Mining Policy in the Morales Administration: Reactivation and Conflict

President Morales has announced plans to commence a new era in Bolivian mining in 2007. The year 2006 saw the highest mining revenue since 1985 and exports jumped from $346 million in 2005 to over $1 billion in 2006. Increased demand for minerals, in large part c from China and India, has revitalized the Bolivian mining sector. Price increases on the world market for Bolivia’s most profitable metals – zinc, silver, tin, and gold – has heightened hopes that mining can again become a dominant industry, as it had been for most of the nation’s history. If the reactivation of the industry and tax reform can be structured and implemented effectively, the current mining boom could benefit most Bolivians for the first time.

The Morales administration has promised that greater mining income, in addition to increased hydrocarbon revenues, will fund social and health programs for citizens throughout Bolivia. However, the potential profit gains and greater state control have both raised expectations and anxieties of other interested groups. Private mining companies anticipate that skyrocketing demands for minerals will bring increased profits but fear that the state will expropriate their investments through the nationalization process. Communities most affected by mining, some of the most polluted and impoverished regions, hope that the reactivation of the mining sector and greater state control will guarantee greater benefits for their communities. Environmentalists worry that without greater environmental protection, exploitation of new mines will worsen water contamination and other environmental conditions in the world’s eighth most biologically diverse country.

The diverse groups of miners are also struggling, amongst themselves and with the government, to determine who will receive the rights to work in the mines and on what terms. This update on cooperative miners is the first in a three part series on Bolivia’s mining sector from the Andean Information Network.

Part I - Cooperative Miners in the Nationalization Process: Explosive Politics

Written by Andean Information Network, 29 May 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 that all minerals, metals, precious and semi-precious stones are under the jurisdiction and power of the State mining company, Bolivian Mining Corporation (COMIBOL), excluding concessions granted before the decree.

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, unlike the “nationalization” of the hydrocarbons industry, which enjoyed widespread support throughout Bolivia, this decree raised the hackles not just of private mining interests, but of Bolivia’s cooperative miners, a powerful and vocal political force that has emerged over the last twenty years.

Within this context, the concerns of Bolivia’s more than 50,000 active cooperative miners have been making the headlines. After working through two decades of low mineral prices cooperative miners believe they deserve to benefit from soaring prices. Indeed, while some miners continue to struggle to make ends meet, as a result of today’s mineral prices others are making up to 200 times the Bolivian minimum wage. They fear that state control and foreign investment to upgrade the industry will rob them of these increased earnings.

Significant disagreements between miner groups, the government, private companies, and local communities, have resulted in the resignation of two Mining and Metallurgy Ministers in six months, mass demonstrations on the streets of La Paz, and violent conflicts, including a two day conflict at Bolivia’s largest tin mine resulting in 16 dead and 115 injured.

“Capitalization” weakens industry and increases mining cooperatives

Bolivian mining is no longer a simple negotiation between the state and private mining companies. Today the voice of cooperative miners as well as a widespread call for government control over natural resources has complicated the scenario and created new pressures for the Morales administration and the mining industry. In 1985 COMIBOL shut down hundreds of mines, fired 30,000 miners (as well as thousands of workers in company-run schools, stores, and health clinics). As a result, the company became a merely administrative entity. With scarce employment opportunities many of the laid-off miners formed cooperatives that continued to work the few remaining functioning mines. The privatization of the industry in the mid-nineties further drained the historic strength of the state miner’s union and turned COMIBOL into an even weaker administrative entity.

As the mining industry slowly rebounded through the 1990’s, cooperative miners became perhaps the most important players in Bolivia’s mining sector. Many small cooperatives or “artisan miners,” use rudimentary mining techniques and earn modest wages. However, some cooperatives have grown into medium operations with the assistance of investors who buy into the cooperative. Today, cooperative miners belong to the largest union, the National Federation of Mining Cooperatives of Bolivia (FENCOMIN) and form the backbone of Bolivian mine workers. A smaller group of miners are still employed by the state, work for COMIBOL and make up the Federation of Mining Workers of Bolivia (FSTMB).

Cooperative miners are often criticized for using antiquated extraction technology that contaminates the environment. Cooperatives employ thousands of children, composing up to half of the workers in some cooperatives. Motivated by a desire to make a fast buck they extract as much mineral as quickly as they can, thus shortening the life of a mine and creating unsafe mining conditions.

Miner activism dominated the Bolivian Workers Union (COB) after the 1952 revolution and served as the primary resistance to dictators such as Hugo Banzer. Cooperative miners have followed this tradition and do not hesitate to take to the streets to defend their interests – often successfully. At times these protests have resulted in violent confrontations and even deaths, such as the conflict over the Posokoni mine.

Huanuni: the “Ground Zero” in Bolivian mining

The largest tin mine in Bolivia, Posokoni, is located in Huanuni, in the Oruro department. This mine is the epicenter of the conflict between cooperative miners and the Morales administration as it attempts to reassert state control of the mining industry. On October 5 and 6, 2006, sixteen people died and 115 were injured in violent conflicts that erupted between cooperative miners and COMIBOL miners in a dispute over access to the richest veins in the mine.

Many believe that this conflict resulted from government inaction to resolve mounting tensions between the two groups. The state company regained control over the mine in 2002 after its primary private investor, RBG Resources (formerly Allied Deals) of Great Britain, declared bankruptcy. As tin prices increased to the highest levels since 1985, cooperative miners demanded access to the richest, deepest tin veins from COMIBOL. The state company argued that foreign investment was necessary to improve technology and efficiently exploit this part of the mine.[1] This announcement denied cooperative miners access to the coveted veins and led them to threaten a mine takeover if a mutual agreement could not be reached.

Violent clash between miners

Tensions mounted throughout 2006 as negotiations between cooperative and COMIBOL miners stalled. The Mining Minister Walter Villarroel, who facilitated the talks regarding reactivating the mining sector and overhauling the mining code, garnered widespread criticism because of his connections to the cooperative miners.[2] Finally, in October the violence erupted when cooperative miners attempted to take over Posokoni and COMIBOL miners turned out to defend their stake in the mine. During the two days of violence in Huanuni, members of the same family – some COMIBOL employees and some cooperative miners - threw dynamite and makeshift bombs at each other. Although cooperative miners outnumbered the COMIBOL workers 5,000 to 1,000, the overwhelming majority of both the dead and injured were cooperative miners.[3]

Immediately following the violence, Guillermo Dalence replaced Villarroel, whom COMIBOL miners blamed for the conflict, as Mining Minister. Dalence is a former COMIBOL miner and leader of the COMIBOL miners’ union (FSTMB). President Morales decreed that Posokoni and several surrounding mines would be completely controlled by the Huanuni Mining Company, a COMIBOL subsidiary. Cooperative miners who wanted to work the mine therefore needed to become employees of the state mining company. He also said that the government would help to rebuild the community, including hundreds of homes that were partially or fully destroyed during the violence.

Two of the four mining cooperatives working at Posokoni before the conflict agreed to become state employees. The remaining two cooperatives continued to fight for access to the mine and, in the weeks following the decree, blocked the highway between Oruro and Cochabamba. When police attempted to lift the blockade the protesting cooperative miners took a police officer hostage, strapped dynamite to his body and detonated it. The resulting injuries killed him.

Legal challenge to the Huanuni decree

On March 9, 2007, a National Unity (UN) party senator filed a petition with the Constitutional Tribunal charging that the transfer of Posokoni to state hands violates the constitution. The Mining Code prohibits from directly engaging in mining operations without a partnership or leasing the mine, to a cooperative or a private company for exploitation.[4] Concerned that the Tribunal, perceived to be aligned with the neoliberal governments that proceeded Morales, 4,000 state COMIBOL miners protested in front of the Constitutional Tribunal building in Sucre in April. During the protest a group of miners blew the doors of the Constitutional Tribunal open with dynamite, injuring two police officers.

In response the Constitutional Tribunal called for the government to guarantee its safety from threats and attacks from any groups attempting to violently coerce them. The president of the Constitutional Tribunal dramatically stated that as a result of the lack of security the tribunal was “fatally wounded.” The government spokesperson accused the UN senator of trying to stir up another conflict between the cooperative and COMIBOL miners and stated “the only way to avoid a repetition of these acts and another conflict between cooperative and [COMIBOL] miners is that the congressman withdraw his demand.”[5]

Aftermath of Huanuni

For the first nine months of the Morales government the constructing a new mining policy took a back seat to other issues such as hydrocarbons and the constitutional assembly. It appears that Morales administration was only compelled to intervene after 16 people died and 115 were injured. However, critics suggest that the Morales administration’s failure to address the crisis in Huanuni was an attempt to exacerbate mounting tensions in order to justify the reassertion of state control of the industry. In addressing the crisis, the government would be able to reign in the political power of cooperative miners, ease the introduction of increased mining taxes and carry out its nationalization plans.

Mining tax debate generates further conflict

Although the cooperative miners lost ground in the Huanuni conflict as a result of the firing of the Mining Minister, an ex-cooperativist, and a more direct state management of one of Bolivia’s most valued natural resources. Yet, the cooperative miners continue to be a force to reckon with for this government. In January 2007 the Morales administration began a campaign to increase national taxes on the mining sector. According to 2006 statistics, increased international demand and prices for Bolivian metals and minerals led to exports exceeding $1 billion (US) and net profits of around $600 million. The same year, in compliance with the Mining Code, companies paid only $67 million in taxes.[6] The government argued that the mining industry should be paying $300 million, or approximately 50% on the net earnings from both private investors and mining cooperatives.

Once again, cooperative miners flexed their political muscle and on February 6, 20,000 cooperative miners “shook up La Paz.” They marched through the streets in protest of the tax hike, detonating over 200 sticks of dynamite in less than two hours. The cooperative miners argued that they are not big private mining corporations and should not have to pay more taxes. The government accused the cooperative miners of supporting of private interests and said that all parties must pay more in order to help develop Bolivia and end poverty. Still, in an apparent concession, President Morales himself sat down for bilateral negotiations with them and reached an agreement. The agreement had three major points:

1. Both parties agreed on the principal that “whoever earns more, pays more” in order to protect smaller cooperatives from paying the same amount of taxes as large operations.

2. The cooperative miners agreed to create mechanisms to improving fiscal oversight – an important concession given the loose structures of the cooperatives.

3. The government gave two of the six seats on COMIBOL’s Board of Directors to cooperative miners which will also include two representatives each from the government and the COMIBOL miners’ union (FSTMB).

The Bolivian press criticized the Morales administration for giving into the pressure of the cooperative miners. However, the agreement temporarily eased relations between cooperative miners and the government. In March 2007 Morales abruptly replaced Mining Minister, Guillermo Dalence, with his vice minister, Luis Alberto Echazú. The Morales administration gave no official reason and the move upset COMIBOL miners and leaders of the Bolivia Workers Union who claimed that nationalization of the industry would be stalled.[7] On the other hand, the cooperative mining leaders praised the change and said that they expected to have better relations with Echazú, a metallurgic engineer and former consultant to mining unions.

Mining code outdated

Despite repeated calls for a new mining code and for a comprehensive government policy beginning in 2003, the last three administrations did little.[8] In contrast, the Morales government has proposed a partial nationalization of the mining sector and reasserted the public ownership of the mineral wealth of Bolivia. These proposals have been met with strong resistance by the cooperative miners who suffered through lay-offs and low prices for years. They fear that their increased income as a result of the boom will be taken away by the state and are prepared to defend their interests. It is still unclear how attempts to reshape mining policy will play out, but given the major differences between the various actors in the mining sector could make the not-so-easy nationalization of the hydrocarbons look like a walk in the park. Still, the Morales administration continues to demonstrate a desire to please the cooperative miners. Recently, they invited FENCOMIN leaders to “dialogue and review together” the May 1^st decree in response to renewed threats to take to the streets.

First published at Andean Information Network

Notes

[1] Anderson, Steven T. “The Mineral Industry of Bolivia,” US Geological Survey Minerals Yearbook. 2004, p. 12.
[2] President Morales appointed Villarroel minister in return for leading cooperative miners in supporting his 2005 campaign.
[3] AIN interview with church and human rights workers and other witnesses in Huanuni.
[4] ANF. “El Gobierno le resta autoridad al Tribunal.” April 28, 2007.
[5] The 1997 Mining Code, following neoliberal economic policies which dictated that state-run companies be sold to private investors, was designed to attract foreign direct investment in the mining industry at a time when mineral prices were half or less than what they are today.
[6] Bolpress. “Mas de 20 mil mineros hacen temblar a La Paz:.” February 6, 2007. The Complimentary Mining Tax (CMT) is the principal tax paid on royalties in the mining industry. According to the Mining Code of 1997 mining companies pay a Corporate Income Tax (CIT) that is accredited to the CMT. The CMT is like a “prepayment” of the income tax. So, 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. See also Ley 1777: El Código Minero, Titulo VIII, Capitulo III, Art. 100. and “BOLIVIA: Mining Industry Sector Analysis 2006 International, U.S. and Foreign Commercial Service and U.S. Department of State.”
[7] The press reported that Dalence, who attended the installation of his replacement and was photographed congratulating him at the ceremony, offered his resignation after returning from an unauthorized trip to Cuba where he met with the mining ministers from Venezuela, Nicaragua, and Cuba, the other three countries who form the Bolivarian Alternative for the Americas. President Morales, who ran on an anti-corruption platform and was in the midst of dealing with charges of corruption within MAS, was apparently bothered by the Dalence’s failure to go through the bureaucratic process authorizing his trip.
[8] Gonzalo Sánchez de Lozada, president from 1993-1998 and 2002 -2003, owned the majority of 5 concessions and a foundry through his company COMSUR, the largest Bolivian owned private mining company. The 1997 mining code was written during his first administration and approved by him, despite a clear conflict of interest. His successor, Carlos Mesa, had no political base, was consumed with a hydrocarbons law among other things, and thus had no way of addressing such politically volatile issues. After Mesa’s resignation in 2005 the head of the Constitutional Tribunal, Alejandro Rodriguez, became interim president until elections were held in December 2005. Also see La Patria. “La minería revivió el 2006 con las buenas cotizaciones de los minerales.” March 14, 2007.