The prospect of oil and gas exploration in this country’s most important protected area, the Madidi National Park, presents a defining moment for the Bolivian government.

Oil companies Petrobras of Brazil and Repsol YPF of Spain hold exploration concessions that encroach on strict-protection areas in Madidi and Pilón Lajas, an adjacent reserve. Local communities and green groups fear oil activity in the region would undermine conservation and tourism in one of Latin America’s most spectacular natural settings.

Their opposition appears to have had an effect. Though Repsol YPF has kept a low profile in the controversy so far, Petrobras has answered opponents by offering to walk away from its concession—provided it receives a new concession area and compensation for its costs. Now the government must decide where its priorities lie.

The conflict between preserving protected areas and promoting oil and gas exploration is virtually inevitable in Bolivia. The country’s entire sub-Andean area is classified as having hydrocarbon potential. (See map.) The same region hosts the country’s greatest biodiversity and is home to nearly half of Bolivia’s protected areas.

Madidi and Pilón Lajas collectively cover around 5.7 million acres (2.3 million hectares) that run down the sub-Andean corridor from the Peruvian border. The two protected areas lie within the Tropical Andes Hotspot, one of 25 hotspots designated worldwide by the U.S.-based non-governmental group Conservation International (CI) on account of their high levels of biodiversity and the serious threats posed to them by man.

This region has long been of interest to energy companies because the geology suggests the existence of oil reserves. There has been some limited exploration in the area, mostly before the Madidi Park was founded in 1995. But there continues to be interest because massive exploration efforts in Bolivia’s southern sub-Andean area, near the Argentine border, only have uncovered natural gas reserves, which are less valuable.

Last year, in the annual bidding for new exploration blocks held by the state oil and gas entity Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), Petrobras was awarded the two-million-acre (800,000-hectare) Rio Hondo concession. Running parallel to that area is Repsol YPF’s one-million-hectare Tuichi concession. The two blocks are among more than half a dozen in Bolivia that are partially located within protected areas. But that they encompass parts of the Madidi make them a critical test case.

“Madidi is the jewel of the protected areas system,” says Michael Painter, head of the Wildlife Conservation Society (WCS) in Bolivia. “If they can’t protect Madidi what hope can we have for the other areas?”

This is not the first time Bolivia’s government has had energy-development designs on Madidi. In 2000 preliminary studies were conducted for a multi-billion-dollar hydroelectric project that would have flooded 970 square miles (2,500 sq. kms) including the lower sections of the Madidi Park. Opposition from environmental groups and from indigenous communities that stood to lose their land, coupled with a lack of interest from potential funders, led to the shelving of this and a second proposal involving two smaller dams. But the high-profile campaign against the projects put Madidi in the media spotlight, helping it gain a reputation as one of the world’s most biodiverse natural reserves. The area has attracted over $14 million in conservation investments from funders including the World Bank, the Global Environmental Facility (GEF) and CI. The Bolivian government has spent more than $3 million to manage the park.

Environmental advocates worry these investments may be lost if oil exploration and production is allowed. Roger Landivar, director of WWF Bolivia, points out that funding from such agencies as the GEF is provided on the understanding Bolivia’s protected areas are managed according to international standards set by the World Commission on Protected Areas (WCPA), which has defined six categories of protected areas.

“Organizations like ourselves or the [Sustainable Development] Ministry apply for funds to protect these areas stating the level of protection is equivalent to one of the WCPA categories,” says Landivar. “This money could be lost if activities are permitted that the funding organizations would not allow.”

Green groups and local communities also fear oil development could cut off the flow of visitors that has transformed Madidi and Pilón Lajas into Bolivia’s third most popular ecotourism attraction. “Today local communities earn around $3 million a year from tourists who come specifically because of the unspoiled nature of the area,” says Juan Pablo Ramos, environmental monitoring director at Bolivia’s National Service for Protected Areas (Sernap). “If you begin oil explorations you could lose these tourists. But if preserved, these protected areas could provide a much more important and sustainable source of income than extractive activities could.”

Meanwhile, hunting and logging curbs imposed since the protected areas were created would be undermined, Ramos complains. “Local communities would reject these controls if we allowed oil companies to begin operations,” he says.

Ramiro Moscoso, security and environment coordinator for Petrobras Bolivia, acknowledges that these knock-on effects are hard to avoid. While the impact of initial seismic exploration will be minimal and reversible, once exploratory drilling begins, he says, roads must be built to bring in equipment. “We can control the direct impact of our activities fairly well,” he says, “but we can’t easily control the secondary impacts caused by people using these access roads for logging or hunting.”

In the view of Sernap and the Viceministry of Environment and Natural Resources, oil activities must be prohibited in the most sensitive portions of protected areas. But these strict-protection zones are still being drawn.

Last year, when Petrobras first expressed interest in the Rio Hondo concession, YPFB told it the block must be cut in half to spare strict-protection zones in Madidi and Pilón Lajas. Moscoso says Petrobras accepted this decision believing it would be free to work throughout the newly defined block. Since then, however, Sernap has classified much of the reduced Rio Hondo block as a strict-protection area.

Supporters of drilling claim too much land has been walled off in this way. They argue Sernap’s new classifications hamper the oil and gas industry, one of Bolivia’s only growth sectors in recent years. The argument carries weight in government circles. The new administration of Gonzalo Sánchez de Lozada, who took office in August, views oil and gas production as crucial to the country’s development.

How the conflict of priorities is resolved will reveal much about the status and strength of Bolivia’s protected-areas system. On paper, protected status does not mean immunity from energy projects—Bolivian law states that exploitation of natural resources within protected areas can take place if it is declared to be of national importance.

But there is one precedent that, if repeated, would keep Madidi intact. Last year, local communities around the Amboró National Park complained that exploration planned in the region by Andina, a local subsidiary of Repsol YPF, would threaten their way of life and their income from tourism. Under pressure, the government reached an agreement with Andina by which the company gave up the concession in return for a new concession elsewhere.

Concession swap?

The door is certainly open for local communities in Madidi and Pilón Lajas to use the same arguments and seek the same solution. And the prospects for such a strategy would seem promising in light of the Petrobras offer to quit the Rio Hondo concession. But there would be strings attached. “If the government wants to preserve these areas we will accept that, but they have to compensate us for our costs and give us another area to explore in Bolivia,” says Petrobras’ Moscoso.

Petrobras has put work on hold and is urging the government to make a decision now. But accepting the deal offered by Petrobras might not be an easy matter for the Bolivian government if the Andina case is any indication. A compensation package for Andina still has not been finalized. Also, allowing a company to choose a replacement block contravenes rules requiring all exploration areas to be offered through a public bidding process.

And this type of ad-hoc solution means broader risks—and potentially high costs—for the government. An oil company might, for instance, reject the offer of an alternative block and elect instead to make a multi-million-dollar claim over lost future earnings on grounds the state unilaterally broke its contract.

Ultimately, all parties agree Bolivia must define what “protected status” truly means.

“There has to be a state policy to clarify the legal position between the need to exploit and the desire to conserve,” says Ernesto Mealla, head of the Ministry of Hydrocarbons and Energy’s Environmental Unit (UMA). “This confusion between protected areas and concessions has caused too many headaches.”

Finding a legal solution will be complicated because changes in the protected-area provisions of Bolivia’s hydrocarbons law would have to apply to legislation affecting such other sectors as mining and forestry.

Inter-agency communication

But many here feel progress can be made immediately by taking such simple steps as improving communication between Sernap, YPFB and the Hydrocarbons and Energy Ministry. “The lack of coordination between different government actors is a big problem for the companies,” says Moscoso. “When they say you can work in an area, they need to maintain this position for the duration of the contract.”

To address this problem, CI Bolivia is working to get the different government agencies talking to each other. There are signs of progress. Before this year’s annual bidding for new exploration blocks, the Hydrocarbons and Energy Ministry consulted with Sernap. It then told companies which concessions were in protected areas and advised that they not bid on them. “This was the first time the state recommended that companies don’t bid for concessions in protected areas,” says CI Bolivia’s Evelyn Taucer.

The impact of that recommendation cannot easily be measured, but it didn’t prevent the nomination of a new exploration block, Puerto Linares, part of which overlaps Madidi. No bids were received for the block; but then, no bids were made for any of the nine available concession areas. Experts say this suggests a general lack of interest in exploration rather than a specific concern regarding exploration in Madidi.

That has given the government a bit of breathing room in which to decide what to do about the existing contracts held by Petrobras and Repsol YPF.