Bolivian Public Mines Struggle for Survival

Public mining sector seeks foreign capital to modernize plants and increase output, but unions, fearing instability, strongly protest

A STEADY stream of ore crashes onto a conveyor belt, punctuating the hum of compressors that echoes across Bolivia's stark Altiplano plateau from the Huanuni Mine. Perched on a barren hillside, Huanuni is the world's largest hard rock tin mine. It is also the only profitable mine in Bolivia's once-powerful public mining sector that is now teetering on collapse.

Fifty years of underinvestment and inefficient management have left most of the 800 properties of the Mining Corporation of Bolivia (COMIBOL) inactive or unprofitable with losses that could surpass $10 million this year. Violent union opposition, political interference, and plummeting world mineral prices have thwarted restructuring proposals. Nonetheless, COMIBOL's directors say they are determined to salvage the company that was built from private mines nationalized during the 1952 Revolution.

"COMIBOL was forced to produce foreign income, but nobody cared to invest in new equipment or look for new reserves which resulted in the decapitalization and heavy losses," says Armando Guzman Bustamante, COMIBOL's executive director since January.

Working with the World Bank, COMIBOL has developed an ambitious scheme to modernize its mines, upgrade the quality of its ore output, and turn its mining operations over to private investors through a series of joint ventures. (The Bolivian Constitution forbids the selling of state-owned mineral properties.) The goal is to attract needed foreign capital to modernize and hike output.

In 1986, COMIBOL produced 70 percent of Bolivia's mineral exports. Today, that has dropped to 30 percent. Yet mining still accounts for almost 50 percent of Bolivia's foreign exchange, making it the most important economic sector in South America's poorest and most underdeveloped country. "Even though we have problems with prices and markets and instability, we are still heavily dependent on mining," Mr. Guzman says.

Despite drops in world mineral prices brought about by the recession in the industrialized world, Bolivia's private mining sector continues to grow, in part because of a new mining code that streamlines regulations and clarifies tax laws.

Overall investment in Bolivian mining jumped from $53 million in 1989 to $96 million in 1991. In 1992, its estimated investment surpassed $200 million due to the development of Inti Raymi - an open pit gold/silver mine. A United States company owns 85 percent of the mine, and Bolivia owns 15 percent. Inti Raymi invested $163 million in an expansion program that is expected to triple Bolivia's gold output in 1993. "The big opportunities are outside COMIBOL, not inside COMIBOL," says Charles "Scottie" Bruc e of MINTEC, a private mining consulting company.

But COMIBOL remains Bolivia's primary showcase in the mining sector. Analysts say its success in transforming itself from a bankrupt, bureaucratic state enterprise, to a flexible, profitable holding company is important to the country's overall transformation to a market economy. "If foreign investors don't feel comfortable in the mining sector, they won't feel comfortable in the other sectors of the economy either," Guzman says.

COMIBOL's financial problems have been compounded by stiff opposition from the miners' union, which has vowed to fight any foreign investment in Bolivia's public mining sector. "We can't support any kind of privatization because it doesn't guarantee labor stability," says Thomas Quirez, a director of the Bolivian Federation of Miners in La Paz, and the country's largest mining union. It has launched a series of strikes and legal challenges to COMIBOL's latest reform efforts.

The Bolivian Supreme Court is expected to rule shortly on a challenge that has temporarily stalled COMIBOL's joint venture prospects: The unions charge that two contracts with foreign companies were signed before a presidential decree permitting such ventures was legislated into law. Some analysts contend that a ruling against COMIBOL could scuttle the restructuring, while others see it as just another bump in COMIBOL's precarious road ahead.

"It's really a very foolish thing for the unions to do because they're only hurting their own people," says Mr. Bruce, whose consulting company has an interest in one of the contested joint ventures. He contends that several of COMIBOL's now-inactive mines could be reactivated, putting hundreds of people back to work.

COMIBOL's Guzman also is eager for a decision to clear the way to sign the 20 joint venture and exploration contracts under discussion. With a favorable ruling, Guzman says, COMIBOL can begin rebuilding. COMIBOL has an estimated 2,000 ore deposits that can be exploited. With an unfavorable ruling, Guzman contends that COMIBOL may have to close all of its remaining mine operations, with the exception of its profitable Huanuni mine.

Both Guzman and Bruce say the union leaders do not understand either the gravity of COMIBOL's economic crisis or the safeguards for workers built into joint ventures. Bolivian law requires private mine operators to provide housing, education, and health services. But Mr. Quirez of the miners' union responds that private investors did nothing to bring development or improved working conditions to Bolivia before the 1952 Revolution and will not now.

Other mining analysts contend that union leaders are fighting the joint ventures only to preserve their own power and privileges, which would be diminished in a restructured public mining sector. "They've got a pretty nice per diem and a house in La Paz they don't want to lose," one observer says. "Meanwhile, their workers are idle and hungry."

Many miners admit that working conditions at Bolivia's private mines are far superior than those at COMIBOL, where many health and education programs have been suspended. And the unions continue to wield political power. After a series of violent strikes three months ago, the Bolivian government agreed to continue to pay laid-off COMIBOL workers a minimum salary. Now hundreds of idle workers are owed two- and three-months' back pay.

Analysts say such political involvement frustrates COMIBOL's efforts to modernize and attract foreign investment. They say the challenge for Bolivia's new government, which takes office in August, will be to support COMIBOL's restructuring efforts and allow it to operate as an independent business.

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