Bolivia’s Lithium Challenge

Proclaiming its lithium deposits to be a permanent reserve of the state, the Bolivian government last month authorized a new state company to undertake “the full chain of lithium production,” including “exploration, development, industrialization, and marketing.” At issue is the future of Bolivia’s vast Uyuni salt flats, the world’s largest untapped lithium reserve, holding at least 5.4 million tons—almost half the world’s known supply. Also at stake is a potentially significant source of wealth and an alternative development model that, if successful, could bring substantial benefits to Bolivia’s impoverished population.

April 12, 2010

Proclaiming its lithium deposits to be a permanent reserve of the state, the Bolivian government last month authorized a new state company to undertake “the full chain of lithium production,” including “exploration, development, industrialization, and marketing.” At issue is the future of Bolivia’s vast Uyuni salt flats, the world’s largest untapped lithium reserve, holding at least 5.4 million tons—almost half the world’s known supply. Also at stake is a potentially significant source of wealth and an alternative development model that, if successful, could bring substantial benefits to Bolivia’s impoverished population.

Lithium and the Global Economy
Lithium batteries are commonly used today to operate computers, cell phones, and other portable electronic devices. Demand is expected to increase dramatically as electric cars are mass-produced and consume a growing share of the market. Major auto companies, including Toyota, Nissan, Mitsubishi, GM, and Ford, plan to introduce electric and/or improved hybrid models in the next two years. President Obama has pledged to put 1 million electric and hybrid cars on U.S. roads by 2015, with the recent stimulus package providing billions for lithium battery and electric car technology. By 2020, when worldwide demand for electric cars is projected to reach 10% of the market —some 6 million cars—at least 42 different models are expected to be available.

Bolivia has yet to participate in the global lithium economy. Today most of the world’s lithium carbonate (the main component used in batteries) comes from smaller reserves in Chile and Argentina, where a few giant firms dominate the market. A Chilean fertilizer and mining conglomerate known as SQM was founded as a public-private company, nationalized by former Chilean president Salvador Allende in the 1970s and later privatized under the Augusto Pinochet dictatorship in 1986. It is now owned by Pinochet’s ex-son-in-law together with a Canadian company. Another company, SCL/Chemetall Foote, a subsidiary of U.S. Rockwood Holdings, operates along with SQM in Chile’s Atacama Salt Flats—on land lost by Bolivia to Chile in the 1879 War of the Pacific, fought over the rights to nitrate deposits. The U.S. company FMC Lithium—formerly the American Lithium Company, whose sweetheart deal to exploit Uyuni was blocked by campensino salt gatherers and farmers in 1990—operates in Argentina.

These companies export raw lithium carbonate, supplying 80% of the global market. With few producers in the market, the price of lithium carbonate has increased almost ten-fold in the past five years. While existing producers are ramping up their investments, new players are also getting into the act as car and electronic companies around the world compete for control of lithium supplies. Toyota recently announced a partnership with Australia’s Orocobre to explore other salt flats in Argentina, with cheap financing from the Japanese government. Reportedly, the Argentine government will receive only 8% of the profits, plus income taxes. A South Korean conglomerate (Posco) is buying into lithium extraction projects in Chile and northern Mexico, where new reserves have just been discovered.

Bolivia’s Alternative Development Model
In Bolivia, where President Evo Morales has called lithium the “hope of humanity,” as well as the key to Bolivia’s future economic prosperity, the government is taking a different approach. According to Bolivia’s new constitution, the country’s natural resources belong to the Bolivian people and must be administered in their collective interest by the state. Instead of exporting raw lithium, the government wants it to be processed, refined, and industrialized, with battery plants and even car factories, on Bolivian soil. The goal is to capture the value added by industrialization for Bolivians, in the form of jobs and economic and social benefits, instead of simply enriching transnational corporations.

The government’s multi-phase plan is ambitious. A $5.7 million pilot plant, to assess the quality of Uyuni’s lithium deposits and demonstrate the feasibility of extraction, began construction in October 2008, though it is behind schedule. The pilot plant will be upgraded to an industrial-size factory complex capable of producing an estimated 30,000 tons of lithium carbonate annually (close to Chile’s production level), perhaps by 2014. The cost through this phase, including related infrastructure development, is estimated at $800 million.

By 2018, the government hopes to produce metallic lithium, batteries, and a range of value-added products. According to some estimates, Bolivia’s salt flats contain enough lithium, over time, to make batteries for 4.8 billion electric cars.

“The state will never lose sovereignty over lithium,” Morales recently told The New Yorker. This nationalist stance is deeply rooted in Bolivia’s history, following 500 years of plunder and exploitation of the country’s mineral wealth (principally silver and tin) by foreign companies and governments, at the expense of Bolivia’s mostly indigenous population. Much of this pillage took place in Potosí, the same region where the Uyuni salt flats are located. More recently, popular uprisings over water privatization and the proposed export by foreign oil companies of Bolivia’s natural gas to the United States led to the ouster of two presidents and paved the way for Morales’s election in 2005.

The government has not ruled out the participation of multinational firms in Bolivia’s lithium industry and, in fact, has recognized the need for private investors in the battery-production phase. But it is seeking “partners, not bosses.” In addition to a commitment to help Bolivia industrialize, the government wants to retain at least 60% of the profits from any partnership arrangement.

While critics charge that Bolivia’s tough terms are chasing away private capital, several foreign companies are actively pursuing lithium opportunities in Uyuni. These include Bolloré, a French conglomerate that teamed up with Italian car manufacturer Pininfarina, Japan’s Mitsubishi and Sumitomo, and two South Korean companies. Bolloré’s financial director told the Associated Press last year, “If Evo Morales wants a car plant, we can help him. Why not?”

To date, none of the investors’ offers have satisfied the government’s criteria. So Bolivia will undertake the first two phases of lithium development on its own, with a combination of state financing and foreign bank loans, which have been offered by Brazil, China, and Japan. Other financing may be available from transnational auto companies, in the form of “forward contracts” tied to prospective sales. Brazil has reportedly agreed to buy the potassium chloride (used for fertilizer), which is a byproduct of the lithium extraction process and will generate additional revenues for development.

The potential French, Japanese, and South Korean investors are providing free scientific and technological advice to Bolivia through a multinational advisory committee. The government now says it may wait several years before partnering with a private firm, taking the time it needs to ensure that a favorable deal can be secured. The bet is that Bolivia’s negotiating position will be strengthened once the value of Uyuni’s reserves—and the state’s capacity to exploit them—is established.

As a precedent, the government points to its recent successful renegotiation of contracts with foreign oil and gas companies, of which all but one have agreed to the state’s purchase of majority ownership and a substantial tax increase. The resulting $2 billion annual gain in state revenues (thanks in part to a timely hydrocarbons price boom) since Morales took office, and the accumulation of $8 billion in foreign reserves, has earned Bolivia high marks even from the International Monetary Fund. Foreign oil companies (now operating as minority partners) expanded their investment in Bolivia by 65% between 2008 and 2009. Despite the drop in gas prices, significant additional private and public investment is projected for the coming year .

To be sure, Bolivia faces many external and internal challenges in its effort to develop a full-fledged lithium industry. Both the market and the technology for lithium-powered electric cars are uncertain. Experts disagree about how much lithium is recoverable from different sites, how long Argentina’s and Chile’s proven reserves will last, and how soon—if ever—there will be a mass market for electric cars. The current form of a lithium car battery is heavy, combustible, expensive, and unable to hold a charge for more than 40 miles. Improved versions are a decade away from practical application. Bolivia’s long-range perspective could put it ahead of the curve—or on the wrong trajectory altogether, if a superior battery technology for electric cars replaces lithium.

Uyuni’s lithium reserves are relatively impure, unconcentrated, and are subject to seasonal flooding, which slows the evaporation process. This will make extraction more complex and costly. In contrast, Chile’s salt flats are said to contain the best quality lithium deposits in the world, with high concentrations, in a dry climate at lower altitude. Reportedly, Bolivian scientists have developed a unique formula for producing high-quality lithium carbonate, which should help to reduce costs.

Furthermore, Uyuni is remote and inaccessible, while Chile’s salt flats are served by modern roads, leading to nearby seaports (that once belonged to Bolivia). The impoverished Uyuni region’s overall lack of infrastructure is a fundamental obstacle that the Bolivian government has recognized, and with a $500 million commitment, it has taken an important first step to develop roads, electricity and water, gas pipelines, communications, and other basic systems.

Environmental and social impacts of lithium extraction on the Uyuni region present another formidable challenge. Relative to other forms of mining, the evaporation process used for lithium extraction appears to be considerably less contaminating. However, the region’s farming economy and sensitive desert ecosystem highly depend on water resources, which could be severely affected by a large-scale extraction project. Lithium processing also produces sulfur dioxide, which can cause lung problems.

The Bolivian government also faces the political challenge of developing the capacity to effectively and efficiently manage a complicated new industry, including its probable future relationship with multinational partners. A recent scandal involving the head of the state hydrocarbons company, a close confidant of Morales, underscores the urgency of dealing with corruption, which the government acknowledges as a high priority.

Bolivia is confronting the complex issue of how to satisfy competing national, departmental, and indigenous community interests in allocating the potential benefits of lithium development. Following the threat of a general strike and roadblocks in Potosí, the government was forced in March to revoke its decree establishing the new state lithium company. Negotiations are proceeding with social and civic organizations that are demanding a set-aside of profits for the region, seats on the governing board, and the possible relocation of the company’s headquarters to Uyuni.

Whether Morales’s vision of alternative development can be realized in a way that will help Bolivia transcend the “resource curse” of exclusive dependency on an extractive economy remains to be seen. Jim Shultz, executive director of the Democracy Center—whose in-depth report on lithium in Bolivia will be available in mid-April—sums up the situation this way:

“What Bolivia is trying to do with its lithium is extremely important. It is seeking to end 500 years of theft and bargain giveaways of the nation's natural resources. What it is trying to do with lithium is also hard. Bolivia has to aim at a global market that is still undefined and may end up being much less than what it hopes. It also needs to undertake a breathtaking ramping up of its infrastructure, technical capacity, and management capacity, as well as tend to serious environmental and social risks to the region where the lithium lies. Bolivia is trying to take a region where hot water runs only an hour a day and turn it into an industrial center that can compete with Japan and the U.S. It won't be easy."

Emily Achtenberg is an urban planner and a NACLA Research Associate.


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