Bolivia’s mining dilemmas

Federico Fuentes, Cochabamba

Perhaps no other sector better exemplifies the challenge the Bolivian government faces in lifting the country out of the poverty and dependency afflicting South America’s poorest nation than its all-important mining industry.

Mining minister and former miners’ union leader Jose Pimentel told Green Left Weekly: “Bolivia has been a mining country for more than 500 years, ever since the Spanish came and discovered the legendary wealth [of the silver mines] of Potosi.”

“And when we look at the situation today, we can say that a large part of the country continues to depend on mining.”

For example, Pimentel said an estimated 90,000 workers affiliated to hundreds of cooperatives are attempting to subsist from mining “in a rudimentary manner”.

“This sector impacts on important cities such as Potosi and Oruro, where practically the only productive activity is mining.

“So to get rid of mining in one blow would not only bring with it social problems, but could even create situations of rebellions because large groups of people would be directly affected.”

Moreover, revenue from mining has also become increasing important for the government’s social spending aimed at lifting up the poor majority.

Rising global prices meant that mineral export revenue jumped in the first quarter of this year to US$464 million. This represented 32% of Bolivia’s total export revenue — a 77.7% jump in revenue compared to the same quarter last year.

With companies now forced to pay higher royalties and the state playing a more active role in the sector, the government has been able to redistribute a greater share of this wealth via its pro-poor social programs.

But the government is facing pressure from local indigenous communities demanding that it comply with its environmental discourse.

It also faces troubles in its relations with mining multitnationals and the challenge of using a weakened state that was privatised and dismantled by previous neoliberal governments to state to promote its industrialisation drive.

One example is the project to extract and process iron ore from Mutun, the 8th largest iron ore mine in the world.

In 2007, the government signed a contract with Indian company Jindal to exploit 50% of the Mutun mine. The agreement included the construction of an iron smelter and steel factory to ensure that value-added products would be exported (not just raw materials, as is often the case with poor nations).

The project, involving a projected investment of $2.1 billon by Jindal, was presented as evidence that a stronger state working with private capital could develop the country’s economy.

Yet, three years later, this dream is no closer to being realised. Relations between the government and the company have taken a turn for the worst.

Due to Jindal’s lack of compliance with its contractual obligations, the government announced in April its decision to collect $18 million in warranty bonds. It accused Jindal of having invested only $12 million of the US$600 million required by now under the terms of the contract.

Jindal has challenged the move, blaming government inefficiency in dealing with the relocation of local communities.

Having neglected to nationalise the land with the iron ore deposits, the government has had to go through tedious and drawn-out negotiations to verify and buy-out individual landholders.

This process has been further hampered by the fact that most landowners had no land titles to legally sell, forcing the government to delineate each landholding. Some peasants unhappy with the amount of land designated to them have refused to sell.

In April, tensions also boiled over between local indigenous communities and owners of the massive San Cristobal mine, Sumitomo Corporation, in Potosi.

San Cristobal accounted for 55% of Bolivia’s mineral exports last year, with Sumitomo netting around $1 billon in profit.

Locals are angry that in an area suffering from desertification, and where access to fresh water is increasingly scarce, Sumitomo extracts 50,000 litres of underground water a day, free of charge, while paying a tiny $38 million in royalties last year.

When this was publicly exposed, locals began to set up roadblocks, burnt down a local company office and overturned several train carriages carrying mineral exports from the mine to Chile.

The problem for the government is that under the current mining code, Sumitomo is able to make use of “legal vacuums” that place no obligation on the company to pay for its water usage.

Pimentel said this will have to change in the new code set be presented to the Plurinational Assembly later this year.

“It is impossible to continue these kinds of mining practices.” He said the new law must “enforce a more rational and efficient use of these resources”.

Sumitomo claims such measures, and the protests, are putting in danger its investments and financial viability.

Perhaps the government’s biggest dilemma is the proposed, extremely lucrative, large-scale exploitation of the world’s largest lithium mine.

An estimated 19 million tonnes of lithium, roughly half of the world’s supply, is said to be located in Bolivia’s Uyuni salt flats. At stake is about $1 billon a year.

“In the case of lithium”, Pimentel said, “we are now constructing a pilot plant to extract lithium as well as boron, potassium and magnesium”.

“Next year we hope to enter into the final stage of our project, with the creation of an industrial plant, the first job of which will be to produce lithium carbonate.

“Afterwards, we will move towards industrialisation of lithium carbonate, producing things such as batteries, where naturally we will have to look for strategy partners that can guarantee us technology and markets.”

There is no shortage of multinationals seeking to become “strategic partners”.

No official tendering process has opened, but rumors are French company Bollore-Eramet is front runner for the partnership, with its proposed “Franco-Bolivian project for Bolivians to live well and in harmony with Pachamama [Mother Earth]”.

Other contenders include Sumitomo and the South Korean Cores Corporation.

Cores is currently involved in the Coro Coro hydrometallurgical project to extract and process about 10 million tonnes of copper.

The project is criticised by indigenous communities protesting the lack of prior consultation, and plans to divert local river ways to supply the mine with water. This will directly affect about 300 peasant families.

The lithium deposits being located within one of Bolivia’s most famous tourist attractions. Concerns about the environmental impact of mining have been raised.

Concerns have also been raised over the lack of transparency and public discussion regarding such a critical project for Bolivia’s future.

Given the problems with the practices of the multinationals, which rather than helping Bolivia’s industrialisation have kept Bolivia dependent on the extraction-based development model, serious questions are being raised about the sector’s future.