REASONS FOR THE PROJECT

The idea of constructing a gas pipeline between Bolivia and Brazil has been presented in various occasions and it has been the object of discussions for almost half a century. Nevertheless, for different reasons the different projects were not viable in the past.

We do not intend to discuss the reasons for unsuccessful negotiations between Brazil and Bolivia in the past. We will rather examine the reasons that motivated the import project presently in execution.

At the end of the eighties, natural gas imports became a social imposition, particularly in the south and Southeast regions, where the national gas availability is smaller than the potential market. It should be highlighted the initiatives of the private sector in the southern states of the country, such as the institution of INFRAGAS, an association of potential gas consumers in the states of Paraná and Santa Catarina which, even before the structuring of the Bolivia-Brazil gas pipeline, started its studies on gas imports from Bolivia and Argentina. In Rio Grande do Sul too the government and the private sector in several occasions considered the gas import from neighboring Argentine provinces. In São Paulo was instituted the Sociedade Privada de Gás – SPG, having as partners some of the largest enterprises of the private sector in Brazil, including contractors, capital goods industries and banks, besides several large international enterprises of the electrical sector. The main SPG’s goal was to elaborate the viability studies for the gas pipeline under the perspective of the private sector in order to guaranty the project’s structure and a strategy for commercial development that could attract resources from the private sector.

At the start of this decade, as a response to society’s demand, the Brazilian government concluded a complete analysis of the future energy needs of the country. The "Reexamination of the National Energy Matrix" recommended the increase of natural gas participation in the energy matrix from 2% in 1990 to at least 4.5% in year 2000 and 6% in 2010. Afterwards, the Gas Commission, created in July 1991 aiming at proposing guidelines and actions to be taken in order to make viable a larger use of natural gas, recommended to the National Energy Department to take measures for "promoting the necessary actions aiming at making technically and economically viable in the possible shorter term the import of natural gas from Bolivia in order to supply the markets of the south and southeast region states and Mato Grosso do Sul state" and also "Petrobrás should resume the studies for importing gas from Argentina, via a gas pipeline, and other sources in the form of liquefied natural gas (LNG) aiming at complementing the national offer". The Commission’s report which was approved by the President of the Republic in March 1993, presented the goal of 12% participation of natural gas in the consumption of primary energy in Brazil in year 2010.

The import of gas from Bolivia presented itself as the best alternative among the options considered for increasing the offer of gas in the country, considering as well aspects of Brazilian external politics and the possibility of future integration with the gas producing fields of Argentina and that of Camisea in Peru

THE PROJECT

The Bolivia-Brazil gas pipeline now under construction had its initial milestone in the Letter of Intentions about the Energy Integration between Bolivia and Brazil of November 1991, signed by Petrobrás and Yacimento Petrol;iferos Fiscales Bolivianos (YPFB) with the participation of the Bolivian Ministry of Energy and Hydrocarbons in La Paz. In this letter the parties manifested their decision to arrive at an agreement to buy and sell Bolivian natural gas with an initial volume of 8 million m³ / day, forecasting to reach 16 million m³ / day as a function of the Brazilian market evolution and of the availability of gas in Bolivia.

Starting from this letter, the Federal Government took measures aiming at rendering the contract viable. The Buy and Sell Contract between Petrobrás and YPFB was finally signed in February 17, 1993. The contract would be in force after its signature and its effectiveness would be conditioned by the financing obtained in conditions that would guaranty the economical viability of the project.

The economical viability of the project was no simple matter, several additions to the contract of 1993 were signed postponing deadlines and also altering the volume negotiated. The priority assigned by the Government by including the project in August 1996 among the 42 undertakings considered as priorities in the sphere of governmental actions – Brazil in Action Program, was an important aspect to render it viable. Nevertheless, only in July 1997, with the financial scheme already established, the contracts for constructing and assembling the gas pipeline were signed.

Natural Gas Buy and Sell Contract

The basis of the gas pipeline Project is the buy and sell contract between YPFB and Petrobrás, signed in August 1996 in which YPFB undertakes to sell and Petrobrás to buy in the take-or-pay regime increasing quantities of gas, starting with 8 million m³ / day and reaching 16 million m³ / day in the eighth year and remaining in the plateau up to the twentieth year (TCO – Transportation Capacity Quantity). Still in the same contract, YPFB concedes to Petrobrás a buying option, as a preferred customer against third parties, of additional quantities of gas coming or not from new Bolivian discoveries up to the limit of 30 million m³ / day, as long as these quantities are available and are not necessary to supply the Bolivian domestic market demand (2).

TCO

Within the financial structure of the project it was created an option of transportation capacity (Transportation Capacity Option – TCO) by which the buyer, paying in advance, could transport gas in a range of 6 million m³ / day above the contractual quantities paying only for the variable transport operational costs including the capital costs corresponding to investments in additional compressors to move such volume. This option became available for all partners of the undertaking until the start of the construction when Petrobrás took up this option.

The TCO negotiation also involved Eletrobrás and BNDES and it was agreed that this additional volume would be supplied to thermoelectric plants to be installed especially in Mato Grosso do Sul and São Paulo. BNDES’ participation was through financing the anticipated buying of the transportation capacity option. Through this financing, Petrobrás could reduce the gas transportation tariff for a volume of 6 million m³ / day intended for the thermoelectric plants considered as emergency cases by the electrical sector.

Eletrobrás’ Expansion Decennial Plan 1998/2007 points out to a gas consumption of 4 million m³ / day from this option. But according to an agreement among Petrobrás, Eletrobrás and BNDES for using the volume corresponding to TCO, it is expected that Mato Grosso do Sul will consume about 2 million m³ / day in two thermoelectric plants in Corumbá and Campo Grande and São Paulo will be responsible for the remaining volume of TCO (4 million m³ / day). BNDES financing of the TCO value motivated the significant increase of gas demand by the electrical sector.

TCX

In the terminology adopted by the Project, it is called TCX – Transportation Capacity Extra, the capacity of transporting above the TCO volumes until attaining the maximum capacity of the gas pipeline.

GAS PIPELINE

The section Campinas-Guararema will make the linking with other gas pipelines already existing in the southeast region which connect the Campos and Santos Basins with consuming centers in Rio de Janeiro, São Paulo and Minas Gerais. With the establishment of the Bolivia-Brazil gas pipeline, the country will have a system of interconnected ducts of approximately 4,000 km, besides the already existing system in the northeast.

-- Bolivia - Brazil gas Pipeline -- Already existing ducts system -- Paulinia-Guarema section