Historically, Bolivia has depended heavily on the extractive industries, as a key source of exports and the most important source of fiscal revenues. Bolivia is the world's fourth largest tin producer, ranks 11th in global production of silver, and also mines gold, copper and lead, among other minerals. But hydrocarbons outweigh minerals in importance, with daily production levels reaching 58 thousand barrels for oil and 519 billion cubic feet for natural gas.1
The leading companies in the mining sector are Sumitomo from Japan and Jindal Steel from India. Sumitomo currently operates the San Cristobal mine, located in Potosi, which produces silver, zinc and lead. San Cristobal is the largest silver mine in Bolivia and the third largest in the world. Its output is estimated to have accounted for half of Bolivia's 2008 GDP growth. Jindal Steel operates the Mutun project, which represents one of the largest steel reserves in the world.
In the hydrocarbon sector, the state owned company YPFB (Yacimientos Petróliferos Fiscales de Bolivia) is the dominant presence, participating in every single stage of the value chain. However, there are also private and public foreign companies in the sector, such as Gazprom from Russia, Total from France and Petrobras, the Brazilian state-owned oil company. Recently, Spain's Repsol announced it will invest US $1.5 billion in the next five years to develop natural gas production in Bolivia.2
The extractive industries gained even greater significance over the past decade, as mineral and hydrocarbon prices soared during the commodities boom. Indeed, between 2003 and 2008, Bolivia's mineral exports rose from 23% to 28% of total exports, while hydrocarbons increased from 30% to 50%.3
Since 2005, the government has sought to increase its share of total hydrocarbon revenues. In May 2005, then-president Carlos Mesa passed a new Hydrocarbon Law which created a direct tax, the IDH (Impuesto Directo a los Hidrocarburos), which required companies to pay 32% of production value to the state, in addition to an 18% royalty rate that was already required. Evo Morales continued this trend during his presidency, initiating a contract renegotiation process with foreign hydrocarbon companies in 2007. Currently, the State is the owner of all hydrocarbons, and private companies are permitted to keep only 18% of production value. Morales also nationalized refineries and hydrocarbon distribution companies to ensure the presence of the national oil company YPFB in every stage of the value chain.
These measures, together with rising international hydrocarbon prices, increased the Bolivian Government's hydrocarbon revenues from to 40.6% of total revenues in 2008.4
Bolivia also has South America's second largest proven natural gas reserve, totaling approximately 24 trillion cubic feet (tcf),5 85% of which is located in the Tarija region.6 Natural gas production has increased steadily since 2003, and gas has become the country's most important extractive resource. Most of Bolivia's natural gas is exported to Brazil and Argentina.
Hydrocarbon revenues are distributed among the country's subnational governments, with the largest percentage going to producing regions. This practice inevitably leads to huge imbalances. However, in 2008, President Morales cut 30% of the revenue distributed to subnational governments in order to finance national payments to the elderly (the "Dignity Bond"). This measure led to public demonstrations and violence in oil and gas producing regions.
In addition to its hydrocarbon and mineral reserves, Bolivia also holds large deposits of lithium. In fact, lithium reserves amount to an estimated 18 to 20 million tons, representing more than 65% of total world reserves. Nearly all of these deposits are in a 10,000-square-kilometer area called the "Salar de Uyni" in the Potosí region.
Bolivia's lithium is used primarily to produce cell phone and computer batteries, but the automotive industry has shown an increasing interest in lithium for the manufacture of batteries for hybrid cars. Meanwhile, a serious national debate is developing over the state-owned hydrocarbon company's involvement in the lithium sector, and the subnational distribution of related revenue.
1 EIA, 2008.
2 Repsol. Press Release. 28 March 2010, http://www.repsol.com/es_en/corporacion/prensa/notas-de-prensa/ultimas-notas/28032010-campo-margarita.aspx.
3 Fundación Tierra: "Ingresos públicos provenientes de la explotación de recursos naturales: Los casos de Santa Cruz y Potosí," July, 2009. La Paz.
4 IMF Country Report 10/27, January, 2010.
5 USGS, 2001.
6 Bolivian Chamber of Hydrocarbons, April 16, 2008, http://www.cbh.org.bo/es/index.php?cat=79&pla=27&id_articulo=3201
