A few days ago, the government enacted Supreme Decree No. 5206, allowing our national oil company (i.e. Yacimientos Petrolíferos Fiscales Bolivianos - YPFB) to supply international transport and delivery services to foreign entities wishing to carry natural gas through Bolivian pipelines.

The timing is no coincidence. It is widely known that the Argentinian upstream sector has been looking for ways to supply natural gas from the Vaca Muerta field to South America’s biggest market, Brazil. In fact, Supreme Decree No. 5206 makes explicit reference to international agreements signed between Bolivia, Brazil and Argentina, that are somewhat associated to energy integration and supply¹.

Although Supreme Decree No. 5206 seems like a step in the right direction to address the needs of the Brazilian market, there are certain aspects that still need to be solved in order to make the operation viable from a legal standpoint. For instance, it might be necessary to issue additional regulation focused on the companies that operate the pipelines to date.

The pipelines that might be needed for the delivery of natural gas from Argentina to Brazil are, as per Bolivian law, at the hands of companies that are legally distinct and independent from Yacimientos Petrolíferos Fiscales Bolivianos, by virtue of a concession conferred by the Bolivian government in the nineties.

This might appear as inconsequential, considering that the major shareholder of these companies is none other than Yacimientos Petrolíferos Fiscales Bolivianos. However, it should be considered that the legal status of the companies in charge of the pipelines is, in practice, a subject of major debate, which might eventually cause legal challenges for the operation.

Another legal issue that should be considered is the lack of clarity regarding the treatment of natural gas (in transit) for the purpose of customs tariffs. Unfortunately, this is not addressed in Supreme Decree No.  5206.

Nevertheless, Supreme Decree No. 5206 does mention that tariffs applicable to gas in transit will be stablished by our local regulator, without clearly indicating whether the natural gas (in transit) will be free of tariffs, for custom purposes (as it should be, in line with article 102 of Bolivian Law No. 1900 of Customs).

Notwithstanding the previously mentioned legal challenges, in Dentons Guevara & Gutierrez we feel confident that we are rightly positioned to help our clients to navigate these new regulations and the ones that might derive from them, based on our experience of over twenty-five years in assisting the oil and gas industry.

1. i.e. the Agreement of Partial Reach Regarding Energy Integration, signed by Bolivia and Argentina; and the Agreement of Partial Reach Regarding the Promotion of Commerce Between Bolivia and Brazil (Supply of Natural Gas).↩