Chávez Paid for Bolivia Gas Nationalisation

Venezuela paid the legal bills for Bolivia's controversial gas nationalisation, it emerged yesterday, in a further sign of President Hugo Chávez's reach across the region.

Venezuela's state oil company, PDVSA, hired a team of US lawyers to help its Bolivian counterpart to confront, and apparently beat, powerful energy companies.

The assistance shows just how much Venezuela has helped its ally, President Evo Morales, to push a radical leftwing agenda in Bolivia that echoes what Mr Chávez is doing at home.

Manuel Morales Olivera, head of Bolivia's state energy company, YPFB, told reporters on the eve of congressional hearings into the nationalisation that Bolivia had not paid for the New York-based law firm Curtis, Mallet-Prevost, Colt & Mosle LLP. "YPFB did not pay absolutely anything, not one cent," he said.

Asked who had paid them, he replied: "It would have to be PDVSA."

Bolivia stunned energy markets last year when troops entered gas fields and the government demanded better terms from the firms operating the concessions, notably Brazil's state energy company Petrobras, the Spanish-Argentine company Repsol YPF, and France's Total SA.

For an impoverished country with little experience of such gambles it was a bold move. It paid off when the firms, reluctant to pull out while energy prices were so high, agreed to hand over more revenue to the government.

Analysts caution that much remains unclear, and that Bolivia may have damaged investment in the long term, but for now President Morales has been able to claim success.

It is also clear just how much he owes Venezuela, a richer country which nationalised its own energy sector in 1976 and has retained the same New York law firm in its dealings with multinational companies.

Mr Chávez has pledged more than £500m in investment and exploration in Bolivia's gas fields, South America's second largest after Venezuela, but the acknowledgment that he funded his ally's legal costs will alarm those who resent what they see as meddling.

The self-described socialist revolutionary has offered to help Bolivia's military to build bases and promised to intervene if his ally is overthrown in a coup.

Mr Morales, a former coca farmer and the region's first elected indigenous president, has hailed Mr Chávez and Cuba's Fidel Castro as inspirational mentors who have fought back against the neo-liberal economics which have impoverished Latin America.

His push for an assembly to rewrite the constitution, which could lead to an early presidential election next year in which he would probably run, has sparked fierce opposition from the middle class and the business community.

Violent street protests and rising tension have prompted warnings from opposition strongholds in the relatively prosperous eastern lowlands that they may try to secede from the western highlands, home to the president's supporters.