New Bolivian mining code will reduce legal uncertainty but increase likelihood of short-term civil unrest

A draft bill to replace the 1997 mining law was submitted to Bolivia’s Plurinational Legislative Assembly by President Evo Morales for approval without amendments in mid-March 2014. Once passed, the new mining law will put an end to several years of legal uncertainty in the sector. The main purpose of the law is to migrate contracts signed by mining companies under the former Special Transitory Authorisations (Autorizaciones Transitorias Especiales: ATE) model to the new Administrative Mining Contracts (Contrato Administrativos Mineros). Mining and quarrying accounted for an average of 5.6% of GDP between 2006 and 2012. Zinc, silver, tin, and gold lead the list of extracted minerals, while the US Geological Survey (USGS) believes there are "globally relevant" deposits of indium, iron ore, lithium, nickel, and palladium amongst others in Bolivia.

The Morales administration has long held ambitions to reform the mining sector's legislative framework to bring it into line with Bolivia’s 2009 constitution, which states that the country’s natural resources are the exclusive property of the Bolivian people. The hydrocarbon sector was nationalised early during Morales' first term in 2006. The groundwork for the nationalisation of the sector was laid by his predecessor, Carlos Mesa, who secured the passage of the 2005 hydrocarbon law, which gave the state greater control of the hydrocarbon sector. However, reform of the mining sector was more politically sensitive, not least due to the influence of mining unions and cooperatives, which form a key constituent for President Morales.

Reduced legal uncertainty and political consensus

The new mining law ends years of legal uncertainty in the mining sector. Investors expressed concern that Morales would nationalise the mining sector in the same way as the hydrocarbon sector. A key issue was the passage of a decree in 2010, which mandated that mining companies transition from the concession-based model sanctioned in the 1997 mining code to the ATE regime. This occurred as a consequence of the incompatibility between the 1997 mining code and the 2009 constitution mandating that natural resources are the property of the Bolivian people.

Further uncertainty was generated by the nationalisation of South American Silver’s Malku Khota mine in 2012. The move followed violence between local communities who either supported or opposed the mining project. The new law addresses this point. It declares that the state guarantees the juridical security of enterprises and investments by mining companies, including the right to demand that competent public authorities provide full and effective protection against actions by individuals or groups who intend or may seek to overrun, occupy, or invade mine areas, plants, and installations.

Over 7,000 ATEs must transition to the new mining law when it is approved, including Sumitomo’s San Cristóbal polymetallic mine in Potosi and the Inti Raymi gold mine in Oruro. Mines standing idle for more than six months may revert back to the state – 30 such cases have so far been identified. However, the Ministry of Mines and the General Jurisdictional Authority of Mining Administration (Autoridad General Jurisdiccional Administrativa Minera: AGJAM) – the ministry’s operational arm authorised to approve and sign contracts, soon to be known as the Autoridad Jurisdiccional Administrativa Minera (AJAM) – lack capacity to inspect hundreds of former concessions and will be relying on local communities, regional government, and municipalities to monitor this.

The draft bill was heralded as a success by the government and various interested parties due to the consensus-based approach adopted during its formulation. Those involved in drafting the bill included state mining company Comibol, the Federation of Bolivian Mine Workers union (Federación Sindical de Trabajadores Mineros de Bolivia: FSTMB), private mining companies represented by the Asociación Nacional de Mineros Medianos, the National Mining Chamber (Cámara Nacional de Minería), and the National Federation of Mining Cooperatives (Federación Nacional de Cooperativas Mineras de Bolivia: FENCOMIN). Other authorities involved included the Ministry of Mines and Metallurgy and AGJAM.

Increased state oversight

The new mining law is unlikely to fundamentally alter the legal and operational environment for foreign investors already operating in Bolivia. In its current draft, the new law recognises the pre-constituted and acquired rights of private or mixed companies, in mining concessions held prior to the adjustment of the Administrative Mining Contracts. In April 2013, Bolivian mining companies were obliged to migrate from the mine concession system of indefinite duration, to a new contractual regime lasting a maximum 30-year period. Included in this list were companies that held joint risk contracts, such as Pan American Silver’s San Vicente mine, Coeur d'Alene Mines’ Manquiri project, and Glencore’s Sinchi Wayra, as well as lease contracts signed with small and medium mining companies and cooperatives. As all surface or underground minerals are regarded as social assets, they cannot be registered as property rights for and on behalf of any entity, national or international company, international stock market, nor booked or listed on balance sheets.

However, the new model will increase state oversight of the sector. The Administrative Mining Contract authorises the state to oversee all mining activities and monitor investment and work plans for mines in the state, private, and cooperative mining sectors. This new contract also enables state mining companies to associate with Bolivian or foreign companies, or for mining industry players to set up associations among themselves. Legislative approval will be needed to authorise joint ventures between state mining firm company Comibol or mining cooperatives and private actors. This last point, which was introduced during the House of Deputies debate, has been contested by mining cooperative representatives, including FENCOMIN, which announced a national mobilisation against the measure on 30 March 2014. On 31 March, a protest by members of mining cooperative workers in the municipality of Sayari, approximately 20 km from the city of Cochabamba, left one person dead and around 40 injured. This is significant given that general elections are due in October this year. However, it is unlikely that the government will reverse its position on legislative oversight, given that its omission would be unconstitutional.

The government can decree any part of Bolivian territory of interest (known as a fiscal reserve) to undertake mineral prospecting, exploration, and mine development. At the end of a three-year period, Comibol will have first right of refusal on areas within this reserve, then six months later any freely available areas can be assigned via contracts to other mining sector players. AJAM, the operational arm of the Ministry of Mines and Metallurgy, will be empowered with oversight of all mining activity. Its executive director and board will be appointed by the president, as will its associated regional directors of mines.

Outlook and implications

The consensual approach adopted by the government when drafting the law means opposition to the legislation by the majority of actors within the sector is likely to be limited, although the mobilisation planned by FENCOMIN highlights ongoing sensitivities. In this regard, there are likely to be large-scale and sporadically violent protests by members of mining cooperatives (FENCOMIN represents around 50,000 cooperative miners), particularly in the mining-rich states of Cochabamba, La Paz, Oruro, and Potosí. Miners have a history of deploying dynamite during protests, as well as causing severe traffic disruption by mounting road blockades. A march onto the capital, La Paz, can also be expected in the coming months. Targets are likely to include state security personnel and infrastructure. By recognising the pre-constituted and acquired rights of private companies already operating in Bolivia, the law will not fundamentally alter the legal and operational environment for existing players in the sector, although it will allow a greater level of protection for those actors against invasions and occupations. These have, in the past, led to contract cancellations and expropriations in extreme cases. For new investors in the mining market the legislation ends years of legal uncertainty. Although the rewards will not be as high under the Administrative Contract Model, the risks are also likely to be lower, as is currently the case in Bolivia's hydrocarbon sector.