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    Franklin Molina: "There are 100 companies that self-generate electricity with illegal gas connections".

    October 2, 2022 - CE Noticias Financieras


      Franklin Molina Ortiz will complete two years leading the Ministry of Hydrocarbons and Energy. In the last week, five exploration projects were approved in the Legislative, but a decree restricting the use of natural gas in industries for electricity generation was also published. Molina received EL DEBER at YPFB's Executive House to discuss the present and the challenges of the sector.

      The new contracts that have just been approved by the Legislative include incentives for the oil companies? they are not only projects, they are requirements that must be in place as conditions for the fulfillment of a plan. The regulatory adjustment takes into account the conditions of sensitivity, which point to the 'government take', aspects that are not only subject to the regions that receive royalties and IDH and have an impact, but also to political and social sensitivities.Santa Cruz participates in three of the five contracts. We foresee an investment of US$ 582.2 million. This is a traditional area with which we have information, which is not Huamampampa, maybe they were not the 'filet mignon' of the big oil companies, but they are of interest to medium companies that even with the 'government take' see it possible.

      It is said that they are very small structures?

      We are looking to speed up times and improve conditions in these small fields. Why are we interested in them? Because the risks to enter mega-fields are in the medium term and we have to be frank, time is running out. We need immediate measures and that is what was done.

      So you chose small structures in order to move faster?

      Yes, to get results soon.

      How soon?

      To start production in 2023, three projects in 2024 and Yuarenda in 2028.

      Is fracking being analyzed?

      We are in a plan to go to unconventional. We have an analysis in YPFB in terms of prospectivity.

      They estimate an income of US$ 1,700 million, from what volume of gas? each contract has its own characteristics and the idea is to maintain a production regime that avoids a drop in the domestic market. Today we are talking about producing 43 million cubic meters/day of gas and that could be severely hit if we do not do what we are doing terms of resources, Ovaí has a projection of 63.4 billion cubic feet and Sayurenda 35.5 BCF. In addition to this, other areas are seen, because YPFB is working on increases in some liquids. In fact, in the Board of Directors we approved more than 10 projects in YPFB, it is a historical fact and this had not been achieved in one year.

      But going for small structures is also a minor investment?

      If we look at the volume of investments, we are going to exceed what was foreseen. We have projected $US 1,500 million for this year, but as a result of the negotiations and favorable expectations, we believe that this amount will be exceeded. We know it is not enough, but it is necessary due to the urgency. We found a country in November 2020 with a tremendous decline rate of up to 10%.

      More than a year ago you said that the hydrocarbons sector needed deep reforms, why were they not made?

      Regulations and decrees have been issued that allow us to establish incentive mechanisms for the production of crude oil, including gas and condensates in smaller fields. As a result, different contracts were signed.

      Why, if the previous government managed an economic bonanza for 14 years, was more production not achieved?

      Well, you have to ask.

      Do you think that nationalization discouraged investment? I believe that more should have been done. I don't want to lay the blame, because it is easy to say that there are people responsible. But evidently, not enough was done; however, I think that at the time we should have looked at the long term. And the long term already made us visualize that there would be a growth in demand, we refer in some years to rates approaching 10% in terms of energy in the domestic market and that is what has happened. The external markets did not remain static either. Look at Brazil and Argentina, they buy in some cases at impressive spot prices. There is a greater requirement for the country, we must be prepared for that context and we need to move quickly in new investments in the upstream and it is necessary to configure an optimal scenario for that to happen.we have a draft bill that was very much debated internally in the last six months.

      Does the bill include incentives?

      It has to do with production incentives and mechanisms to speed up the bureaucracy in terms of contract approval. The negotiation that becomes too long. But it is not an easy task. Believe me, if the laws depended on only one sector, in this case the Executive, it would be easier. So, we move forward in what is achievable, now comes the second part which are the actions.

      Will this norm modify the tax burden of the companies for IDH and other taxes?

      I would keep it as an incentive. We are going to improve economic and financial conditions, which is the most important thing. Because fiscal, political, regional and social sensitivities can play against us when we do not have something that establishes all the mechanisms.

      Transparency in providing information is key; it is an element that is questioned. We have to convince the regions that the zero sum is zero, if we want to raise taxes, zero per thousand is zero. So, we have to try to achieve a balance, that one is equal to income, economic activity and investments. It is a complex job because it should have been done a long time ago. There was the Incentives Law, but in practice it did not help to increase reserves. The operators invested, but they did not give the expected results.

      How is the Bolivian gas scenario shaping up with an Argentinean market that seeks to terminate the contract with Bolivia before 2025 and Brazil with private demands that are not yet stable?

      A series of challenges and opportunities have opened up. The international context has changed and this change has come faster than we envisioned 10 years ago. For example, in Brazil there is no longer just one competitor, Petrobras, but several. For Brazil, Bolivia is an important market not only for gas, but also for electricity and urea and even lithium.

      However, how can the government dare to project a second urea plant when gas is now at a break-even point?

      It will never be a bad business to give added value to the raw material, in this case gas. Then, when exporting with added value, a plant is paid for in two years.

      A plant that cost US$ 1,000 million like the one in Bulo Bulo?

      Of course it is. This year we are exceeding US$ 260 million as of the first days of August in sales, so this year we will reach US$ 400 million, if the favorable price conditions continue. These are very important revenues for the State because they allow a faster recovery rate than US$ 10 per thousand BTU, the price at which we are selling to Argentina in this third quarter.

      But the urea plant has just stopped again?

      The problem was detected when the plant was started up in 2021. We knew there would be a problem with some reactors, you cannot stop everything at once. So, a progressive plan was made for critical equipment to be adjusted over a period of time so as not to paralyze the plant too much. There were problems in the first months of the year and it was indicated that there would be a second shutdown in the plant due to a problem in a turbo reactor.

      I asked for it to be assessed because there were two possibilities, one was to wait for more complicated logistics and the other was to do it in two stages. The main thing was solved and proof of that is that all the foreign personnel have withdrawn.

      Do you restrict gas for industry, will you export it because it generates more money?

      Not only export it as gas, but with added value.

      Why is the foreign market prioritized before the domestic market?

      Bolivia has a great advantage in the continent. We have gas pipelines to Brazil and Argentina, with important installed capacity. This positions us as a country with a tremendous possibility of being a strategic player among several countries. Let's not forget that when Argentina does not consume, it transfers volumes to Chile. This is not unknown. So, there are advantages that are not easy to build.

      What is needed? Investments and that they become viable quickly. We have had conversations with oil companies interested in having results in the country, such as Total and Repsol, which are willing to continue advancing so that investments in the sector become viable. In addition, we are planning a public-private association law.

      Will more gas volumes be sent to Brazil again in October when Argentine demand decreases due to the change of season?

      It is foreseen in the contract. Logically, so we believe that there is a price context, beyond the decrease in volumes. Argentina will continue to demand high volumes.

      Gas has just been restricted to the industry and they claim that the resource should be first for Bolivians...

      They have it and we are installing new gas networks. This year we invested almost Bs 600 million.

      But the domestic market has already surpassed the volumes demanded by Brazil...

      In their case, the hydroelectric plants failed them.

      Did you talk about subsidies to the industrial sector...

      We, the residential category pay more than the industrial sector. We pay $us 0.8 or 0.9 cents per kilowatt/hour and they pay 0.54 cents.

      Industrialists say that the restriction increases their costs between 40 and 60%?

      If your costs go up 40 to 60% and you are not an electric company, then what do you do? It was necessary to put the house in order, because this regulatory vagueness of the DS 1996, by allowing self-generation mechanisms, made possible a total distortion. Although there are 20 companies that have contracts with YPFB and we counted them, we realized that there are about 100 "pirate" companies, which are illegally connected to the gas for self-generation.

      Illegally connected to the gas?

      Yes, without reporting to the Electricity Authority, which is dangerous, but they also do not pay the public lighting and sanitation taxes.

      Do they also do it so that the idle capacity of electricity is used because we have a surplus of supply?

      In the Energy Balance the behavior shows that residential demand is growing at 7%, but in the industrial sector it is stagnating and even seems to be decreasing. We evaluated and saw something strange, so it seems painful, but in terms of the State it is a gain.

      Approximately 50% of the installed capacity of electricity generation in Bolivia remains idle, doesn't the State lose money?

      This is one way. In the case of distributed generation based on renewable sources it helps us to displace gas for industrialization or another market, but we are also complying as a country. Every year the Bolivian government sends reports on CO2 emissions contributions, the country has a goal and must meet it

      . It is important that the demand from the industrial sector grows. We were kind of blind, consumption did not grow even when new industries were installed. Part of these measures are the decrees.

      And when will the export of electricity to Argentina, which has been announced since 2014, take place?

      Argentina is an interesting market. At the time an agreement was signed to export up to 500 MW, but due to political conditions such as the government of Mauricio Macri, it was reduced to 120 MW. ENDE has been working on the construction of that line. It would start exporting this year, so we expect the first megawatts to be injected.


      Molina Ortiz is an economist and a specialist in energy development. He studied at the Uagrm in Santa Cruz and completed postgraduate studies in Bolivia and Chile in public management, administration, financial management and business management. He was Vice Minister of Energy Development.


      has been Minister of Hydrocarbons and Energy since November 2020.



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