Bolivia- Part Iii: Bolivia's Mining Rollercoaster: Negotiating Nationalisation

(See previous postings at:

http://www.minesandcommunities.org/Action/press1516.htm
http://www.minesandcommunities.org/Action/press1538.htm)

Part III: Bolivia's Mining Rollercoaster: Negotiating Nationalisation

Andean Information Network

16th August 2007

http://ain-bolivia.org

Evo Morales became president with an electoral mandate to reclaim state control over the nation's natural resources. For Bolivia's mining sector, this means maintaining a balance between the interests of cooperative miners, attracting much needed foreign investment and increasing the State's take on the earnings. This update on the nationalization of Bolivia's mines is the third in a three part series on Bolivia's mining sector from the Andean Information Network. All three are available at www.ain-bolivia.org

Bolivia's cooperative mining union, FENCOMIN, has again demonstrated its formidable political power, forcing the Morales administration to guarantee its right to mine and to give them access to more lucrative mining areas -- apparent concessions to the new nationalization program. The MAS government is also negotiating a new tax plan which seeks to maintain foreign investment while giving the state a larger stake of the earnings.

Re-inserting the State

Beginning in October 2006, the Morales administration has taken measures to reinsert the state into the mining sector, including the May Day presidential decree giving state institutions such as the mining company, COMIBOL, greater control. The administration also seeks to increase the state's share of the earnings in light of skyrocketing prices for Bolivia's principal minerals: silver, gold, tin and zinc. The Morales administration has negotiated several times with the 50,000 cooperative miners, who supported him during the 2005 elections and who represent 80% of Bolivia's miners, offering them concessions in his "nationalization" plan.

The Latest Conflict ...and Agreement

Both sides reached a new agreement on July 20 after five days of roadblocks. The roads around Potosi, one of the largest and oldest mining centers, had been completely blocked by the cooperative miners. Five days earlier, police turned back 1,500 cooperative miners outside La Paz, as they prepared to march to protest a MAS proposal for the new mining code. The miners took issue with the proposal that all joint venture contracts and leases with COMIBOL, including those of mining cooperatives, must be renegotiated and approved by congress. The FENCOMIN miners said that President Morales promised them the new mining code would not include these changes. Furthermore, cooperative miners demand that the new constitution officially recognize their right to mine as "self-employed" miners.

The agreement reached on July 20, according to FECOMIN's President, Andres Villca, responds to "ninety-eight percent" of their demands1 and will strengthen the already strong cooperative miners' position in the mining sector, which includes private companies and the re-emergent COMIBOL as well. The agreement includes respecting areas where cooperative miners are working; extending the leases and shared-risk contracts that cooperative mining companies have signed with the state; a promise from the government to give access to richer areas of Bolivia's mines to the cooperative miners;2 and a promise from the Morales administration that it will take steps to insure that the cooperative miners are fully recognized in the new constitution. Villca also indicated that the agreement recognizes the government's obligation to protect mining areas from takeovers, a practice that cooperative miners have used in the past to gain access to richer veins and wealthier mines.

Depleting Mines: a "Time Bomb"

However, access to more mines and richer veins is still a largely unresolved issue between the government and the cooperative miners. The mines in which the cooperatives currently work are quickly becoming exhausted.3 According to the Mining Minister, Luis Alberto Echazú, at this time Bolivia is only exploiting 30 percent of its mines. A lack of investment over several years has prevented the exploration and opening of new mines. Without access to additional mines, the 50,000 cooperatives will have few places to earn a living while mineral prices are some of the highest in history. This situation has been described as "time bomb"4 which could explode into protests, roadblocks and mine takeovers if thousands of cooperative miners left without access to the minerals.

The Tax Debate

Pending issues in the Morales' administrations attempt to reactivate the mining industry include a new mining code redefining the state's ownership of mining operations and, most controversial, taxes on transnational mining companies' profits. The proposed MAS tax plan is a 50-50 split on the profits, up from 35 percent, and the elimination of a sales tax credit that companies can currently apply to their income tax.5

An executive for San Cristobal Mines, an affiliate of the US Apex Silver Mines, expressed concerns over some other aspects of the MAS proposed tax plan.6 Vice President of the San Cristobal Mine, Geraldo Garret, said that while they were committed to remaining in Bolivia due to the large investment they have made and the potential for profits, he lamented that the company might be required to pay up to 70-90 percent of the profits if additional surtaxes are enforced.7 However, Minister Echazú questioned Mr. Garret's concern for lost profits given that the proposed surtaxes would be applied only when earnings reach high levels.

In addition to the tax plan ex-Mining Minster, Jorge Espinosa, recently stated that the Bolivian mining sector is not sufficiently secure to make it an attractive choice for foreign investors. A point that Peruvian mining consultant, Walter Belaunde, emphasized when he offered the models of neighboring Chile and Peru who guarantee stable tax plans in the contracts they sign with mining corporations.8 The Morales administration insists that an updated mining policy would create secure conditions for foreign investors and regularly points out that guarantees already exist.

Environmental Concerns

While the Morales administration has said that environmental groups will play a role in policy development, environmental advocates remain skeptical. Given pressures from cooperative miners and private companies, many doubt that the Morales administration has the political will and capacity to implement a mining policy that offers greater environmental protection. At this point it is unclear how the new mining policy will offer such assurances.

El Mutún

In the midst of negotiating with the cooperative miners and debating mining taxes, the Bolivian government celebrated the signing of a contract with Jindal Power and Steel of India to begin the exploitation of the Mutún iron mine in the eastern department of Santa Cruz. Reportedly one of the largest iron ore deposits in the world, Jindal has committed to investing $2.1 billion in the next 10 years and will exploit half of the mine over the next 40 years. The Bolivian government estimates that when fully operational the state will receive over $200 million a year in revenues.

Huanuni

President Morales also signed into law the nationalization of the Posokoni tin mine in Huanuni, Bolivia's largest tin mine and the sight of a massive conflict between cooperative miners and COMIBOL miners in October 2006. The initiative received mixed reviews. The signing was postponed a day after a cooperative miner from Huanuni tried to enter the government palace just before the ceremony carrying dynamite in his backpack.

Negotiating "Nationalisation"

The dynamic of three major actors in the mining sector – cooperative miners, multi-national mining corporations and a re-emergent state - in a country where until recent decades the mines were its economic motor, presents major challenges as the Morales administration attempts to keep its electoral promises to recuperate the nation's natural resources. Elevated mineral prices and potential profits create urgency on the part of all interested parties to upgrade and reactivate the sector as quickly as possible. This is especially true of cooperative mining interests who seek to maximize short-term profits rather than long term investment.

Clearly, a weak COMIBOL and lack of investment in the mining sector9 weakens the attempts of the Morales administration to implement fully its nationalization plan, a situation that the cooperative miners have not hesitated to exploit.10 Yet, in this respect Morales eludes the convenient label of "socialist" that so many western and even Bolivian journalists assign him. He has demonstrated a willingness to negotiate a "nationalization" plan that is pragmatic and, far from radical, that seeks partnerships between the state and private enterprise. Perhaps, a more radical plan would also be more responsive to environmental concerns. What remains to be seen is if President Morales will be able find a balance that lives up to his election mandate while keeping the cooperative miners sufficiently satisfied and attracting much needed foreign investment.

Notes:

1 La Patria. "Tras negaciones: Gobierno garantizó áreas de trabajo y los contratos con Cooperativistas." July 23, 2007.
2 This meets a longstanding cooperative miner demand and was the central issue that led to the October 2006 conflict at the Posokoni tin mine in Huanuni that left sixteen people dead and 115 injured.
3 For example in Cerro Rico, the historic silver mine in Potosi, there are currently over 16,000 cooperative miners extracting the little silver and zinc left in the mine. So much mineral and ore have been extracted over the centuries that some have warned that the mine could collapse at any moment.
4 La Razón. "La caída en los precios es un peligro por los cooperativistas." July 29, 2007.
5 According to the 1997 Mining Code companies currently pay a Complimentary Mining Tax (CMT) which is a tax paid on the sale of minerals. The CMT varies between 1% and 10% depending on the mineral and the market price. Mining companies also pay a Corporate Income Tax (CIT) based on the net profits. The CIT is credited to the CMT. The CMT is like a "prepayment" of the income tax. For example, if a company pays $100 CMT and their CIT is $120 then they are credited $100 through the CMT and pay only an additional $20. If the CMT is higher than their CIT then companies pay the total amount of the CMT and do not pay an additional amount for the CIT. The Morales administration proposal increases the CIT another 10 percent and eliminates credit for companies when they pays the CMT. So, according to the proposal companies would have to pay both the CMT and the full CIT. Furthermore, the proposal expands the minerals and metals included in the CMT to include previously excluded ones such as iron, copper, antimony, and bismuth. Ref. Ley 1777: El Código Minero, Titulo VIII, Capitulo III, Art. 100.
6 San Cristobal is in the process of developing a large open pit silver and zinc mine in the department of Potosi. They own 65 percent stake in the mine while Japan's Sumitomo Corp. holds the other 35 percent. The say they will be investing over $700 million in the mine which the company describes as one of the largest silver deposits in the world and which has just come on line. Reuters. "Apex produces silver concentrates at Bolivian mine." August 7, 2007.
7 Reuters. "Bolivia's San Cristobal concerned about mining taxes." July 27, 2007.
8 La Razón. "La minería tiene pocas opciones." July 27, 2007
9 See previous memos "Mining Policy in the Morales Administration: Reactivation and Conflict. Parts I and II." The mining bust of the mid-eighties that led to the firing of 40,000 COMIBOL miners and the neoliberal economic policies of the last two decades that Bolivia implemented and formed the basis for the current mining code have left COMIBOL a shell of its former self. The political and social instability of recent years and a lack of access to the sea have also added to Bolivia's problems in attracting the high levels of foreign investment.
10 Many see the cooperative miners as sharing many of the same interests as corporate mining companies. For example, both want a limited role of COMIBOL and the State, and both want to limit the taxes on their earnings. However, most Bolivian based cooperative miners are also interested in limiting the amount of access that foreign companies have to Bolivian mines and have resisted the presence of foreign operations; at times attempting to take over mines or parts of mines where foreign companies are working. Yet, they also know that foreign investors can bring needed upgrades in technology and equipment.