Petroleo Brasileiro SA, Brazil's state-controlled oil company, said Bolivia's decision to strip foreign companies of control over oil and gas sales makes operations in the country ``infeasible.''

Petrobras, the biggest company in Bolivia, said the ruling made public yesterday was ``unilateral'' and it is studying possible counter-measures. The Bolivian decree says the government is asserting its ``rights'' over refining, transport and sale of oil and liquefied gas as a part of previous moves to take control of the country energy resources.

The measure, which gives YPF Bolivianos, Bolivia's state- owned energy company, the power to set prices and profit on refining operations in the country, follows earlier moves by Bolivian President Evo Morales that have undermined Petrobras' control of $1.5 billion of investment in the country. Brazilian President Luiz Inacio Lula da Silva is likely to face additional pressure to take a harder line in his dealings with Morales, whom he supported during Bolivia's 2005 elections.

``It's time for Petrobras to get harsher with Bolivia,'' said Alexandre Povoa, who helps manage 400 million reais ($185 million) of stocks and bonds, including Petrobras' shares, at Modal Asset Management, in Sao Paulo. ``It is also time for Brazil to defend the company and Brazilians.''

Petrobras, which accounts for about a tenth of Bolivia's gross domestic product, said the seizure of revenue by Bolivia's state-controlled oil company from its two refineries in the country jeopardizes its financing and operations in the country. The company also said refining margins set by the Bolivian government in May 2005 have been insufficient to cover its costs.

Shares

``The decision makes our refinery business totally infeasible,'' Rio de Janeiro-based Petrobras said in a statement posted today on its Web site.

Petrobras' preferred shares rose 19 centavos, or 0.5 percent, to 40.9 reais at 10:21 a.m. New York time at the Sao Paulo stock exchange. The stock has risen 10 percent this year compared with a 9.3 percent gain in the Bovespa benchmark stock index.

The ministerial declaration, dated Sept. 12 and posted to the Energy Ministry's Web site, means concessions of foreign oil companies, including Petrobras, will have to operate as service contracts with YPFB. Refineries will be able to sell only to YPFB, which will set the price, said Gilberto Pereira de Souza, an oil analyst at Bes Securities in Sao Paulo.

Repsol

Since no assets have been transferred to the Bolivian government, it is too early for Petrobras to write off its investments in the country, Pereira said in a telephone interview. Petrobras said on May 3 that no charges would be made against earnings in Bolivia until the final status of the assets is negotiated between the company and the Bolivian government.

Earlier this year, Spain's Repsol YPF SA, the second- largest foreign oil company in Bolivia, wrote-off its Bolivian reserves and made provision for a loss of its assets in the country. Repsol, which owns Bolivia's largest gas reserves, will not see its business there affected by this latest decree, said a spokeswoman for the company in Madrid, who declined to be identified.

Before May 1, when Morales dispatched the army to seize assets of foreign oil companies, Petrobras paid about a quarter of Bolivia's tax revenue, the company said earlier this year. The company's two refineries in Bolivia process an average of 40,000 barrels a day of oil and natural gas liquids. Petrobras refined, before the seizure, all Bolivia's gasoline, jet fuel and 70 percent of the country's diesel fuel, according to the company's Web site.

Bolivia has the second biggest natural gas reserves after Venezuela, with about 31 trillion cubic feet of proven gas reserves.

(Published by Bloomberg, September 14, 2006)