Bolivia boasts the world’s largest reserves of lithium.  (Photo: Knowledge@Wharton)        Font Size ..... Small Normal Big Very Big

CHRONICLE SPECIAL
Knowledge@Wharton

Recently, Bolivia has become the nerve center of Latin America, attracting the interest of several multinational companies. The reason: The world’s largest reserves of lithium are in this country, in the Salar (Salt Flats) de Uyuni.

Located in the Potosi region in the southeast of the country, 3,500 meters above sea level, the Salar de Uyuni holds five million tons of lithium, a mineral that is required for manufacturing batteries for hybrid and electric cars. The region represents an attractive investment option for global automotive manufacturers who are trying to break their dependence on petroleum and produce more fuel-efficient products.

For example, French manufacturer Bolloré has presented a proposal to Evo Morales, president of Bolivia, aimed at the massive exploitation and commercialization of the Uyuni mineral deposits. The race for Bolivian lithium has also been joined by Japan’s Mitsubishi Motors, followed closely by General Motors, which was engaged in talks with the Bolivian government before GM declared bankruptcy this year. “Obviously, automobile companies are interested in exploiting lithium,” says Brian Townley, professor of geology at the University of Chile. “They want to move beyond the internal combustion vehicle to electric models. The global impact would be enormous not only when it comes to economics but also in the environmental area.” Bolloré’s strategy lies in developing a hybrid vehicle that combines a gasoline motor with a lithium battery, while GM plans to develop a hybrid model that has already been baptized “Volt.” Nissan, Ford and BMW also want to avoid losing ground, and they, too, are involved in designing similar prototypes.

EVO MORALES' DECLARATION

Aware of the positive effects that the industrialization of lithium would have on the automotive sector and the local economy, Morales has declared his intention to engage in a partnership with some multinational firm. However, given the unusual amount of interest awakened by the mineral at Uyuni, Morales – who has already nationalized the local petroleum and natural gas industries – declared that “the goal of the Bolivian government is to exploit lithium on a grand scale” and that the government “will never lose ownership of its natural resources,” according to the daily newspaper El Diario de Bolivia.

Given that fact, John Tilton, a professor in the Catholic University of Chile’s mining division, warns that “the actions of the government and its policy for foreign investments in Bolivia will be the determining factors, and they could drive multinationals to invest in Chile or in other countries in Latin America if Bolivia does not offer the appropriate climate for investment.”

“There are deposits of lithium in Chile and Argentina, and a promising deposit in Tibet,” notes Oji Baba, an executive in Mitsubishi’s Base Metals Unit. “But it is clear that the biggest prize is in Bolivia. If we want to lead the next wave of lithium-based automobiles, we have to be in the Salar de Uyuni.”

BETTER PERFORMANCE, GREATER MILEAGE

Christian Moscoso, professor of mining engineering at the University of Chile, notes that “France’s Bolloré has established a 50-50 agreement with the Italian manufacturer Pininfarina to produce hybrid vehicles for cities. The battery that will be used is based on metallic lithium polymer technology developed by Bolloré. It is a great innovation since it will improve the vehicle’s safety, economy and performance. All that would contribute to making it possible to use this technology on a massive scale.”

Moscoso agrees with most analysts that lithium holds great potential for manufacturers because its application in batteries enables vehicles -- especially electric ones -- to store a greater amount of energy and operate over longer distances. President Evo Morales himself had an opportunity to drive a “Bluecar” model developed by Bolloré and Pininfarina, a prototype equipped with a lithium battery. Thanks to the lithium battery, that automobile can move as fast as 125 kilometers an hour when fully charged.

GM’s Volt model is only capable of traveling as fast as 64 kilometers an hour and is powered by ion-lithium batteries. Beyond that distance, its gasoline motor becomes activated. Bolloré’s Bluecar has a comparative advantage: It is the first “plug-in hybrid.” That is to say, it can be re-charged at home with an ordinary current of 220 volts. It can even be recharged in only 10 minutes, using special chargers.

LOWER EMISSIONS

Townley emphasizes the environmental benefits that will come when traditional vehicles are replaced by electric automobiles since “these models represent a form of transportation that is free from environmental pollutants.” However, he notes that this does not mean electric vehicles are entirely environmentally friendly, “since they will have an environmental impact on sources of electricity generation: power plants, thermoelectric power plants and nuclear plants.”

For this reason, he argues that “mass production of lithium batteries has to be accompanied by the development of clean technologies for power generation, such as solar, geothermic and wind power.”

Juan Pablo Hurtado, professor of mining engineering at the University of Santiago de Chile (USACH), says that the project of industrializing lithium in Bolivia has great importance because the initiative could generate strategic opportunities for the development of that Andean nation. “The government could demand that a large part of the production process be carried out on Bolivian territory, thus forcing the multinationals to invest in training workers and in the quality of life.”

THE BOLLORE BUSINESS MODEL

According to Moscoso, Bolloré’s proposal projects that the lithium extracted at Uyuni will be used in its battery manufacturing plants located in Brittany (in France)  and Montreal, Canada. However, Moscoso believes that the most outstanding part of the French company’s plans involve its business model. “Lithium is a small market that is being fully developed,” he notes. “To advance its life cycle, this niche requires standardization of the technologies that use it. Bolloré’s lithium battery is a clear attempt to become a standard and to reduce the level of uncertainty, since the French company hopes to formally enter the lithium market through its industrial property.” An agreement such as the upcoming one between Bolloré and the Bolivian government would have the impact of reducing “transaction costs” in the lithium market, he predicts.

Tilton notes that “the manufacturing of hybrid and electric models will grow in the coming decades, and with it global demand for lithium will also grow. But there are many high-quality deposits of the mineral that can be extracted at a low cost. We hope that the growth in demand will not have a significant impact on the price of products that are based on lithium.”

POLITICAL BARRIERS

According to Townley, Bolivia presents a series of political and social barriers that could threaten the creation of a partnership between its government and foreign firms. The Bolivian government will face the challenge of “reaching the political – and above all – social conviction that Bolivia needs to become a country that produces technology, and that this [project] is a step forward that could trigger social changes on a grand scale,” he says.

“The challenge facing Bolivian authorities, not just the government, is to make sure that the money collected from the exploitation of lithium contributes effectively to raising the wellbeing of the population of the country,” Moscoso notes.

Townley predicts that the Morales government will manage to inject confidence so that multinationals invest in the country. “The people who govern [Bolivia] recognize the need to make progress in the fields of science, technology and related businesses, so they can promote greater economic development.”

Hurtado agrees that the government will make a major effort to attract international investors. “But we must remember that the Salar de Uyuni holds the world’s largest exportable reserves of lithium carbonate, along with the Salar de Atacama in Chile. Bolivia should have a legal framework that specifically regulates the development of this strategic resource, so that things in Bolivia don’t turn out the same way as they did in Chile.”

Sergio Acevedo, professor of mining engineering at USACH, explains that Chile’s Salar de Atacama, whose reserves of lithium amount to three million tons, was owned by the Chilean government “until 1973, when it decided to privatize it.”

According to Acevedo, “In 1972, they began exploring the Salar de Atacama, and after doing a series of drilling operations they discovered a huge deposit of lithium. I was asked to participate in the analysis of the mineral samples that were sent here to the University, and we concluded then that the discovery was related to one of the world’s greatest concentrations of lithium.”

“If these resources hadn’t been taken away, today the lithium in Atacama would be managed by a state-owned Chilean company, a sort of Codelco (the Chilean state mineral company),” Acevedo adds. Salar de Atacama is currently exploited by two privately owned Chilean companies, SOQUIMICH and SCL.

LEGISLATION AN ROYALTIES

“If the Bolivian government manages to establish regulations that permit a large part of the wealth obtained from lithium exploration to remain in the hands of the nation, and it respects shareholders, then a climate of confidence will be created both inside and outside the country,” Hurtado says. Likewise, “the government must also establish a high royalty -- or tax-- that guarantees profits from the exploitation of lithium.”

Moscoso agrees: “Considering the market that we are talking about as well as the international standards [for royalties], the royalty should be at least 15 percent, since this is a risky undertaking when it comes to both technology and markets.”

It seems Bolivia knows all about risky initiatives. The government recently signed a shared risk contract with the Korean mining company KORES, aimed at exploiting the Bolivian copper mine Coro Coro. “This is a very good sign of an opening up [by the government] to the business sector, and we hope that they keep searching for investors,” Townley notes.

As this issue was going to press, however, the Bolivian daily La Razon and in the regional publication America Economia reported that at present, the government of President Evo Morales intends to carry out exploitation of the lithium deposits at Salar de Uyuni all by itself, without any partners. This is because none of the offers made by multinational companies has yet to satisfy the government’s principal goal of moving away from the simple production of raw materials, and turning Bolivia into an industrialized country. To achieve that goal, the government plans to obtain financial assistance from a bank or from another institution, according to the reports.

Republished with permission from http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania.