COMIBOL, YPFB and ENAF By

Public Disclosure Authorized STUDIES IN DOMESTIC FINANCE NO. 60 AN ANALYSIS IN DEVELOPMENT PERSPECTIVE OF BOLIVIA'S LARGEST PUBLIC ENTERPRISES: Public Disclosure Authorized COMIBOL, YPFB AND ENAF by Public Disclosure Authorized Jacob Meerman Public and Private Finance Division Developmeut Economics Department April 1980 Public Disclosure Authorized This paper was completed in June 1979, and revised in April 1980. Tt is based on data available up to March 1979. TABLE OF CONTENTS page Introduction iv Sumary V The Mineral Sector and Bolivia'å Development Foreign Exchange and the Enclave Economy Fiscal Aspects 4 Development Strategy and the Mineral Sector 9 Goals of the Public Enterprises The Government's Perception of Goals for the Public Enterprises 13 Financial Surplus as the Objective for the Big Three 22 Implementation of the Goal of Financial Surplus 27 ENAF 27 COMIBOL 29 Controls and Goals Control Mechanisms 37 Effectiveness of Controls 43 Investments 43 Control of Operations 46 page The Question of Labor Union Power 51 Production and Labor Data 54 Labor Problems and Prescriptions 60 A Labor Recomendation 62 Appendices The Mineral Sector and the Supply of Foreign Exchange 67 World Bank Support for Minerals Development 71 Description of the Minerals' Section 75 Mining 75 Hydrocarbons 81 Metallurgy 86 List of References 88 LIST OF TABLES Page 1: SHARES IN TOTAL EXPORTS OF GOODS AND SERVICES'BY COMMODITY AND MAJOR PUBLIC ENTERPRISES, 1976 - 1977 3 2: PERCENT SHARES IN CENTRAL GOVERNMENT TAXES BY TRADE, MINERALS, YPFB AND COMIBOL,1974 - 1978; 6 3: GDP, CENTRAL GOVERNMENT TAXES DISTRIBUTED BY MINERAL AND TRADE SECTORS, DEPARTMENTAL TAXES PAID BY YPFB AND COMIBOL, 1974 - 1978 7 4: FINANCIAL PERFORMANCE OF COMIBOL ENTERPRISES, ACTUAL 1977, PROJECTED 1979 31 5: TIN PRICES IN BOLIVIAN PESOS AND US DOLLARS, 1970 - 1978 32 6: YPFB, PRODUCTION AND LABOR DATA, 1972 - 1978 55 7: ENAF, PRODUCTION AND LABOR DATA, 1973 - 1978 56 8: COMIBOL, LABOR COSTS, 1970, 1973 - 1977 57 9: VALUE OF PRINCIPAL MINERAL EXPORTS, 1971 - 1978 64 10: DISTRIBUTION OF PRINCIPAL MINERAL EXPORTS BY EXPORTER, 1975 - 1978 65 11: DISTRIBUTION OF SALES OF TIN TO ENAF AND ABROAD BY SUBSECTOR, 1971 - 1978 66 12: FOREIGN EXCHANGE AND EXCHANGE RATES, WITH AND WITHOUT MINERAL PRODUCTION 68 13: CAPSULE DESCRIPTION, WORLD BANK ASSISTANCE TO MINERAL SECTOR 74 -iv- Introduction This report is concerned primarily with the performance of Bolivia's three main public enterprises in mining and petroleum. Together these three produce more than half of government taxes and more than three quarters of foreign exchange. They are basic to the Bolivian economy. The Bank has become involved in Bolivia's mineral sector. It is possible that some of these enterprises may receive loans in the future. The three enterprises are, therefore, not only of interest to the Bank because of their effect on Bolivia's general economic prospects but in their character as possible loan recipients. The Big Three have what might be called the classical problems of public enterprises: The problem of multifarious and competing objectives; the problem of how they relate to and are controlled by the central government; and the problem of labor. The report addresses each of these. The report can also be seen as a contribution to the discussion within the Bank as to what the Bank's basic approach to public enterprises and their problems should be. The central argument in the paper is that Bolivian growth and welfare would be best served if the Big Three maximized their financial surplus. To this end redefining government controls over the Big Three is desirable, and labor policy needs to become more output oriented. Such an approach is very -v - remote from current thinking and practice in Bolivia. Consequently the report looks to the long run, and foresees an on-going dialogue between Bank officers and Bolivian officials. In the last five years, the financial-performance of the Big Three has been very good in comparison with the decade of 1963-1973. This is because of a combination of unusually high prices for their outputs and unusually effective policies of the central government which have forced the Three to meet their tax liabilities. At present, June 1979, these very favorable output prices persist. Both hydrocarbon and tin prices are at record levels. However, the orientation of the government toward generation of financial surplus may not persist. Much of the potential surplus which this extraordinary situation . could call forth may not come about, unless the measures suggested in this paper, or something akin to them, are carried out. Summary As noted the Big Three consisting of COMIBOL (Bolivian Mining Corporation), YPFB (Bolivian Petroleum Company) and ENAF (National Smelting Corporation) account for most taxes and foreipn exchanee. They alsc account for"nearly all activity in the petroleuM sector and about three quarters of all value added in mining. Yet their share of total employment is very low. In fact the mineral sector in total - mining,smelting,petroleum production and petroleum distribution - employtless than 5% of the labor force.Their -vi- share in value added to GDP was about 11% in 1977. Further development of the mineral sector, including a possible. future petrochemical industry, will not change this picture. The sector will continue to have weak internal linkages with very limited employment. Minerals' production, however, is also extremely profitable Economic rent from such production is generally a multiple of costs. Rents from mineral exploitation are obviously prime targets for mineral taxation. These considerations, namely the enclave quality of mineral production and the associated high rents, suggest that the sector's logical role in Bolivia's development strategy is one of producing a surplus to permit investment in other sectors - agriculture and education for example - with more substantial potential for development. Development is seen here as a process of structural change, involving reduction of dualism in Bolivia and eventual movement of the entire population into a more productive modern economy. Consequently, the basic objective of the Big Three should be maximization of financial surplus to provide resources for the development program. Consideration of other basic goals for the Big Three as reflected in Bolivian practice does not alter this conclusion. To some degree this basic goal of maximizing financial surplus needs to consider idiosyncratic characteristics of each of the Big Three. -vii- The problem of price distortions which means substantial divergence between allocative efficiency or what might be called efficiency in use of resources,and financial efficiency is a minor one with respect to these export- oriented enterprises. Prices received for production are given so that maximization of surplus resolves to a large degree into a problem of minimizing costs. Acceptance of financial surplus as the basic enterprise objective has important implications for central government controls over the Big Three. The basic argument here -is that if management performance is evaluated and rewarded primarily according to the surplus criterion, some of the existing controls by ministries and other central authorities will noi be needed. Such controls are designed to assure that managements will act in ways consistent with public goals. They are useful to the degree that there is divergence between the goals of managers and those of the community. If, however, the rewards to management are largely in proportion to feasible surplus targets any such divergence will be greatly reduced. COMIBOL has sixteen separate enterprises. At present these enterprises are centrally controlled. A more effective arrangement be de- centralization of COMIBOL coupled with financial surplus goals for each enterprise. The quality of recent investment by the Big Three has been controversial. Pro- bably closer central government guidance in developing the investment programs of the Big Three is needed. But this will not solve the problem. Because of the - viii - shortage of technical knowledge and because of the political dynamics of Bolivia, there is a tendency toward undesirable investments. It might be wise to have independent expert consultants contracted by the Ministry of Finances review major investment proposals at an early stage. Labor is a serious problem in achieving financial efficiency. The unions of the Big Three are strong, militant and capable of catastrophic strikes. A strike by YPFB's union can paralyze most market activity as all motor vehicles literally run out of gas. Strike by the unions of COMIBOL would result in a foreign exchange crisis within several weeks. If financial surplus is the goal, then labor costs are excessive. In the case of YPFB they have risen rapidly since 1973. In the case of COMIBOL they are about a third of value of sales, compared with about 20% of value of sales for the private mining sector. Acceptance of financial surplus as the goal for the Big Three would imply substantial changes in government policy and practice with respect to their labor force. Develop- ment of a basic labor policy for the Big Thee (and other public enterprises) is needed in general and in particular if the Government accepts financial surplus as the basic objective of the Big Three. A study of what such a policy might be is needed. It would need to focus not only on the implications of financial surplus as the basic goal for labor policy, but also what would be politically feasible in Bolivia. The Mineral Sector and Bolivia's Development Foreign Exchange and the Enclave Econcmy As indicated in Table 1, three quarters of Bolivian foreign exchange was earned by the mineral sector (mining plus hydro- l/ carbons) in the years 1976-77. Agricultural exports accounted for the small remainder. Foreign exchange earnings not only depend overwhelmingly on the mineral sector, but also on the three major public enterprises within the sector, CONIBOL, the national mining corporation, YPFB, the 2/ national oil company, and ENAF, the national smelter corporation.

Load more