivia; and
• arbitration, in Bolivia and under the rules and regulations of the National Chamber of Commerce of La Paz.

Older Services Agreements included provisions whereby parties could access arbitration before the National Chamber of Commerce of La Paz, but applying ICC Rules. ICC Rules are no longer accepted by YPFB.

Termination

Any non-defaulting party has the right to terminate a Services Agreement upon an event of default. Events of default and cure periods are clearly detailed in the Services Agreements. If a Services Agreement is terminated by YPFB due to a defaulting Titleholder, said Titleholder may even face criminal charges.

Withdrawal

The Titleholder may withdraw from the Services Agreement at any moment, provided that all their obligations thereunder have been complied with as of the date of the withdrawal. Any withdrawal process will immediately activate abandonment obligations, including environmental and mitigation ones.

Abandonment

Beginning in the first year of the exploitation period, the Titleholder shall create an abandonment budget to finance such activities in the future.

Abandonment planning needs to commence at least 18 months prior to the abandonment date. The Titleholder shall present an abandonment plan to YPFB for its approval. The existing abandonment budget will need to be transferred to a “trust abandonment account”, if certain production thresholds are met. Any deficiencies in such “trust abandonment account” shall be covered by the Titleholder.

The Titleholder will remain liable for any contingencies (environmental and others) that might have been produced prior to abandonment.        

As a matter of Bolivian law, a transfer of interest in upstream projects can only be conducted by assigning the relevant Services Agreement to a new investor (direct assignment) or by selling an equity participation in the Titleholder to a third party (indirect assignment). That will in turn require the approval of YPFB, the approval of the Department of Hydrocarbons, the execution of an assignment agreement between the assignor, the assignee and the assigned party, and finally a Congress approval.

The Services Agreements themselves contain specific assignment provisions. YPFB is not bound to accept any assignment proposal and can simply reject it. Nevertheless, YPFB will only consider assignment proposals in which the potential newcomer evidences proper financial and economic competence.

A change of control over a private investor that is a party to a Services Agreement will also be considered as an indirect assignment. A voluntary change of control will need to be approved by YPFB beforehand. An involuntary change of control – for example, one that might be caused by a stock exchange transaction or a court order – shall be notified to YPFB almost immediately. YPFB will then have the right to reject said change of control and ask the affected party (and its new parent company) to transfer the Bolivian interest portion to an acceptable party. If that transfer does not materialise within an already agreed period of time, YPFB will have the right to terminate the Services Agreement.

Any Services Agreement assignment that is made against a payment will generate a 3% Transactions Tax (IT for its acronym in Spanish).

Unless specifically limited under the assignment agreement, the assignor will remain joint and severally responsible with the assigned party vis-a-vis YPFB.

The assigned party will need to produce proper guarantees (mainly a standby letter of credit or bank bond and a parent company guarantee letter) before or upon the execution of the assignment agreement.

All permits that have been obtained by the assignor to perform under the Services Agreement being assigned will need to be obtained by the assigned party. These permits include environmental permits, controlled substances permits, telecommunications permits, explosives permits, labour and social registries and permits, health and operational security permits, insurances and others.

Any such assignment procedures may take anything between six and 18 months to complete.

There are no regulatory restrictions or production rates applicable to the Bolivian petroleum sector. Having said that, it is worth noting that access to export markets will only be granted after the domestic market consumption has been satisfied.        

Under the Bolivian Hydrocarbons Law (Law No 3058), the following are considered midstream and downstream activities:

• refining and industrialisation;
• transportation and storage;
• commercialisation; and
• residential gas distribution.

Under Law No 3058, a company must obtain an administrative licence from the Bolivian National Hydrocarbons Agency (ANH for its acronym in Spanish) in order to conduct storage, refining and industrialisation activities. Transportation and storage activities are subject to obtaining an administrative concession, as are residential gas distribution activities.

Four years after the enactment of Law No 3058, Bolivia enacted its new Constitution, which changed Bolivia’s economic and legal philosophy and approach towards petroleum, and towards foreign investment in the field. According to the Bolivian Constitution, only YPFB can conduct the activities inherent to the petroleum sector; industrialisation activities must be conducted by YPFB through Empresa Boliviana de Industrialización de Hidrocarburos (EBIH for its acronym in Spanish); YPFB may enter into associations or public private company structures in order to conduct petroleum refining, industrialisation, transportation and commercialisation activities; and concession structures shall migrate to contractual structures.

In light of the above, private investment in upstream and downstream activities can only be channelled by entering into associations or joint equity companies with YPFB, which, in turn, must hold the majority equity participation.

Said joint equity companies will be considered public enterprises, and are subject to the Public Enterprises Law No 466 dated 26 December 2013.

Given the four-year gap between the Hydrocarbons Law and the Constitution, there are still some private companies carrying out refining (one) and transportation (one) activities. As far as is known, this structure cannot be replicated for future investment. It is also worth noting that gas stations have remained private, in spite of the government’s efforts to nationalise them.

Concessions and licences for downstream and midstream activities are still in effect, for the following reasons:

• YPFB took control of all the main transportation and refining facilities in Bolivia by acquiring private investors' shares in the operating companies;
• the operating companies that were nationalised were under concessions and licence structures;
• YPFB had to transform said companies into public enterprises, but failed to do so; and
• after the 2009 Constitution, YPFB aimed to nationalise gas stations, but failed to do so.

Concessions will no longer be issued and licences (if any) will be only granted to joint equity companies in which YPFB holds the majority of the equity. There are profound discrepancies between the 2005 Hydrocarbons Law and the 2009 Constitution. It goes without saying that a new hydrocarbons law that concords with the principles set in the 2009 Constitution is long overdue.

Therefore, the heavily reduced private investment in the midstream and downstream sectors only exists as a historical residue of past legal structures. YPFB is in effective control of all the companies doing business in the sector (except for gas stations and other minor players), and private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

As per 3.1 Forms of Allowed Private Investment in Midstream/Downstream Operations, private investment in the midstream and downstream sectors is and will no longer be possible in Bolivia, until new legislation is enacted.

Foreign investment rules relevant to investments in petroleum are included in three fundamental instruments: the Bolivian Constitution, the Bolivian Investment Law and the Bolivian Hydrocarbons Law.

The Bolivian Constitution

Under the Bolivian Constitution, investments conducted by Bolivians have priority offer foreign investments. Foreign investment shall be subject to the jurisdiction, laws and authorities of Bolivia. No exemptions or more favourable treatment can be granted, and appeal to diplomatic claims is prohibited.

Furthermore, investments in petroleum activities cannot be subject to international arbitration. Therefore, there is no option to implicate international law in any dispute emerging from said agreements. Investments in midstream and downstream activities are not expressly barred from international arbitration.

The expropriation of assets and rights is allowed by the Bolivian Constitution only after an assertion of public need or public interest is determined by law, and is always subject to prior and just compensation.

The Bolivian Investment Law

The Bolivian Investment Law distinguishes between national and foreign investment. Foreign investment can be made through contractual structures or private or mixed equity companies. In the latter case, the public participant must always hold a majority capital interest.

Foreign investment must be registered before the Bolivian Central Bank, must be channelled through Bolivia’s financial system, must comply with all applicable price transfer legislation and will be subject to Bolivia’s tax, customs, environmental and other local laws.

General and specific incentives are permitted. They will need to be requested by the investor and granted in a way that complies with the formalisms required by law. Specific incentives can create special treatments in customs, tax or production stimulus. Incentives are temporary and their length can extend from one to 20 years.

The investor has the right to remit royalties, returns, dividends or the original capital in foreign exchange. A withholding tax of 12.5% will be charged over royalties, returns and profits, and an additional 2% processing fee will need to be paid to the Bolivian Central Bank. The repatriation of capital is not subject to the withholding tax, but is subject to BCB’s processing fee.

The Bolivian Hydrocarbons Law (HL)

Under the HL, the Bolivian State has pledged to guarantee current and future investments in the petroleum sector. Investors in petroleum industrialisation, gas transportation, home gas and national energy matrix diversification projects may be deemed eligible for incentives, including special treatment in tax, customs and the use of land.

Investors in upstream projects are entitled to free currency exchange and free transferability rights.

In Bolivia there are six main environmental-related regulations on upstream and downstream operations, as follows:

• Environmental Law No 1333 dated 27 April 1992 – the purpose of this law is the protection and conservation of the environment and natural resources, promoting sustainable development in order to improve quality of life for the population.

• General Regulation of Protected Areas dated 31 July 1997 regulates the administration of protected areas as determined by the government, and creates the relevant institutional and administrative framework.

• Forest Law No 1700 dated 12 July 1996 – the purpose of this law is to regulate the sustainable use of forests and forestlands and the protection thereof, aiming to harmonise the social, economic and ecological interests of the country.

• Hydrocarbons Law No 3058 dated 17 May 2005 – the purpose of this law is to regulate hydrocarbon activities in accordance with the Political Constitution of the State by instituting the fundamental principles for conducting said activities in an environmentally friendly manner.

• Environmental Regulation for the Hydrocarbons Sector, Supreme Decree No 24335 dated 19 July 1996, later modified by Supreme Decree No 2400 dated 20 June 2015 – this regulation creates the main rules and framework for the upstream and downstream activities that have an impact on the environment, and on the populations around the areas of interest.

• Environmental Control and Prevention Regulation, Supreme Decree No 24176 dated 8 December 1995, and supplemented by Supreme Decree No 3549 dated 2 May 2018.

The following are the major regulatory bodies for environmental matters in the petroleum industry, which operate a two-level co-operation mechanism between government authorities:

• The Department of the Environment and Water is in charge of formulating national strategies, policies, plans and standards for full compliance with the Environmental and Forest Regime (https://www.mmaya.gob.bo/). Within the Ministry of the Environment and Water, the National Secretary of the Environment (SENMA, for its acronym in Spanish) is the agency in charge of managing environmental matters. SENMA formulates and directs national environment policies. No website is available for this agency. Also, the Department of Hydrocarbons has national jurisdiction and is the competent authority that enforces the special environmental regime within the Hydrocarbons Law (https://www3.hidrocarburos.gob.bo/).

• On the provincial/department front, each Provincial Government (Gobernación) has environmental jurisdiction on upstream and downstream projects within its territory. The Departmental Environment Councils (CODEMA, for the acronym in Spanish) in each of the country's provinces/departments is the decision-making and consultation agency at this level. CODEMA approve departmental-level rules regarding the environment, within the national policy frame, which they also enforce within each department. No website is available for this agency.

There are three main environmental licences and documents that private investors are legally bound to obtain in order to conduct any petroleum project:

• The Study of Environmental Impact Assessment (EEIA for its acronym in Spanish) is conducted according to categories. The projects are assigned to a category of a type of study assessment that is selected according to the magnitude of the project, the possible environmental impact it may have, the kind of natural resources involved, whether it will be carried out on protected areas or not, and human population interactions. The depth and complexity of the study will depend on what category is assigned to the project. There are smaller projects that do not fall into any of the three categories and do not require a Study of Environmental Impact Assessment. The departmental government approves or rejects the issuance of the EEIA, which is equivalent to an affidavit.
• The Environmental File (FA for its acronym in Spanish) is a legal document granted to a legal representative of a company for completing every legal requirement of the environment prevention and control procedure, and is also the technical instrument for the categorisation of the required level EEIA. A project’s details will be detailed in the FA.
• The Declaration of Environmental Impact (DIA for its acronym in Spanish) is the Environmental Licence granted for a specific project and will contain the environmental conditions and obligations that must be followed by the investor. The DIA can be suspended for non-compliance with its terms.

Bolivia certainly takes into account the rights of the Peasant, Indigenous Communities and Origin Peoples (PCIO) that may be affected during or after petroleum operations. Therefore, a Query must be carried out before the PCIO while the project is still at the negotiations phase. This Query takes place before any tender, authorisation, contracting or approval of any hydrocarbons project. It also occurs before the EEIA procedure, as it is a requirement to commence it if the project takes place in a PCIO area.

Being a landlocked country, offshore development is out of the question in Bolivia.

The decommissioning of petroleum activities must be approved in two different stages, by YPFB and by the Department of the Environment and Water.

From an environmental perspective, decommissioning (or “abandonment” for the purposes of upstream operations) cannot be understood as a single, stand-alone Abandonment Plan. Environmental obligations (as provided both by Law and by contract) require a yearly Environmental Monitoring Report to be prepared. Therefore, in the abandonment of petroleum operations, the concluding yearly report is called an Activities Finalisation Report, which in turn needs to be approved by the Department of the Environment and Water in co-ordination with YPFB. This structure makes sense, since compliance with environmental regulations is strictly monitored, controlled and supervised on a day-to-day basis during the whole lifespan of any given project. Prevention and mitigation activities shall be conducted on a daily basis and are heavily monitored during the project’s development.

In this regard, a Final Monitoring Report must be submitted to the Department of the Environment and Water in the form of an affidavit. It is common practice for that agency to interact with the requesting party for several months to assess that the actions described in the report have been complied with or are amended (if necessary).

After the Department of the Environment and Water has approved a Final Monitoring Report, YPFB will also accept the company’s decommissioning. YPFB’s final decision will be announced via a simple letter, which is still subject to administrative challenges by the investor.

The whole process – from the filing of the Final Monitoring Report to YPFB’s final decision on the issue – may take around 12 to 18 months to be completed. No decommissioning bond is required since – under upstream agreements – the Titleholder must have created an abandonment account from the first day of operations, and has the obligation to fund any additional amounts as required.

The Titleholder will not be freed from any liabilities for its own management and operations during the project’s lifespan; the approvals of both the Department of the Environment and Water and YPFB set that out in unequivocal terms. If the Titleholder is formed by several companies, all of them (even the non-operators) shall be considered joint and severally responsible for any environmental contingencies.

Bolivia is a signatory to the 1992 United Nations Framework Convention on Climate Change (ratified by Law No 1576 dated 25 July 1994), the Kyoto Protocol (ratified by Law No 1988, dated 22 July 1999) and the Paris Treaty (ratified by Law No 835 dated 19 September 2016). Bolivia considers itself bound by the full extent of said treaties.

On 15 October 2012, Bolivia enacted Law No 300 – The Mother Earth Law. Climate change is mentioned at least 68 times therein, but, except for broad statements to control, manage and adapt to climate change, the law does not provide for any prohibitions, limits or specific targets.

Local governments have no direct capacity to limit petroleum activities within their territory. However, the fact that they are in charge of granting certain environmental permits and that no petroleum activities could be conducted without them gives local governments some leverage over the implementation of said activities.

In that sense, local governments could prevent the commencement or the continuation of a given petroleum activity.

There are no special laws, regulations or licences relating to the upstream development of unconventional interests in Bolivia; neither special treatment nor direct and clear prohibition has yet been enacted.

There are currently no special laws or regulations or special LNG licences relating to the development of LNG projects in Bolivia. In fact, during 2003, an LNG project called “Pacific LNG”, aimed at exporting Bolivian natural gas to Mexico and the USA through Chilean ports, was used by left wing organised activists to topple a democratically elected government. Hence, not only Bolivian regulations but – more importantly – also Bolivian sensibilities and memories make the progress of any LNG project extremely difficult. The fact that Bolivia is a landlocked country only adds more burdens to an already complex scenario.

A regasification plant has been installed in the Province of Beni (north of Bolivia) and an LNG plant has been installed in the Province of Santa Cruz; both are operated by YPFB.

As of 2017, Bolivia holds 10 trillion cubic feet (Tcf) of proven gas reserves. Taking into account its annual domestic consumption, Bolivia has almost 100 years of natural gas left, at current consumption levels and excluding probable and possible reserves. Hence, Bolivia’s potential to continue as a leading exporter of natural gas in South America remains intact.

The companies conducting petroleum businesses in Bolivia are among the biggest in the world. Players such as Sinopec, Shell, Rosneft, Total, Repsol, Petrobras, Schlumberger, Baker Hughes and others are veterans in Bolivia and have been tested during bad and good times alike.

The challenges and needs faced by the Bolivian oil & gas sector require urgent and profound adjustments to the current legal framework. Said changes should not be considered optional. Bolivia will hold general elections this year, and will have a new government by the end of the year. Regardless of said government’s political inclinations, adjustments to the current legal framework are inevitable. Therefore, special opportunities will emerge for all investors that are brave enough to stay, or to come and invest in the country.

Although badly needed, there were no material changes in the oil and gas law or regulations throughout 2019. Having said that, the main event during 2019 was the fact that the Bolivia-Brazil Gas Supply Agreement (GSA) ended after 20 years of it entering into effect, and providing Bolivia with vital economic resources. Bolivia and Brazil managed to agree on additional contractual structures that will allow Bolivia to continue selling reduced volumes of natural gas to Brazil for four more years and at a convenient price (for Bolivia).