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Cablegate: Proposed Mining Plan Continues to "Spook" Investors

VZCZCXYZ0002
RR RUEHWEB

DE RUEHLP #2944/01 3032145
ZNR UUUUU ZZH
R 302145Z OCT 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 1131
INFO RUEHAC/AMEMBASSY ASUNCION 6234
RUEHBO/AMEMBASSY BOGOTA 3554
RUEHBR/AMEMBASSY BRASILIA 7416
RUEHBU/AMEMBASSY BUENOS AIRES 4676
RUEHCV/AMEMBASSY CARACAS 1927
RUEHPE/AMEMBASSY LIMA 1978
RUEHMD/AMEMBASSY MADRID 3164
RUEHME/AMEMBASSY MEXICO 1851
RUEHMN/AMEMBASSY MONTEVIDEO 4127
RUEHNE/AMEMBASSY NEW DELHI 0064
RUEHQT/AMEMBASSY QUITO 4565
RUEHSG/AMEMBASSY SANTIAGO 9139
RUEHKO/AMEMBASSY TOKYO 0258
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 002944

SIPDIS

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: EMIN EINV ECON BL
SUBJECT: PROPOSED MINING PLAN CONTINUES TO "SPOOK" INVESTORS

REF: A. LA PAZ 2780
B. LA PAZ 2904

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

1. (SBU) President Morales' October 15 announcement of
"surprises" for the mining industry (ref A) has been tempered
in the last two weeks by assurances that the GOB will respect
private investment. Officials' statements, however, have
done little to reassure industry executives, who worry that
the GOB will expand its role in the sector and introduce
significant tax and royalty increases. Whether the GOB's
comprehensive mining plan, expected October 31, will
"nationalize" the industry or merely redefine the role of
Comibol, the state-owned mining company, remains unclear.

--------------------------------------
GOB OFFICIALS TEMPER MORALES' COMMENTS
--------------------------------------

2. (SBU) President Morales' October 15 announcement of
"surprises" for the mining industry (ref A) has been tempered
in the last two weeks by assurances that the GOB will respect
private investment. Vice President Alvaro Garcia Linera said
publicly October 16 that the GOB would not interfere with
privately owned, productive mining concessions, and Minister
of the Presidency Juan Ramon de la Quintana repeated this
assurance in an October 24 meeting with the Ambassador (ref
B). In a similar vein, Minister of Mining Jose Dalence
declared October 29 that the GOB would honor private
investments "that respect (Bolivian) law" and operate within
the boundaries of existing regulations.

------------------------
INVESTORS REMAIN SPOOKED
------------------------

3. (SBU) Officials' statements, however, have done little to
reassure industry executives, who worry that the GOB will
expand its role in the sector and introduce significant tax
and royalty increases. Gerardo Garrett, vice president of
the local subsidiary of U.S.-based Apex Silver, which owns
the $800 million San Cristobal silver-lead-zinc project, told
Econoff October 30 that potential tax hikes remain the
industry's biggest concern, noting that dramatic increases
could significantly alter companies' bottom lines and make it
difficult to recoup investments. According to Garrett,
executives have had little choice but to wait, as GOB
officials have limited discussions to a select group inside
the presidential palace; even mining ministry officials are
reportedly unfamiliar with proposed changes.

----------------------------
GOB KEEPS DETAILS CLOSE-HOLD
----------------------------

4. (U) Whether the GOB's comprehensive mining plan, expected
October 31, will "nationalize" the industry or merely
redefine the role of Comibol, the state-owned mining company,
remains unclear. Minister Dalence has avoided talk of
"nationalization," declaring that the GOB will not repeat the
1952 actions of the Paz Estenssoro government, which
expropriated mining concessions and operations, but will
concentrate instead on "refounding" Comibol, positioning it
to resume its past exploration and production activities and
assume a greater role in all aspects of the productive chain,
from exploration and exploitation to processing and sale.
Dalence has also hinted that Comibol may assume control of
unproductive concessions, which could revert to state control
if declared idle by GOB-sponsored auditors. Dalence has
further indicated the GOB's desire to modify the existing
mining code and introduce a new mining law, ostensibly to
raise the complementary mining tax, which is levied on the
gross sales value of metals and calculated on a sliding scale
that varies by mineral.

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

5. (SBU) La Paz is rife with rumors of a possible
postponement of the GOB's announcement. Many analysts
speculate that Morales will decide to use his next
"nationalization" to counter an eventual drop in approval
ratings, which fell to a low of approximately 50 percent
before the GOB's recent hydrocarbons success. If the GOB
does unveil its mining plan, it may not win the applause it
expects, as key groups have spoken out against the proposal.
The National Federation of Cooperative Miners (FENCOMIN) has
expressed opposition to any "nationalization" of the mining
industry and withdrawn its support from the Morales
administration, and salaried miners have expressed resentment
at not being included in GOB discussions. The GOB's ability
to win support from the two groups is far from certain; if
they oppose the proposal, or find aspects of it
unsatisfactory, they could easily take their demands to the
streets ) and create further problems for a government
struggling to quiet growing opposition.
GOLDBERG

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