1. NS4960 Spring Term 2017 Bolivia/China Hydro Relationship
Oxford Analytica, Bolivia China Hydro Relationship to Groww October 20, 2016

2. Overview
Signing of a deal with China to develop the Rositas hydroelectricity facility in Santa Cruz major undertaking
Forms part of long-standing desire to diversify Bolivia’s dependence on a handful of commodity exports
Also signals Bolivia’s belated attempts to foster economic links with China in energy and other sectors
Traditionally Bolivia relied on mining for the bulk of its exports
In recent decades has come to depend greatly on exports of natural gas to Brazil and Argentina to generate foreign exchange
In 2015 gas represented 45% of total exports down from previous years because of the fall in gas prices

3. Diversification I Quest to diversify the economy has a long history
In 1940s number of proposals to reduce Bolivia’s dependence on mining
Principally through the development of cash-crop agriculture in lowland department of Santa Cruz then an economic backwater
In the 1960s successive governments attempted industrialization, principally local processing of minerals
The 1990s saw the development of soya in Santa Cruz stimulated by demand from other Andean Community countries principally Colombia

4. Diversification II
Since taking office in 2006 President Evo Morales’s administration has sought to resume diversificagtion
Mainly through projects to industrialize natural gas by producing plastics and chemical fertilizer
Development has been slow largely because of
Bolivia’s own technological backwardness
Financial constraints and
The government’s defensive attitude towards foreign investment.
Bolivia runs the risk of eventually running out of gas although recent discoveries and new fields coming on stream mitigate this.

5. Electricity Potential I
Bolivia has long contemplated becoming a major electricity supplier to other Latin American countries
Presently almost all its electricity generation has been directed towards satisfying local demand
There has been a sharp increase in demand for electricity due to
Rapid urbanization
Improvements in purchasing power and
Government programs to expand electricity provision in rural areas
Greater generating capacity
30% from hydroelectric and
70% from fossil fuels (mainly gas)
Has barely kept up with increased demand

6. Electricity Potential II
Following the re-nationalization of most generating and distribution companies the state owned company, ENDE dominates the sector
Investment in generating and distribution has absorbed an annual average of $572 million between 2010 and 2014 a sharp increase on the previous four years
Bolivia has generating capacity of 1,600 megawatts with domestic demand around 1,200 megawatts
Country hopes to reach 4,800 megawatts by 2020
Competition of Rositas will increase Bolivia’s by 500 megawatts
Bolivia is building four other hydro projects which together will have a capacity of 460 megawatts

7. Chinese Involvement
The Rositas project will be carried out by China Three Gorges and China International Water and Electric using an initial credit of $1 billion dollars from Eximbank
Compared with its neighbors Bolivia has been slow to build economic ties with China
The Rositas project represents a substantial advance in bilateral relations
Construction to be completed and plant working by 2024
Hope is these projects will let Bolivia start to export electricity to its neighbors – principally Brazil by 2015

8. Constraints I
Bolivia’s program to develop its hydro capacity is likely to confront several constraints and uncertainties
Administrative
Will depend on administrative capacity of ENDE to see them to fruition in a relatively short period
Bolivia’s nationalized industries have in the past suffered from inefficiencies and problems of corruption
Financial
Construction of several large dams will require heavy borrowing.
Bolivia’s foreign indebtedness is relatively low, but the credits involved will increase its debt service ration substantially

9. Constraints II Political
Building large dams likely to provoke opposition from affected communities
Much hostility has already been encountered
Constructing large dams to supply Brazil with electricity has already led to suspension of hydro projects in Peru

10. Assessment
The fall in oil and gas prices has made more urgent the search for new sources of export income
Northern Argentina likely to be the most immediate target for electricity sales abroad
Estimations of potential demand in Argentina and Brazil will be subject to unexpected macroeconomic developments in both countries
Rates of return will be extremely difficult to calculate