Latinnews Archive
Latin American Economy & Business - 3 June 1977
Private mines expand in Bolivia despite tax burden
IN the last four years, more and more foreign companies which had been developing Bolivia's mines have decided to sell out to local interests. This rather surprising move appears to be linked to the sharp fall in Bolivia's mining wealth.
Bolivia's mines, in fact, are being slowly exhausted. The result is that today deposits are being exploited which contain just 0.75% of tin, against 1.5% 25 years ago. Both the state mining company, Comibol, and the private concerns in the small and medium-sized mining sectors have suffered.
The switch from foreign to national ownership has been christened 'bolivianisation' by the local industrialists who have acquired the interests, largely in the medium sector, from the overseas companies. Among them is the International Mining Corporation (IMC), which is led by Guillermo Gutierrez Vea Murgia. IMC currently controls five important mining operations which, until 1974, belonged to foreign firms. The concern's second in command is Carlos Iturralde Ballivian, Gutierrez Vea Murgia's stepson and an important Bolivian negotiator within the International Tin Council (ITC). He is at the moment Bolivia's ambassador to Malaysia.
Gutierrez Vea Murgia's connections with mining are not altogether obvious. Until 1952, he was a director of the morning newspaper, La Razon, which was owned by Carlos Victor Aramayo. The latter, along with Simon I. Patino and Mauricio Hochschild, formed the 'troika' of Bolivian tin 'barons'. Moreover, when the 'barons' left Bolivia after the nationalisation of their operations in 1952, Gutierrez Vea Murgia showed his journalistic roots, and went off to Chile to found the Orbe news agency.
Family money
All the time, he kept in contact with the Aramayo family. He himself admits as much when he speaks of the present delicate state of health of Carlos Victor, who lives in Europe, But, when he explains the origin of the money which paid for the 'bolivianisation' of five companies, he merely alludes to 'a family inheritance'.
It has been estimated that more than US$100m had to be put down to acquire the mines of Chojlla, Enramada, Chambilaya, Avicaya and Estalsa. Because of this, there are few who doubt that the 'family inheritance' is no more than the capital of the Aramayo concern, which, through Gutierrez Vea Murgia, has found its way back to Bolivia.
IMC is a member of the Asociacion Nacional de Mineros Medianos (the association of medium mines), to which a total of 32 companies belong. To be a member, a firm must have fully subscribed capital of not less than US$100,000, and must also use modern technology in its operations. The medium mines insist that today they are totally Bolivian ventures, with 80% of the capital subscribed locally, and the rest accounted for by external debts.
The 5,000 small mines, which do not meet these requirements, are grouped together in the Camara Nacional de Mineria. Outside both bodies is Comibol, which is the biggest producer of some metals--tin, for instance--and is also the industry's major employer, with a workforce of 25,000, compared with the medium mining industry's 7,000.
IMC is extremely important for Bolivia in the production of minor metals. Just at the Chojlla and Enramada mines, the company accounts for 60% of the country's output of wolfram, and 8% of world production. In 1976, Bolivia exported 3,278 tonnes of this metal, of which 1,800 came from IMC.
Antimony
Another medium mining company of importance in the minor metals field is Emusa, whose principal shareholder is Mario Mercado, currently mayor of La Paz and a potential successor to President Hugo Banzer. Emusa figures large in Bolivian antimony production, which totals around 15,000 tonnes a year. Of this amount, 10,000 comes from the medium mining sector and 5,000 tonnes from the small mines. Comibol does not mine antimony.
The Sanchez de Lozada family has also played an important role in the medium mining industry, gaining the unenviable reputation of being the 'vulture' of the industry, happy to pick up operations which have bcen abandoned by others. Gonzalo Sanchez de Lozada said in the past that 'bolivianisation' of the mining industry had been of no benefit to the country. Along with other owners of private mines, he has argued that the foreign compaies wanted to get rid of their operations any way they could, because there was no guarantee of high profits from the mines and taxes were high. So they made it easy for Bolivian concerns to buy them out.
The unprofitability of the tin mines is often stressed, particularly because of the decline in the recoverable level of tin. According, to Goosen Broersma, an ex-Comibol manager now with the private mining sector, private mines lose US$0.42/lb on exports when the price is US$3.50/lb-a loss which falls to US$0.19 at US$4/lb. Only at US$4.50 do private mines make a profit--just US$0.01/lb, which rises to US$0.22 at US$5/lb.
But the blame lies mainly with the level of taxation (LACR I, 18), according to the private mining sector, which has explained to the ITC the part played by taxes in the country's production cost figures. They have pointed out that when tin is quoted at US$3.50/lb, tax is levied on a presumed profit of US$1.60, which is derived from the presumed cost of production--unchanged at US$1.90 for the last five years, The tax, a royalty on production known as a regalia, is set at 38% of the presumed profit when the price is US$3.50, creaming off US$0.61. The level of the tax varies between 25% and 38%, depending on the world price.
All very well, if the cost of producing tin is US$1.90. But, maintains the private industry, the cost has risen steadily since 1971 and is now more than US$2.50/lb. So there is a loss at US$3.50. What they want is all taxes to be based on actual, and not presumed figures.
A study group from Harvard University, which came to Bolivia to exaamine the taxation system, established that thcre were 20 different taxes which had a direct impact on the mining industry, and another 30 which hit it indirectly. The study group recommended changes which could be introduced to rationalise the system.
Given the fact that the mining industry accounts for 50% of Bolivia's foreign exchange earnings, but employs only 3% of the population, the private mining sector believes it should be given a better deal. They would like the inevitable taxes to be levied in a way which encouraged efficient exploitation of the country's reserves. They argue that, unless the government implements the recommendations of the Harvard group, the only way they could escape the tax burden would be to abandon poorer tin veins. This would, though, hit the overall income of the country.
The minister of mines, General Alfonso Villalpando, has now promised that an overhaul of the taxation system for the mining sector will be undertaken in the second half of June, though he has so far refused to give any details of the proposals. He will be anxious to avoid reducing tax revenue too sharply, while trying to provide additional incentives for the private miners.
Return to top