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Cablegate: Status of Mining Tax Proposals Unclear

VZCZCXYZ0014
RR RUEHWEB

DE RUEHLP #0595/01 0611947
ZNR UUUUU ZZH
R 021947Z MAR 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 2703
INFO RUEHAC/AMEMBASSY ASUNCION 6600
RUEHBO/AMEMBASSY BOGOTA 3921
RUEHBR/AMEMBASSY BRASILIA 7809
RUEHBU/AMEMBASSY BUENOS AIRES 5055
RUEHCV/AMEMBASSY CARACAS 2288
RUEHPE/AMEMBASSY LIMA 2388
RUEHMD/AMEMBASSY MADRID 3353
RUEHMN/AMEMBASSY MONTEVIDEO 4456
RUEHNE/AMEMBASSY NEW DELHI 0114
RUEHQT/AMEMBASSY QUITO 4929
RUEHSG/AMEMBASSY SANTIAGO 9519
RUEHKO/AMEMBASSY TOKYO 0291
RUEHUB/USINT HAVANA 0189
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS LA PAZ 000595

SIPDIS

SENSITIVE
SIPDIS

STATE FOR WHA/AND LPETRONI
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH

E.O. 12958: N/A
TAGS: EMIN EINV ECON PREL PGOV BL
SUBJECT: STATUS OF MINING TAX PROPOSALS UNCLEAR

REF: A. LA PAZ 137
B. LA PAZ 594
C. LA PAZ 593
D. LA PAZ 363

-------
SUMMARY
-------

1. (SBU) Apex Silver executives told the Charge February 28
that the GOB appears to have made little progress on proposed
across-the-board mining tax increases, distracted as it has
been by recent holidays, gas price negotiations, and massive
flooding in Bolivia's east. A Coeur d'Alene executive later
told Econoff that he was unsure what changes the GOB might be
considering, as officials have not been engaged in formal
discussions with company representatives. Executives said
they continued to hope the GOB would negotiate tax hikes with
individual firms. End summary.

------------------------
LITTLE, IF ANY, PROGRESS
------------------------

2. (SBU) Apex Silver Vice Presidents Jerry Danni and Gerardo
Garrett told the Charge February 28 that the GOB appears to
have made little progress on proposed across-the-board mining
tax increases (ref A), distracted as it has been by the
mid-February Carnival holiday, gas price negotiations with
India's Jindal Steel and Power (ref B), and massive flooding
in Bolivia's east (ref C). Executives said they had seen
several proposals but no concrete action, not necessarily a
bad situation, they said, but one that does create
uncertainty. Danni noted that he was seeing "heightened
anxiety" among bank representatives and investors and said
the former had pressured Apex into re-negotiating
multi-million dollar loans to compress original repayment
periods.

3. (SBU) Coeur d'Alene Vice President Jim Duff told Econoff
March 2 that he was unsure what changes the GOB might be
considering, as officials have not been engaged in formal
discussions with company representatives. Duff said he
believed the GOB continued to work on a variety of options
and could be considering alternatives to increases in the
complementary mining tax, currently set on a sliding scale
that varies by mineral, imposes different tax rates at
different mineral prices, and sets minimum and maximum tax
rates (ref A); he could not say when the GOB might finalize
its proposal or estimate how readily companies might be able
to shape the final outcome.

4. (SBU) Executives said they continued to hope the GOB would
move away from across-the-board tax hikes in favor of
negotiating tax increases with individual firms. Company
representatives have repeatedly declared that they are not in
principle opposed to tax hikes but are worried that excessive
increases will make it impossible to earn sufficient
investment returns. GOB officials have given some indication
they may be willing to consider each firm's unique situation,
but officials have not committed to individual negotiations.

-------
COMMENT
-------

5. (SBU) The GOB has indeed turned its attention to more
pressing matters in the last few weeks, but delays in
presenting a tax scheme may also be due in part to
surprisingly strong resistance from miners' cooperatives,
which rejected the GOB's original plan (ref D). Having
failed to secure acceptance of its star proposal, the GOB may
now recognize its limitations, settling on careful
consideration of future proposals as the best means of
avoiding further embarrassment. End comment.
GOLDBERG

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