Bolivia opens a second lithium offer as it seeks to fill its fiscal gap

Faced with difficulties, Bolivia turns to lithium.

The small South American country is weathering an economic slowdown since last year and a drop in its gas exports, which has impacted the treasury.

The Government of President Luis Arce has had to go out and sell part of the gold reserves and the holders of its international debt are worried.

Given this scenario, Arce chose to announce a new call for the production of the fashionable mineral, lithium.

On January 26, the state company Yacimientos de Litio Bolivianos (YLB) invited companies to apply to explore a pilot project in seven salt flats.

This is the Administration's second call and little is known about the results of the first, launched in 2021, in which they selected five companies to test their technologies in the largest salt flats in the country.

Bolivia has the largest lithium deposits in the world and those chosen to explore them were companies from China and Russia.

Now, Arce is looking to capture the attention of a new group of international companies.

According to reports in national media, Energy Minister Franklin Molina traveled to the United Kingdom at the end of last year to promote the industrialization of the mineral, key in the manufacture of batteries for electric transportation.

Molina will now travel to Belgium to present his strategy to the European Union, since there is interest from French, German, Spanish companies, among others, he told reporters.

The moment is complicated for the Arce Government.

On Tuesday, the credit risk agency Fitch cut the rating of Bolivia's international bonds from CCC+ to CCC, one notch lower in the "speculative investment" category.

“The downgrade reflects a significant decline in usable international reserves to very low levels, increasing risks to macroeconomic stability and debt service capacity,” Fitch analysts wrote in a report.

Bolivian bondholders are worried.

Faced with a shortage of dollars in the country, the central bank has begun to ration foreign currency.

Reserves fell 20% last year, according to Fitch estimates.

Of the 1.7 billion dollars that make up the reserves now, 1.57 billion dollars are in gold and only 166 million dollars in foreign currency.

The agency estimates that public debt increased to reach 71.7% of Gross Domestic Product (GDP) at the end of 2023, and projects that it will increase to 73.8% in 2024.

Last year, to fill the fiscal gap and pay off the debt, Congress passed the Gold Act, authorizing the sale of half of the gold reserves, which have since been liquidated.

The central bank, one of the few remaining in Latin America that does not have autonomy, stopped publishing data on both currency and the purchase and sale of gold.

“The less timeliness in the publication of reserve data has increased uncertainty,” says Fitch.

The firm estimates that the economy grew 2.1% in 2023, which would imply a slowdown compared to the 3.6% growth seen in 2022.

Luis Arce at the inauguration of the Bolivian Lithium Deposits (YLB), in Uyuni, on December 15, 2023.Marcelo Perez del Carpio (Bloomberg)

The announcement of the new call to exploit and produce lithium has generated enthusiasm, but, at the moment, it does not have much potential, says Álvaro Ríos, energy consultant and former Minister of Hydrocarbons and Mining of Bolivia.

Two regions that have the largest deposits of the mineral have sent proposals to Congress for a social pact, explains Ríos, in which they propose different models of royalties and investments in the community based on industrialization.

Neither has been approved and the country lacks the necessary legislation to grant formal contracts to companies.

This is why Arce's call only talks about “pilot projects.”

“I don't see any company in the world really investing 2,000 or 1,000 million dollars in lithium production, when there are two proposals from the producing departments with different royalties and with different characteristics that must be agreed upon in a single law,” says Ríos, “as long as that does not happen, I would say that they are just good intentions to attract investments.”

For Diego Von Vacano, professor of Political Science at Texas A&M University and former lithium consultant to President Arce, the opening of a second tender is a sign that the results of the first have been disappointing.

“A year ago they signed the agreements with the Chinese companies and the Russian company and this year they have done nothing,” says Von Vacano, “they have not built the water plant necessary for lithium extraction, they have not really started any pilot plant".

The Government has not made public the results of the winning companies of the first stage.

“This second call is very important because it could be a last opportunity for Bolivia to demonstrate a little more seriousness and transparency,” says Von Vacano, “and to not politicize the process.”

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