Feb. 15 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, agreed to pay more for the natural gas that it buys from Bolivia, settling a yearlong dispute between the neighboring countries.

Under the new deal, Petrobras will pay as much as 6 percent more for the gas, said Brazilian Energy Minister Silas Rondeau said today at an event in Brasilia. The company will continue to pay about $4.20 per British thermal unit of gas, though it will start paying for byproducts that it receives as part of the natural gas shipments, he said.

Bolivian President Evo Morales, who took office in January 2006, had argued that the nation should get more money for its exports because the natural gas also includes components such as ethane and propane that could be stripped out and used to make other products. Bolivia, South America's poorest country, supplies more than half of Brazil's natural gas.

``The new formula meets the needs of both Bolivia and Brazil,'' Rondeau said. ``Bolivia will get more for the rich components in gas and we will maintain our current contract with Bolivia.''

Under the contract, Bolivia is required to ship a minimum 8,900 kilocalories of energy in each cubic meter of gas that it sends to Brazil, Petrobras Chief Executive Jose Sergio Gabrielli said today at the event. Petrobras is receiving between 9,200 and 9,400 kilocalories per cubic meter.

Extra Energy

Petrobras will start paying market prices for the extra energy it receives, based on world prices for ethane, butane, propane and other components, Gabrielli said.

Bolivian Energy Minister Carlos Villegas said the agreement is expected to increase Bolivia's revenue by about $100 million a year. The country also reached an accord to raise prices on gas supplied to a thermoelectric plant in Brazil's Mato Grosso state, adding another $45 million in revenue a year.

Petrobras paid Bolivia $1.26 billion for gas last year.

The agreement paves the way for Brazil to step up investments in Bolivia, Gabrielli said. Petrobras may partner with Braskem SA, Latin America's biggest chemical company, to build a $1.4 billion petrochemicals plant along the border to strip out the byproducts from the natural gas and offset the higher cost, he said.

Petrobras's preferred shares, its most-traded class of stock, fell 51 centavos, or 1.1 percent, to close at 44.24 reais in Sao Paulo. The stock has declined 11 percent this year.

To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net

Last Updated: February 15, 2007 15:13 EST