THE RISE OF BRINE: EXPLORATION AND DEVELOPMENT CHALLENGES IN THE LITHIUM TRIANGLE--BOLIVIA

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment (April 2017)
CHAPTER 12A
THE RISE OF BRINE: EXPLORATION AND DEVELOPMENT CHALLENGES IN THE LITHIUM TRIANGLE--BOLIVIA
Fernando Aguirre
Partner
Bufete Aguirre Soc. Civ.
La Paz, Bolivia

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FERNANDO AGUIRRE B. is a Senior Partner at Bufete Aguirre Soc. Civ. in Bolivia. He is a graduate of the State University of La Paz and holds a Diploma in Law from Oxford University (Public International Law). Mr. Aguirre leads the mining and arbitration practices of the firm, which has as clients three of the most important private foreign investment in mining in Bolivia, and regularly advises the National Association of Medium Miners, which gathers the main mining private investments. As such he participated in the negotiations with the government and other mining stakeholders for a new Mining Law enacted in 2014. He is an internationally renowned arbitrator and advisor on arbitration, having participated in numerous publications and panels, both national and international in this and other related areas of the law. He has been Minister of the Presidency of Bolivia and director of the Bolivian Central Bank, as well as President and Director of the American Chamber of Commerce of Bolivia. At present he is the Chairman of the Board of Directors of the Coca Cola bottlers of Bolivia, EMBOL S. A. He is registered in the lists of arbitrators of the Bolivian National Chamber of Commerce's Arbitration Center, the Center of Arbitration of the National Chamber of Hydrocarbons and of the Kuala Lumpur Regional Arbitration Center. He has advised and represented the National Confederation of Private Entrepreneurs in the negotiation with the government of a new Arbitration and Conciliation Law in effect since 2015.

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1. Historical and Political Context.- The history of lithium development as such in Bolivia dates back to 1975 when a Bolivian geologist, Mr. Carl Brockmann (Servicio Geologico de Bolivia) and Mr. Doug William D. Carter, a US geologist (US Geological Survey), conducted an investigation of the very large Uyuni Salt Lake, located in the southern department of Potosi, Bolivia. By the use of satellite images they tested whether it would be possible to detect anomalies, followed by ground and underground sampling. Laboratory analysis conducted in the U.S. gave "interesting results". Further analysis showed lithium anomalies. More studies followed and by 1976, the existence of very large reserves was confirmed.¹ However, only by 1992 the matter merited renewed consideration,² following governmental efforts dating back to 1988.

Negotiations conducted with Lithium Corporation (LITHCO) - Food Machinery Chemical Corporation (FMC) concluded with the signing of an initial contract on February 14, 1992 for the exploitation of lithium reserves and other minerals at Uyuni Salt Lake. In considering this contract the Bolivian Parliament introduced various changes which were not accepted by the company so the negotiation failed and the company abandoned Bolivia. Apart from the parliamentary action there were other factors which impeded that the project proceeds, including political ones arising from opposition by the civic movement in Potosi.³

Developments were practically on hold, until the new nationalistic policies of the current government of Mr. Evo Morales Ayma, who took power after general elections in December of 2005. After two more elections he is currently in his third term in office which will expire at the beginning of 2020. A Referendum held in February of 2016 had rejected a proposal from the Bolivian Congress controlled by the political front which supports Mr. Morales, for a reform of the Political Constitution which would have allowed him and his Vice President to run for another two more four year mandates. At present, there is an intensive debate and controversy over new proposals by Mr. Morales'

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followers, which would allow him to present himself at the 2019 December election for a new term despite the negative result of the Referendum.⁴

In 1997, a complete new Mining Code was enacted which governed most matters relating to mining activities. Resulting from strong criticisms over the Code by Mr. Morale's government and his followers, which Code was quite liberal in fixing mining rules and policies, a substitute law No 535 was passed on May 28, 2014 with additional legislation which followed.⁵

Following the 1997 Code additional regulations had governed and most of them continue to govern certain mining taxation matters and mining environmental obligations, in the latter case based on a separate general Environmental Law of 1992, which with other laws and regulations on the subject continue in effect.⁶

The 1997 Code followed the concessions system considering mining concessions as real estate property which as such could be transferred, contributed to capital of companies, mortgaged, bartered, sold and the like and subject to inheritance laws under the Civil Code. By a Constitutional Judgment of the Bolivian Constitutional Court of 2006 the characterization of concessions as real estate property was declared contrary to the Constitution and the Court granted a two year waiting period for Congress to enact substitute rules. Since Congress did not so enact, the judgment came into effect after expiration of the two years term and consequently all those articles in the Code treating concessions as real estate property were voided. Concessionaires retained their rights of development and exploitation and a number of others, such as the right to execute leases and joint venture agreements.⁷

On February 7, 2009 a new Political Constitution was approved after a long and controversial process at a Constitutional Assembly. The Constitution inserted new rules on mining activities and mandated that all concessions be transformed into contracts with the State. Such transformation, requiring a new mining law, had to occur by December of 2010. But no substitute law was approved so the Executive Branch passed a Decree that month declaring all mining concessions as temporary licenses, respecting all acquired rights, until the enactment of a new law, which finally came to life in 2014 after complex three years negotiations between mining stakeholders, both private and state, including the strong mining cooperatives, and after further controversies with the latter.

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Prior to it by means of Law No. 403 of September 18, 2013 interim rules for the reversion of mining rights due to lack of activity had been approved, which rule will continue in effect until acceptance on a case by case basis by the Mining Authority of applications for conversion into Mining Contracts as now regulated by law 535 and a special regulation of the Ministry of Mines and Metallurgy. A lengthy process of conversions to administrative mining contracts has started in 2017.⁸

2. Legal Framework.- The 2009 Political Constitution contains numerous provisions relating to natural resources and their exploitation. Amongst them there are some general principles to take into account, relevant to our subject matter,⁹ such as:

1) Natural resources (like minerals) are of a strategic character and of public interest and directly belong to the Bolivian people, the State being their administrator;

2) Every title granted on fiscal reserve shall be void, except if authorized by law;

3) The State controls and directs the exploration, exploitation, industrialization, transportation and trading of natural resources by means of public, cooperative or communal entities, which can in turn contract with private companies and incorporate mixed enterprises. The State may execute association agreements with juridical persons, whether Bolivian or foreign for the exploitation of natural resources; social participations is to be recognized and the obligation of consultation to population which could be affected is determined.

4) Industrialization and trading constitute priority activities for the State.

5) No foreign individual or Company nor any other Bolivian individual or Company may register title over natural resources with the Stock Exchange Markets. ¹⁰

A special chapter on mining contains certain additional specific provisions such as:¹¹

1) Mining state entities, private companies and cooperatives are recognized as productive participants for mining activities;

2) Nonmetallic natural resources existing in salt lakes are of an strategic character for the country;

3) The State grants mining rights and executes contracts subject to applicable laws;

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4) An economic and social function must be followed by mining entities under contract;

5) The law defines the scope of mining rights;

6) Mining areas are non-transferable;

7) A state entity is to administer and control the mining sector.

Amongst the final provisions the Constitution mandated that within a certain period of time all mining concessions granted in fiscal reserve land were to be cancelled. This included those in salt lakes and similar deposits.

The 2014 Mining Law declared that salt lakes and salt deposits are areas reserved for the State. These includes the two most important Bolivian salt lakes, Uyuni and Coipasa. More specifically, the law declared lithium and potassium as strategic elements whose development is to be under the responsibility of public/state mining companies organized under the provisions of the law. This provides that for such purpose the state mining company COMIBOL has the power to create an affiliate and that it is responsible to conduct activities of prospection, exploration, treatment, concentration, installation, implantation, commissioning, operation and administration of evaporitic resources, complexes of inorganic chemistry, industrialization and trading. A specialized industrial complex existing at the time was transferred to COMIBOL until...