State energy company YPF Bolivianos plans to spend $10 million to upgrade two crude oil refineries, Villegas said in a televised interview on May 11 from La Paz. The Bolivia government agreed last week to buy the refineries from Brazil"s state- controlled oil company Petroleo Brasileiro SA for $112 million, ending a dispute over control of Bolivia"s fuels market.

In 2006, President Evo Morales seized fields and refineries, imposed higher taxes on oil companies such as Brazil"s Petrobras and Madrid-based Repsol YPF SA and took a larger stake in the country"s resources. The Andean country has South America"s second-largest natural gas reserves after Venezuela.

``Petrobras and Brazil have a great deal of expectation to carry out new projects in the future,"" Villegas said. ``Foreign oil investment has fallen in recent years. We need additional amounts of oil and gas to be able to comply with commitments to Argentina.""

President Morales today issued a decree authorizing YPFB to manage all exploration and development of oil and gas fields, according to state news agency ABI. YPFB can add partners as long as it holds the majority stake, it said.

Bolivia last month raised taxes in 44 oil and gas contracts with oil producers and increased natural gas prices in supply contracts to neighboring Brazil and Argentina. The move will earn YPFB about $2 billion this year, which will help spur 4 percent growth, Bolivia"s Finance Minister Luis Arce said last month.

``One wonders whether this growth is sustainable without new investment,"" Walter Bayly, chief financial officer of Peru"s largest bank Banco de Credito, which has a Bolivian subsidiary, said Friday at a press conference in Lima, Peru. ``Who will invest in the country when conditions are unfavorable?""

Petrobras is studying the development of a $2.8 billion petrochemicals complex together with Sao Paulo-based Braskem SA and Madrid-based Repsol YPF SA, Villegas said. Petrobras will also maintain operations of the Trans-Sierra gas pipeline and the San Alberto and Antonio natural gasfields, Bolivia"s largest.

Faced with a lack of investment guarantees, Petrobras pulled out of an exploration block last month, while Charlotte, North Carolina-based Duke Energy Corp., and Allentown, Pennsylvania- based PPL Corp., pulled out of Bolivia earlier this year.

Investment in Bolivia"s oil and gas industry fell to $120 million last year from $650 million in 2002, according to Bolivia"s Hydrocarbon Chamber, a lobby which represents 100 companies operating in the country.

Bolivia plans to seize additional energy operations. YPFB will now negotiate the terms of taking over Cia. de Logistica de Hidrocarburos Boliviana"s fuel storage terminals or CLHB, and the Andina, Chaco and Transredes natural gas refineries and pipelines, Villegas said.

``We"ve started with the refineries that were in the hands of Petrobras, now we"re going to recover CLHB, Andina and Chaco, finishing up with Transredes,"" he said. ``These companies are going to return to the Bolivian state.""

Oiltanking GmbH and Grana y Montero SA control CLHB, while Repsol YPF owns Andina, BG Group Plc controls Empresa Petrolera Chaco SA and Royal Dutch Shell Group Plc and Prisma Energy International own Transredes.

YPFB, which operated the past 10 years as a regulator after former President Gonzalo Sanchez de Lozada privatized the country"s oil and gas industry, will have to pay Petrobras in two installments for the refineries as it doesn"t have the money, Villegas said.

Refinery Investment

YPFB will invest $7 million to add 12,500 barrels a day of oil refining capacity at its installation in Cochabamba and $3 million to add 5,000 barrels a day capacity in Santa Cruz, he said. The 41,000 barrel-a-day units refine all of Bolivia"s gasoline, aviation fuel and cooking gas and most of the country"s diesel fuel.

The takeover of Petrobras" refineries will earn YPFB an estimated $60 million a year and enable the government to reduce the $130 million in annual oil imports and subsidies, Villegas said.

Crude oil for June delivery rose 9 cents, or 0.1 percent, to $62.46 a barrel on the New York Mercantile Exchange. Natural gas rose 5.3 cents, or 0.7 percent, to $7.952 per million British thermal units.

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