Identifier
Created
Classification
Origin
06LAPAZ439
2006-02-21 17:36:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy La Paz
Cable title:
BIDDING ON MUTUN IRON ORE PROJECT DELAYED AGAIN
how-toVZCZCXYZ0006 RR RUEHWEB DE RUEHLP #0439/01 0521736 ZNR UUUUU ZZH R 211736Z FEB 06 FM AMEMBASSY LA PAZ TO RUEHC/SECSTATE WASHDC 8139 INFO RUEHAC/AMEMBASSY ASUNCION 5613 RUEHBJ/AMEMBASSY BEIJING 0410 RUEHBO/AMEMBASSY BOGOTA 2879 RUEHBR/AMEMBASSY BRASILIA 6752 RUEHBU/AMEMBASSY BUENOS AIRES 3974 RUEHCV/AMEMBASSY CARACAS 1322 RUEHPE/AMEMBASSY LIMA 1221 RUEHME/AMEMBASSY MEXICO 1653 RUEHMN/AMEMBASSY MONTEVIDEO 3574 RUEHNE/AMEMBASSY NEW DELHI 0058 RUEHQT/AMEMBASSY QUITO 3959 RUEHSG/AMEMBASSY SANTIAGO 8476 RUEHTC/AMEMBASSY THE HAGUE 0723 RHEBAAA/DEPT OF ENERGY WASHINGTON DC RUEHC/DEPT OF INTERIOR WASHINGTON DC RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC
UNCLAS LA PAZ 000439
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
ENERGY FOR CDAY AND SLADISLAW
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EMIN ECON EINV PGOV BL
SUBJECT: BIDDING ON MUTUN IRON ORE PROJECT DELAYED AGAIN
REF: 05 LA PAZ 3771
UNCLAS LA PAZ 000439
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
ENERGY FOR CDAY AND SLADISLAW
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EMIN ECON EINV PGOV BL
SUBJECT: BIDDING ON MUTUN IRON ORE PROJECT DELAYED AGAIN
REF: 05 LA PAZ 3771
1. (U) Summary: Shortly before an earlier sixty-day delay
expired, the GOB announced plans to postpone for an
additional ninety days international bidding on the rights to
develop Mutun, one of the world's largest iron ore deposits.
Interested firms may now be expected to fund not only the
extraction of iron ore, but also its domestic
industrialization and related construction projects.
Observers worry that GOB officials' plans to revise existing
bid protocols and to modify its proposed joint venture
contract may undermine investors' confidence in the bid
process, noting that since officials have failed to offer
specifics, interested firms face significant uncertainty and
the possibility of further delays. End summary.
2. (U) On February 19, the GOB postponed for ninety days
international bidding on the rights to develop Mutun, one of
the world's largest iron ore deposits. The news came just
days before the expiration of a sixty-day delay announced
December 20, 2005 (reftel) and revealed the GOB's intentions
to revise existing bid protocols and to modify the joint
venture contract the GOB will sign with the winning bidder.
Officials indicated they would seek favorable mineral prices
for the state; require the domestic industrialization of iron
ore extracted from the Mutun deposit; mandate the eventual
use of natural gas (instead of coal) to power the site's
proposed processing facility; and compel the construction of
a canal and railroad spur to link the project to a nearby
riverine port.
3. (U) Five firms, including the Netherlands' Mittal Steel,
Brazil's EBX Siderurgica, Argentina's Techint-Siderar,
China's Luneng Shandong, and India's Jindal Steel and Power,
have expressed interest in the project, each apparently
having determined that potential profits from the development
of the deposit's estimated 40 billion tons of iron ore and
associated magnesium make bearing the political risks of
Bolivia's uncertain investment climate worthwhile. To
continue, each firm will have to demonstrate its ability to
raise enough cash to cover a projected $1.7 billion total
investment. Given proposed changes to the contract, the
winning bidder will not only be expected to build a $500
million industrial plant to process iron ore, but also to
construct a $400 million pipeline to supply the project with
Bolivian natural gas (note: Brazil currently consumes all gas
shipped through the region's existing pipeline) and to build
a $170 million canal and 140-kilometer railroad spur to link
the project to a port (which must also be constructed) at
Puerto Busch, a facility designed to provide access to the
Paraguay River and the Atlantic Ocean.
4. (SBU) Comment: Historically high mineral prices and the
GOB's promise of reasonably priced natural gas may make the
Mutun project economically viable, but investors must weigh
potential profits against the risk of doing business in an
increasingly uncertain investment climate. Observers worry
that GOB officials' plans to revise existing bid protocols
and to modify its proposed joint venture contract may
undermine investors' confidence in the bid process, noting
that since neither President Evo Morales nor any of his
advisors or ministers have offered specifics, interested
firms face significant uncertainty and the possibility of
further delays. Business and community leaders in Santa Cruz
and towns near the project have vowed to initiate roadblocks
if the process is postponed again, leading some to wonder if
the issue won't evolve into a power struggle between the new
MAS-led administration - which has repeatedly declared its
desire to nationalize Bolivia's natural resources, revise the
mining code, and raise mineral royalties - and the region's
business interests, which favor a private sector-led
development strategy. End comment.
GREENLEE
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
ENERGY FOR CDAY AND SLADISLAW
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EMIN ECON EINV PGOV BL
SUBJECT: BIDDING ON MUTUN IRON ORE PROJECT DELAYED AGAIN
REF: 05 LA PAZ 3771
1. (U) Summary: Shortly before an earlier sixty-day delay
expired, the GOB announced plans to postpone for an
additional ninety days international bidding on the rights to
develop Mutun, one of the world's largest iron ore deposits.
Interested firms may now be expected to fund not only the
extraction of iron ore, but also its domestic
industrialization and related construction projects.
Observers worry that GOB officials' plans to revise existing
bid protocols and to modify its proposed joint venture
contract may undermine investors' confidence in the bid
process, noting that since officials have failed to offer
specifics, interested firms face significant uncertainty and
the possibility of further delays. End summary.
2. (U) On February 19, the GOB postponed for ninety days
international bidding on the rights to develop Mutun, one of
the world's largest iron ore deposits. The news came just
days before the expiration of a sixty-day delay announced
December 20, 2005 (reftel) and revealed the GOB's intentions
to revise existing bid protocols and to modify the joint
venture contract the GOB will sign with the winning bidder.
Officials indicated they would seek favorable mineral prices
for the state; require the domestic industrialization of iron
ore extracted from the Mutun deposit; mandate the eventual
use of natural gas (instead of coal) to power the site's
proposed processing facility; and compel the construction of
a canal and railroad spur to link the project to a nearby
riverine port.
3. (U) Five firms, including the Netherlands' Mittal Steel,
Brazil's EBX Siderurgica, Argentina's Techint-Siderar,
China's Luneng Shandong, and India's Jindal Steel and Power,
have expressed interest in the project, each apparently
having determined that potential profits from the development
of the deposit's estimated 40 billion tons of iron ore and
associated magnesium make bearing the political risks of
Bolivia's uncertain investment climate worthwhile. To
continue, each firm will have to demonstrate its ability to
raise enough cash to cover a projected $1.7 billion total
investment. Given proposed changes to the contract, the
winning bidder will not only be expected to build a $500
million industrial plant to process iron ore, but also to
construct a $400 million pipeline to supply the project with
Bolivian natural gas (note: Brazil currently consumes all gas
shipped through the region's existing pipeline) and to build
a $170 million canal and 140-kilometer railroad spur to link
the project to a port (which must also be constructed) at
Puerto Busch, a facility designed to provide access to the
Paraguay River and the Atlantic Ocean.
4. (SBU) Comment: Historically high mineral prices and the
GOB's promise of reasonably priced natural gas may make the
Mutun project economically viable, but investors must weigh
potential profits against the risk of doing business in an
increasingly uncertain investment climate. Observers worry
that GOB officials' plans to revise existing bid protocols
and to modify its proposed joint venture contract may
undermine investors' confidence in the bid process, noting
that since neither President Evo Morales nor any of his
advisors or ministers have offered specifics, interested
firms face significant uncertainty and the possibility of
further delays. Business and community leaders in Santa Cruz
and towns near the project have vowed to initiate roadblocks
if the process is postponed again, leading some to wonder if
the issue won't evolve into a power struggle between the new
MAS-led administration - which has repeatedly declared its
desire to nationalize Bolivia's natural resources, revise the
mining code, and raise mineral royalties - and the region's
business interests, which favor a private sector-led
development strategy. End comment.
GREENLEE