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Nationalization of Bolvia’s Oil and Gas Sector Essay Sample

Nationalization of Bolvia’s Oil and Gas Sector Pages
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a.What are the benefits and drawbacks of nationalization?

Benefits and drawbacks of nationalization

1. Public welfare: Nationalization abolishes the economic powers to form a few monopolists and enables the govt. to take steps for the welfare of the public.

2. Economic Prosperity: Government got the power to modernize the industry, communications and transport for the best interest of the nation. So rapid growth of industries causes economic prosperity in the country.

3. Maximum utilization of resources: All the oil, gases, minerals and other national resources can be utilized maximum in order to achieve economic development.
4. Development of Backward Area: All the regions of the country developed equally under nationalization. Regional and social factors are considered preferential while Government decides regarding the location of new plant.

5. Improvement of Working Conditions: Government improves the working conditions of the workers in nationalized industries. The state interested in providing just rates of pay, security of services and other fringe benefits. So peaceful atmosphere can be maintained in the industrial field.

6. Protection of Public Interest: Unhealthy competition among the industrialist’s injuries the interest of the public which can be measures and mitigated by state ownership.

7. Economy: It enables the Govt. to achieve the economy in different fields due to the coordination in numerous departments.

8. Promotion of Defense service: Nationalization is desired to strength then the specific industries for defense of the country.

9. Centralized Management: Centralized management is possible due to co-ordination in nationalized industry. It thus enables the state to solve the problems of organization, capital, labor operation and marketing.

10. High Standard of Living: It tends to increase the economic activities of the country which greatly influence the standard of living of the people.

11. Use of Surplus Profit: Under the state ownership the profit of the enterprises would go to the public treasury which can be employed for the welfare of the country.

12. Employment: Industries are nationalized with a view to creating new posts for jobless persons under a programmed.

13. Uniformity in Services: As all the public utility services i.e. water, railway, post office, communications, electricity are connected by the state, so uniformity in quality of services can be maintained.

14. Skilled Services: Government may hire the services of talented and skilled persons due to its largest resources. So services can utilize all the unused resources of nationalized industries for productive purpose.

15. Other Advantages:-
(a) Cost per unit may be reduced due to large scale of production.
(b) Prices of the goods may be lower.
(c) The role of middleman can be eliminated.
(d) Research facility can be scientific lines and up to date modern technique and scientific invention can be enjoyed.

The followings are the drawbacks of nationalization

1. Complex Management: The management is complex, difficult to deal and large size. Various departments/offices nationwide persons with diverse knowledge conduct its management.

2. Slow decision-channel: All essential decisions are carried out by various officials, head offices and committees which delays the operation of urgent matter or any conflicting views.

3. Inefficient functioning: Management consists of salaried persons who are generally inefficient, rigid and inflexible as compared with privately owned concerns.

4. Rules first work next: The extensive and rigid rules of the nationalized industry have made the process of work every complicated which results in delay and loss of initiative and sincerity.

5. Noncommittal towards profit: The salaried persons are not concerned with profit and the organisation becomes unsuccessful due to lack of personal interest.

6. Drain of resource: The loss of any nationalized enterprise is regarded as the loss of the nation. So the resource of one profit making industry will be given to another loss making industry to balance the nationalized economy.

7. Low Investment: Investors does not take risk to invest large sum of money due to difficulty in making profit.

8. Unjustified interferences: The normal business activities are hampered by increasing interference of political parties and other influential person which is undesirable and unreasonable.

9. Non availability of new scheme: Large volume of complex policies is required to safeguard public and industries. So government may face critic to initiate new schemes freely.

10. Faulty performance appraisal: The workers may not be promoted as per merit due to corrupt means practiced by management and superior authorities. The charge is usually given to the officials who are incompetent and inexperienced to run the industries. So the production volume is affected due to lack of skilled and efficient supervision.

11. Uncertainty due to change in administration: The policy of nationalised industries does not remain same for ever. It may be changed by the change of government/management which results in confusion and hesitation.

12. Mismanagement: The controlling authority of the nationalised enterprises may play discrimination and favouritism. They may appoint dishonest and corrupt persons in the sensible positions. Therefore frauds and manipulations may occur in the dealings which cause exploitation of the public.

b.Given the background information, what in your opinion is the outlook for the Bolivian oil and gas sector?

Bolivia is home to the second largest accumulation of natural gas reserves in South America with 26.7 trillion cubic feet (Tcf), second only to Venezuela with its 200.1 Tcf. Due to the composition of its reserve base, Bolivia is primarily a natural gas-producing nation. The abundant reserve base has potential to generate production to fulfill domestic demand and then some. This explains why the country can secure long-term natural gas supply agreements with Argentina and Brazil, which comprise the most important revenue source for the Bolivian government. In a bold move, Bolivian President Evo Morales announced the nationalization of the hydrocarbon sector on May 1, 2006. Only four years after, it appears that the Bolivian hydrocarbon sector is in complete disarray. Under the terms of the decree, foreign companies would not be allowed to own natural gas reserves and YPFB would take a majority stake in all natural gas projects. In addition, private companies would assume a new role under an operating service agreement structure, whereby they would produce natural gas on behalf of YPFB for a fee.

The Bolivian government had originally established a November 1, 2006 deadline for the transition to this new structure, but implementation issues have delayed that into the future. The re-nationalization of Bolivia’s natural gas resources could have a profound impact upon the long-term development of the energy sector in the Southern Cone. Bolivia’s ability to expand its natural gas exports will depend upon its ability to harness its sizable proven reserves before competing gas sources (LNG, increasing domestic production in Brazil and Argentina, pipelines from Venezuela) entrench themselves in the region. Major natural gas consumers in the region will look towards and invest in these alternative if Bolivia is unable to maintain and expand its existing market share. In addition, Bolivia’s nationalization of its upstream oil and natural gas industries in May 2006, and its desire to double the price that Brazil pays for natural gas imports, cast doubt upon the fate of the project.

Outlook and Implications
Just as the deployment of troops to secure gas fields in May 2006 was largely a symbolic move, it may well turn out that despite the decrees issued yesterday asserting state control over the capitalised oil companies, negotiations over the actual signing of agreements to form mixed companies to administer the companies (as in the Venezuelan model) will allow some room for agreements to be reached over how the partnership with YPFB will work in practice. YPFB’s own technical and operational shortcomings mean that it will be heavily dependent on its private partners if Andina, Chaco, and Transredes are to run smoothly, and it will be in its own interest to smooth relations with the foreign companies. President Morales’s rhetoric is typically more radical than his actions and yet there is no doubt that investment risks have increased under his watch

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