Negotiating with Glencore the Bolivian way

As reported in ‘For Whom the Windfalls?’ the Zambian Government is, very hesitantly, approaching a re-negotiation of its contracts with major mining houses. Under current contracts Zambian workers, communities and the Government receive little benefit while the mine owners make massive profits. However, the Government insists that it is negotiating from a position of weakness because it has signed legally binding contracts with the companies, and will be taken to international arbitration if it attempts to impose a solution that the companies are not happy with.

A recent Christian Aid report, ‘A Rich Seam’, compared the finding from ‘For Whom the Windfalls?’ with data from a range of other countries and revealed important similarities between Zambia and Bolivia. The Zambian Government may well be keeping an eye on developments in Latin America then.

In recent weeks, the Bolivian Government has adopted a rather more direct approach to renegotiation of unfair contracts. The company involved is also one of Zambia’s main investors, Glencore. The Swiss-based company is the world’s largest commodity trader and is behind both Zambia’s second biggest copper mine, Mopani Copper Mines (MCM), and major holdings in Bolivia.

Bloomberg reported that on February 9^th, the Bolivian army seized control of Glencore’s Vinto smelter on behalf of the Government. Forbes Magazine then reported that recently elected Bolivian President Evo Morales had announced that the Government would not pay the company back. Morales argued that the original purchase of the plant was illegal, that the company had not adequately invested in the plant’s upkeep and that the contracts should be cancelled because the original purchase price paid by Glencore was unrealistically low. Morales insisted Glencore should instead pay Bolivia for failing to upgrade the smelter's furnaces and other machinery. He said, "If they can document indisputably that they have invested in modernizing the plant, that they spent money on modernization beyond just the purchase price, then we'll have to pay…But if they can't show that investment, they'll have to reimburse us… Not only the Bolivian people but also the international community and the financial experts know of the shady dealings that the Swiss company conducted with Gonzalo Sanchez de Lozada… There should be justice for this swindle."

The Bolivian approach reveals an interesting and little focused-on possibility for Zambian negotiators. If it can be shown that the mining companies have not kept to their end of the contracts they signed, known as Development Agreements, this may allow the Zambian Government to legitimately re-open talks without being accused of breaching contracts and without risking losing a case in international arbitration. ‘For Whom the Windfalls?’ presents a number of examples of the companies breaching the terms of their contracts. More research is badly needed into this issue, however. Most of the evidence required to make the case should be held in annual reports, submitted by the companies to the Department of Mines. Unfortunately these are not currently available for public inspection.

Bloomberg also report that the Government plans to rewrite contracts with Glencore to get a larger slice of the profits from the Colquiri and Porco mines. Mining Vice Minister Luis Alberto Echazu told the agency, “It isn't fitting for the state," and that Glencore's current payments to the government are “very low.” Glencore paid about $30 million to Bolivia last year, while its exports totaled around $600 million. Echazu said those payments should “at least double.”