BOLIVIA

BOLIVIA

Part II: An Emerging Mining Policy for Bolivia

Written by Andean Information Network

9th June 2007

On May 1, 2007, one year after the "nationalization" of the hydrocarbons industry, Bolivian President Evo Morales declared all Bolivian territory a public mining reserve and reasserted state jurisdiction and control over all minerals, metals, precious and semi-precious stones. The state mining company, Bolivian Mining Corporation (COMIBOL) now administers all mineral wealth except concessions granted before the decree. The decree also requires that the National Geological and Technical Mining Service complete a study previously unexplored and prospected areas to give the government and COMIBOL a more precise assessment of the vast mineral wealth within the nation's borders. The decree prohibits granting further concessions, and freezes those currently under negotiation until a study can be completed.1

Future mining concessions eliminated; pre-existing concessions remain intact

While stopping short of fully nationalizing the industry, the decree clearly asserts state control over all mineral wealth in the national territory and continues the process of "recovering control" of Bolivia's natural resources, a key element of the President's 2005 electoral platform. However the original interpretation of the decree has shifted. Mining Minister, Luis Alberto Echazú, stated foreign and domestic private mining companies will be required to enter into joint ventures with COMIBOL, the state mining company, and that concessions will no longer be granted to private companies. "Future concessions have been modified; they are going to have to sign a contract with COMIBOL. We're not going to grant private concessions."2

The May 1 decree should not modify previous concessions and other private investments, They will not have to renegotiate contracts, nor enter into a joint venture with COMIBOL. Echazú affirmed, "Those who are already working in [Bolivia] will continue working under the same conditions." Therefore, the operations of U.S. based Apex Silver Mines and Couer d'Alene Mines, that plan to initiate production in the coming year, should not be affected by the May 1 decree.

However, what remains unclear is whether the ongoing petitions for concessions will be affected by the decree. At one point Minister Echazú held out the possibility that these concessions would only be delayed until the completion of the study. With regard to future private investment in the mining sector Morales reiterated his mantra "Bolivia wants partners, not masters." According to Morales, these contracts "will allow investors to recover their investments, but they will also to have to make an economic contribution to the state."

The Four Pillars: An Emerging Mining Policy for Bolivia

In the aftermath of the Huanuni conflict3 and the prolonged negotiations over "nationalization" and new terms for foreign investment, a somewhat ambiguous mining policy has emerged. Like the hydrocarbons nationalization, this policy attempts to maintain foreign investment necessary to upgrade and develop the industry, while providing greater economic benefit to the state. Unlike the hydrocarbons industry, the need to placate the powerful and volatile cooperative miners has led to modifications in initial implementation plans.4 The Morales government has outlined four general policy points for the reform and "nationalization" of the industry:

1. "Recovering" the nation's minerals: Asserting the state's control of over all aspects of the mining industry - exploration and prospecting, exploitation, extraction, refining, and sale of the nation's mineral wealth.

2. Re-writing the Mining Code: The current code was written in 1997 when Bolivia's governments implemented neo-liberal economic policies beneficial to transnational companies and a few wealthy Bolivians when the mining industry was still on shaky ground.

The Morales administration seeks to accomplish two main goals in writing a new mining code:

a. Change the tax structure determined by the existing law in which companies paid a total of $67 million in taxes in 2006, when net profits were $600 million. The Bolivian government plan would increase the current 35% tax on profits to a 50 percent tax on net profits.5

b. Give COMIBOL the right to manage and run mines without the current restrictions on the state company, and instead require private companies interested in operating in Bolivia to enter into a 50-50 partnership with COMIBOL.

3. Upgrade the industry in two fundamental areas:

c. Technology: Since there has been little investment in the industry since the mid-1980's, the Morales government would require that any investor share technology with the state company and help upgrade the technological capacities throughout the industry.

d. Training for cooperative and artisan miners: The government plans to invest more in training programs for the majority of the miners who use "artisan methods." considered both inefficient and more polluting than newer technologies. The 1997 Mining Code mandates training for miners, but very few have benefited from the programs.

4. Popular participation: the Morales administration has said that it will invite "all stakeholders" to the table as Bolivia develops the mining industry, including those representing local communities and environmental interests. As in many other countries, the Bolivian mining industry has damaged the environment and left local communities impoverished. Indeed some the poorest and most polluted communities in Bolivia are located in mining areas.

The Morales administration does not expect the new mining code to pass easily, given that the opposition holds a slight majority in the Senate. The marketing and investment director of the Mining Ministry, Freddy Beltran, explained, "The idea of the opposition is to not allow anything to pass that comes from the government, therefore, of course we will have a tough battle there (in the Senate)."6 Furthermore, while the Morales administration has done its best to accommodate the cooperative miners, this group has consistently opposed any proposed tax hikes.7

The voice not heard: Mining and the environment

Outside of Huanuni a sludge-filled river trickles from the COMIBOL plant at the base of the Posokoni tin mine, where independent miners attempt to extract any remaining tin. The communities downriver no longer plant or graze their animals along the river bank due to the pollution. Many documented cases of environmental contamination from mining exist. Local organizations and the Oruro Departmental government have expressed concern about the Kori Kollo mine, operated by Inti Raymi, a subsidiary of Newmont Mining Company. A study by a professor at the Oruro Technical University identified extensive environmental damage including "seeping and leakage of cyanide in several places (around the mine) and many years of water overflow from the evaporation and filtration ponds, the dispersion of toxic dust, the acceleration of the process of soil salinization, the movement of heavy metals and increased sediment in the Desaguadero River."8 This contamination has severely affected the water supply and farming in the region.

While the Morales administration has said that environmental groups will play a role in policy development, environmental advocates are skeptical the Morales administration has the political will and capacity to implement a mining policy that offers greater environmental protection. They fear that within a government looking to create jobs and generate tax revenues, the voices of environmentalists challenging this vision and ecologically harmful mining practices are seldom heard, especially over the dynamite blasts of cooperative miners. 9

Threats against environmentalists and local community leaders

Environmental advocates have been threatened as a result of their work supporting local communities suffering the negative environmental impacts of mining operations. On February 8, 2007 a group of men forcibly entered the offices of Centro de Ecologia y Pueblos Andinas (CEPA), a NGO supporting local communities and the environment in Oruro. According to a statement released by the organization, they tried to "to pressure CEPA to abandon its work with communities that demand a transparent environmental audit (of the Kori Kollo mine)." CEPA directors said that the group threatened several colleagues as well as a leader representing communities in the Desaguadero River watershed and Uru Uru and Poopó Lakes. They also threatened break into and vandalize CEPA's offices. 10

El Mutún: the Sleeping Giant

El Mutún, a small mountain chain in the Santa Cruz Department along the Brazilian border, is one of the largest iron ore deposits in the world, containing an estimated 40 billion tons of medium-grade ore and 10 billion tons of manganese. In June 2006 the Bolivian government received only one bid, from India's Jindal Steel and Power, to mine and develop half of the iron reserves for a 40 year period. According to a Jindal press release they will invest $2.1 billion in the first eight years developing a steel and power plant for processing the ore and making value-added products including long steel products, sponge iron, and pellets. During the next several months, Jindal agreed to the Morales administration's terms of a 50-50 profit split with COMIBOL. The Bolivian government agreed to provide a discount on natural gas as the power source for the steel production facility - the Santa Cruz-Sao Paulo gas duct passes within 20 kilometers of El Mutún. However, for eight months negotiations between the two stalled because the government and Jindal could not agree on the reduced gas rate 11 and on who should pay for the surrounding infrastructure.

The Giant is still sleeping...

Finally, on March 1, 2007 Jindal and the Bolivian government came to an agreement over the gas rates and infrastructure costs. The agreement required Jindal to provide documentation of the administrative, financial, and technical situation as well as paperwork verifying the legal registration of the company in India and their statutes within 45 days in order to sign a definitive contract. The government threatened to nullify the agreement if Jindal failed to comply.

However, as the deadline passed the government claimed that Jindal submitted only a photocopy of one of the 14 required documents. The Indian Ambassador, Armind Sharma, assured the government that they are preparing the additional documents. Sharma claims that any "discrepancies in questions of form" that appear in the documents result from the translation.12 In early May the Mining Minister, Luis Alberto Echazú, asked the people of Puerto Suarez, the town that stands to benefit the most from the exploitation of El Mutún, to pressure Jindal to complete the bureaucratic requirements. The same day, citing the potential benefit to the nation, President Morales granted another extension. The extension would give Jindal until the first week in July to present the required paperwork.

Iron ore has not been mined in Bolivia in any significant quantities and this project has the potential to make Bolivia a significant steel and iron producer at a time when there is a growing demand. The government expects that the project will create 6,000 jobs directly and generate $200 million per year in tax revenues.

Nationalization of the Vinto Foundry

On February 9, 2007 President Morales nationalized the Vinto Foundry outside of Oruro. Seventy percent of the tin smelted at the foundry comes from the Posokoni mine in Huanuni. Originally built in 1971, COMIBOL sold off the foundry in the "capitalization process" in the 1990's to ex-President Sánchez de Lozada's COMSUR for "the price of a dead hen."13 In 2004 Glencore International of Switzerland paid $200 million dollars for COMSUR shares in Bolivia and an additional $90 million for the Vinto Foundry.14 The government initially said it refused to compensate Glencore for the foundry, because its sale had been illegal. After the company threatened a lawsuit, this initial tough stance seems to have softened, and the government and Glencore are currently negotiating a settlement. On April 23, 2007 the government agreed to provide Glencore the tin it needed to honor its existing contracts.

President Morales warned that other former COMSUR properties that once belonged to Sánchez de Lozada would also be "re-nationalized." He stated the government would maintain existing jobs at the foundry. The Morales administration also plans to invest $10 million to upgrade the facility because private investors did not follow through with agreed upon capital investment. As a result, the foundry operates at only about half-capacity and Bolivia exports the mineral concentrates to be cast abroad. Control of the foundry will allow Bolivia to export ingots – a mass of metal in convenient shape for storing, shipping or shaping. On May 7 the state television station broadcast the first shipment of 200 tons of tin ingots produced at the foundry since its nationalization. The government calculates that this shipment alone should generate over $25 million dollars with a state earning of $1.5 million in the form of the Complimentary Mining Tax.

Implementing a new mining policy is a balancing act that makes the nationalization of the hydrocarbons nationalization look like a stroll through the park. The effort faces multiple impediments, including the sometimes contradictory visions and expectations of the Bolivian government, private investors and cooperative miners. The cooperative miners are vocal about protecting their interests to a Morales administration that does not want 40,000 angry miners marching through the streets of La Paz. Although cooperative miners want to limit foreign mining companies' access to mines to guarantee higher income they feel they deserve, they also stand to benefit from the technology and training that a stronger COMIBOL or foreign investors could provide. However, the bigger question may be whether the Morales administration can attract the kind of foreign investment it needs to develop its vast mineral resources while prices remain high and the industry more profitable. Just how much mineral wealth there is in Bolivia also needs to be determined in order to develop long-term investments and plans to best utilize the nation's natural resources while protecting the environment.

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[1] Article II of Decree 29117. "Se prohíbe en todo el territorio nacional la otorgación de nuevas concesiones y las que estuvieran en trámite quedan sin efecto, debiendo la Superintendencia General y las superintendencias regionales de minas y el Servicio Nacional de Geología y Técnico de Minas (Sergeotecmin) cumplir esta disposición".
[2] "Bolivia to make mining firms sign JVs" Reuters. May 29, 2007
[3] For more background on the conflict in Huanuni in October 2006 see "Mining Policy in the Morales Administration: Reactivation and Conflict, Part I, Cooperative Miners in the Nationalization Process: Explosive Politics." Andean Information Network, 29 May 2007. ain-bolivia.org
[4] Ibid.
[5] According to the Mining Code of 1997 currently companies 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. So, 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. "El monto efectivamente pagado por concepto del Impuesto sobre las Utilidades de las Empresas será acreditable contra el Impuesto Complementario de la Minería en la misma gestión fiscal. En caso de existir una diferencia debido a que el importe del Impuesto sobre las Utilidades de las Empresas efectivamente pagado es mayor al Impuesto Complementario de la Minería, está diferencia se consolidará en favor del fisco. Por el contrario, si el Impuesto sobre las Utilidades de las Empresas efectivamente pagado es menor que el Impuesto Complementario de la Minería, el sujeto pasivo pagará la diferencia como Impuesto Complementario de la Minería." "BOLIVIA: Mining Industry Sector Analysis 2006 International, U.S. and Foreign Commercial Service and U.S. Department of State." Eduardo García. "Bolivia plantea elevar impuestos mineros." Reuters, May 18, 2007.
[6] Eduardo García. "Bolivia plantea elevar impuestos mineros." Reuters. May 18, 2007.
[7] See "Mining Policy in the Morales Administration: Reactivation and Conflict, Part I, Cooperative Miners in the Nationalization Process: Explosive Politics." Andean Information Network, 29 May 2007.
[8] Montoya Choque, Juan Carlos and Richard Silver Mendieta Cárdenas. "Salinización y metales pesados: evaluación ambiental de la mina "Kori Kollo" (Empresa Inti Raymi S.A.) en la área de influencia, con aplicación de la Teledetección SIG." CEPA (Centro de Ecología y Pueblos Andinos). 2006. The study's authors used primarily information from the Inti Raymi Company, The Oruro Department's Natural Resource and Environment. Water and soil samples were analyzed at the University of Oruro laboratory. Data has been confirmed by aerial photographs and satellite images.
[9] This analysis is taken from participant responses to a talk given by Bolivian Mining Minister Guillermo Dalence, at "Justicia Ambiental y la mineria en America Latina" March 9-11, 2007. Minister Dalence offered the governments position on the mining industry.
[10] CEPA, "Amenazas a CEPA benefician a Inti Raymi, de Newmont", can be found at the following website: http://www.conflictosmineros.net/al/html/modules.php?name=News
In an AIN interview one of CEPA's directors reported that the group carried dynamite and threatened the director if CEPA continued publishing materials documenting the environmental damaged caused by the operations at several local mines, including Inti Raymi. [11] Analysts suggest that Santa Cruz business interests with strong ties to another major iron deposit just over the Brazilian border made a play for cheap gas, bringing on the gas price negotiations. The Urucum mine, often called El Mutun's "twin," is another major iron deposit with approximately 30 billion tons of ore. In 2005 a group of investors tied to the Brazilian iron and steel company Sidersal planned to begin exploitation. After loosing the El Mutún bid they wanted to access to a cheaper fuel source for their own interests across the border.)
[12] See "Jindal aseguró que entregó documentación legítima". La Patria. May 10, 2007.
[13] Description from Bolpress article "El Complejo Metalúrgico Vinto vuelve a manos del Estado", February 9, 2007.
[14] Bolpress, February 9, 2007.