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Bolivian energy takeover concerns trade credit market.

The Bolivian government's bid to nationalize its oil and gas industry is setting off alarms in trade credit and political risk insurance markets, even though this development is a wreck experts have seen coming for some time.

On May 1, Bolivia sent troops on behalf of the state-controlled energy company, YPFB, to occupy 56 oil and gas installations, mostly controlled by foreign companies.

John Minor, president of Jardine Lloyd Thompson's JLT Emerging Markets, said Bolivia's move is "a storm that's been brewing for a while." But while Bolivia is "fast becoming a pariah of insurance markets," trade credit insurers shouldn't be hit too hard by the government's move, he said.

"There hasn't been a lot of appetite for trade credit insurance in strategic sectors, such as oil and gas, for some time" in Bolivia, Minor told Best's Review. Any business that involves concessions or long-term contracts with government entities hasn't attracted insurance protection, he said.

"We would expect to see a few claims coming out of this over the next six months or so," Minor said. "But most of the companies involved are very big, and they don't use insurance that much to mitigate their risks."

Some trade credit or political risk losses may come from smaller entities that get caught up in the government's enthusiasm for intervention, he said.

Evo Morales, a populist who positioned himself as champion of the rights of the indigenous poor in Bolivia, was elected president last December. Having cast himself as an opponent of international business interests in the style of Venezuelan President Hugo Chavez, Morales wasted no time carrying through on his threat to seize control of Bolivia's natural resources from foreign companies.

David Atkinson, country risk manager for trade credit insurer Euler Hermes, said he is "not entirely surprised" by what has happened in Bolivia. Euler Hermes had downgraded Bolivia to a "D" in its country risk grade scale, the most risky designation, in January, following Morales' election.

"We had anticipated something like this," he said. "Morales' election pledge was to take a more interventionist approach in the country's oil and gas sector."

What was somewhat surprising was the way in which Morales' government moved to nationalize the industry, with "rather theatrical" displays of troop strength and the accompanying statements regarding extension of state control to other sectors, said Atkinson.

Morales launched his bid to wrest control of oil and gas operations from foreign companies on the international May Day holiday marking workers' rights, a holiday once championed by the former Soviet Union.

Trade credit and political risk experts had been worried about political trends in Latin America for several years.

ENERGY FIELDS SEIZED: The Bolivian government sent troops on May 1 to occupy 56 oil and gas installations, mostly controlled by foreign companies, alarming trade credit and political risk insurance markets.

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Comment:Bolivian energy takeover concerns trade credit market.
Author:Pilla, David
Publication:Best's Review
Geographic Code:3BOLI
Date:Jun 1, 2006
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