This excerpt taken from the PBR 6-K filed Sep 14, 2006.
Situation in Bolivia
(Rio de Janeiro, September 14, 2006). PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa: PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA, BCBA: APBR/APBRA], a Brazilian international energy company, hereby expresses its discordance with Ministerial Resolution 207/2006 the Bolivian Ministry of Hydrocarbons and Energy published in the media this Tuesday, September 12th 2006, establishing new conditions for oil and liquefied petroleum gas (LPG) production, transportation, refining, storage, and marketing which encompass all of the byproduct price chain stages.
Considering this decision made by the Bolivian government, Petrobras manifests its disagreement with the measure from the legal, operational, and financial viewpoints, since it renders the Company's refining business totally unviable in that country.
The Company also clarifies that it is the Hydrocarbons Superintendence that establishes the refining margins. In May 2005, this regulatory agency established the margin that is currently in effect. This value is insufficient to cover the Company's cost, and that is the reason why Petrobras has requested it be reviewed on several different occasions.
During this period, the negative results Petrobras has achieved while keeping the internal market supplied have been compensated for by the favorable conjuncture of the international price for exported products (gasoline and reconstituted oil), even if this does mean the Company takes-on the risk of volatility in these prices in the international market. On account of this, Ministerial Resolution 207/2006 compromises the refining activity maintenance by preventing the Company's access to these markets.
By using modern operation and management technologies - despite the loss-making character of the internal market supply - after it took over refinery operations, Petrobras was able to achieve average gains of $14 million for an initial investment of $105 million, maintaining a constant flow of contributions to the Bolivian State. These values contradict the criterion that the Company has had "extraordinary benefits."
Additionally, the appropriation of the Company's cash flows by YPFB, imposed by MR 2007/2006, puts the maintenance of the financing the Petrobras has already contracted in jeopardy and, consequently, the normal maintenance of its activities as well. In this regard, Petrobras is evaluating possible measures it may adopt by virtue of this unilateral determination of the Hydrocarbons and Energy Ministry.
Notwithstanding the complex situation of Petrobras' permanence in Bolivia, the Company once again emphasizes its commitment to the country's development and expresses its deep concern with the negative effects this unilateral decision will have on the national and regional industry.
Since it commenced its operations in the refining segment, Petrobras has fulfilled, responsibly, its mission of ensuring the uninterrupted supply of the internal fuel demand, in compliance with the strictest international quality, safety, and environmental norms. Likewise, the Company asserts it operates and will always operate transparently, respecting the laws in effect in Bolivia .