UNCLAS LA PAZ 001596

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: TRIBUNAL DECLARES MINING CODE ARTICLES
UNCONSTITUTIONAL



1. (SBU) Summary: Bolivia's Constitutional Tribunal recently
declared six articles of the mining code unconstitutional,
eliminating investors' rights to transfer and mortgage mining
concessions. The ruling will take effect after a two-year
delay, ostensibly to allow the GOB to pass legislation
incorporating the change. At the same time, the tribunal
upheld the practice of entering into joint-venture agreements
without congressional approval. Apex Silver, Newmont, and
Coeur d'Alene executives said the ruling would not
immediately affect their operations but expressed concern
that delegates to the upcoming Constituent Assembly would
radically alter the mining code. The tribunal's ruling could
have long-term implications for Bolivia's mining sector, as
it not only raises questions about the nature of mining
concessions, but may restrict traditional mine financing and
future investment. End summary.


2. (U) In a May 10 ruling, Bolivia's Constitutional Tribunal
declared six articles (in whole or in part) of the mining
code unconstitutional. The finding eliminated investors'
rights to transfer mining concessions - e.g., to buy or sell
concessions or to leave them as an inheritance - and said
concessions could not be mortgaged. According to the ruling,
mining code articles granting these rights violated Bolivia's
Constitution, which declares mineral and other resources the
property of the state and specifically says they cannot be
transferred to private entities. The ruling is not
retroactive and will take effect after a two-year delay,
ostensibly to allow the GOB to pass legislation incorporating
the change.


3. (U) At the same time, the Constitutional Tribunal upheld
the ability of public and private entities, both domestic and
foreign, to enter into joint-venture agreements for the
development and execution of mining projects. In so doing,
the tribunal rejected the popular argument that the
Constitution requires congressional approval of all contracts
governing the exploitation of natural resources.


4. (SBU) Apex Silver, Newmont, and Coeur d'Alene executives
said the ruling would not immediately affect their
operations. Apex Silver representatives admitted June 12
that many of the firm's San Cristobal concessions were
mortgaged but said the two-year implementation delay would
prevent any immediate material affect on the company's
finances. Executives said it was possible, however, that
banks could recall the firm's mortgages at the expiration of
the two-year deferral. Newmont executives told Econoff that
the company had no outstanding mortgages and expected to
close its remaining gold mine before the deadline, thus
avoiding problems related to the tribunal's finding. Coeur
d'Alene executives, meanwhile, said that since the company's
San Bartolome mineral reserves and resources were not held
under concession, the ruling would have no significant impact
on operations.


5. (SBU) Executives welcomed the two-year deferral of the
Constitutional Tribunal's findings but expressed concern that
delegates to the upcoming Constituent Assembly would
radically alter the mining code. Everything, they noted,
would be fair game, and the Assembly could easily modify or
re-write existing regulations, possibly going beyond the
Constitutional Tribunal's ruling to further change the rights
and attributes associated with mining concessions.


6. (SBU) Comment: The Constitutional Tribunal's finding could
have long-term implications for Bolivia's mining sector, as
it not only adds to political and economic uncertainty, but
also raises questions about the nature of mining concessions
and may restrict traditional mine financing and future
investment. Company executives noted that losing the ability
to mortgage concessions would limit money-raising options and


stifle project development. If implemented as written, one
executive commented, the ruling could be the "death" of
mining in Bolivia - strangling a sector crucial to the
country's long-term economic growth. End comment.
GREENLEE