Summary

• A reply to a newspaper columnist in Bolivia on the lithium industrialization project carried out by the government.
• It also describes the weaknesses of the mixed company the government is planning to consolidate with a German firm that has neither the technical nor the financial capacity to undertake.

In a recent article, published in El Diario under the title "The race for lithium in the world," it is stated that "the country opted for the German company ACI Systems to install four lithium plants in Salar de Uyuni, with an investment of 1.328 billion dollars, which will be contributed by the two partners of the project in proportion of their participation: The Bolivian State 51% and the German partner 49%. This opening to private companies is a positive step, as it commits this sector to continue working for the country. "

Due to the importance of the subject, I am forced to make some comments. I start by indicating that either the author of the opinion note is confusing things or has privileged information not accessible to the rest of the people. If the first were the case, it would call for an immediate rectification on his part, while if we were facing the second event, his assertion would put one of the most publicized projects by the government into question.

Let me explain. According to the news released by the different government authorities since April of this year, the amount of 1,328 million dollars referred to the contribution of ACI Systems to the mixed company (to be made up of the German consortium and Bolivian Lithium Deposits - YLB ) on the understanding that Bolivia had already invested/committed investment resources by around $1 billion in the development of the pilot plants of potassium chloride, lithium carbonate, cathode material and lithium-ion batteries, industrial plants of potassium chloride and lithium carbonate, as well as in the construction of the entire infrastructure constituted by the set of solar evaporation ponds currently in place in Salar de Uyuni.

What the commentator says would be something very different. He would be saying in short two things. The first is that, in order for Bolivia to be a majority shareholder of the new venture, it must invest about 677 million dollars more and, secondly, that the previous investment made by the country would not count in the new company.

Apparently, what the columnist did not realize is that if the agreement were finalized in those terms, the new mixed company to be created, as established by the Supreme Decree No. 3627 approved in August 2018, that has even already obtained a juicy budget of $3 million from the General Treasury of the State for its preliminary work, could be more disadvantageous for the country than the contract that the government of Jaime Paz Zamora signed in February 1992 with FMC Corporation, better known at that time as former Lithco, and that the Congress of the Republic observed in July of that year, which finally led the American company to leave the country. It should be noted that I have referred in other contributions to this problem highlighting my rejection of the contract with the former Lithco for having considered it as an attempt against national interests.

But, let's go back to our comparative exercise. In effect, while the "Joint Venture" with the former Lithco supposed the concession of 9% of the richest lithium resources of the Salar de Uyuni for 40 years to the transnational company in exchange for which it would commit the total amount of the investment necessary for the development of the project and generate taxes for the State, it turns out that now Bolivia would commit without limits its lithium resources, in addition to all the investments mentioned above, along with more than additional $677 million, in return of a fictitious majority position in the new JV with a company that has neither the technological know-how nor the experience necessary to handle complex lithium projects such as that in Salar de Uyuni and much less for the manufacture of cathodes or batteries in Bolivia or anywhere in the world.

As I have noted in other articles, outside the mining area - an area completely unrelated to its main activity - although "Energy Storage " is included on its website among its business areas, it only appears as a complement to "Photovoltaic Systems " According to its explanatory folder, the company provides "turnkey" solutions for automation, robotics and precision assembly tasks in the first area, as it only distributes photovoltaic systems and develops different solutions and concepts for the demand and specific projects of individual clients in the second.

Therefore, it is difficult to understand why both the general manager of YLB and Bolivia’s Deputy Minister of High Alternative Energies believe that "the technology, the type of batteries and the feasibility of the project tipped the balance in favor of the transnational company" and how ACI Systems Gmbh will produce lithium cathode material, as well as lithium battery cells for the German electromobility industry, particularly given the fact that Varta, itsalleged strategic partner in batteries, does not manufacture this class of products.

In an analogy in the field of gastronomy, all the above would be like asking a restaurant to manufacture in a few months its own classic sausages and even introduce new and more sophisticated sausage products to the market. I do not doubt that it could fulfill that goal - because nowadays it is possible for almost anyone to do many things - but the question is whether it will be able to do it competitively.

Moreover, YLB will also have to demonstrate the economic viability of the German proposal, after the announcement of Contemporary Amperex Technology Limited (CATL), China's largest battery producer, that by 2022 it will build its first European battery plant for electric vehicles in Germany with a production capacity of 14 GWh or the news that the thriving German country is the best option for Tesla to build a new giga-battery plant in the coming years.

In this context, something that should call our attention deeply is the possibility that, behind this lousy lithium industrialization project, it is only intended to turn Bolivia into another supplier of lithium carbonate or lithium hydroxide for such battery plants as, according to the writer, the general manager of YLB himself would seem to have indicated.

It is also worth noting the disorientation of the aforementioned authority regarding the main technological and market trends in the lithium energy value chain, highlighted in its recent announcement that the battery plant to be built in Bolivia will have an initial capacity of 8 GWh a year producing 400 thousand batteries for electric vehicles, without taking into account that this would imply betting on batteries with a capacity of 20 kWh for electric mini-cars with a maximum autonomy of 150 km, which as of June of this year have started to be displaced from the Chinese market and that BAIC, the largest manufacturer of electric vehicles in that country, has just launched to the market the first more advanced models of these vehicles with batteries of greater energy capacity in the neighboring republic of Paraguay.

In addition, the Bolivian government must also explain the reasons why it is placing all its bets on a company that, according to data recorded in the Federal Gazette of Germany, only six years ago, had just 62 thousand Euros as equity capital. Under these circumstances, it would seem that we are facing the possibility of Bolivia lending itself to a typical financial-securities game through which the lithium of the immeasurable Salar de Uyuni could very well serve as a mechanism for leveraging financial resources either in the form of a sale of shares for ACI Systems or debt for the Bolivian State. Gone are the times when many authorities of the national government filled their mouths with slogans contrary to the subjection of the country to the designs of the international market; at present, these same officials would be prepared to increase our external obligations under the apparent auspices of diligent German banks.

Given the arguments presented above, I wonder if the author of the commented journalistic contribution will continue to see the YLB agreement with ACI Systems as a positive development for Bolivia.

This article was first published in Spanish on September 3, 4 and 5, 2018 in Bolivia in Urgente.bo (Un pésimo proyecto de industrialización del litio en Bolivia | Urgentebo) , El Diario (Un pésimo proyecto de industrialización del litio en Bolivia; Un pésimo proyecto de Industrialización del litio en Bolivia) and Agencia de Noticias Fides – ANF (Un pésimo proyecto de industrialización del litio en Bolivia | ANF - Agencia de Noticias Fides) .

This blog starts a new series of contributions on lithium in Bolivia aimed at complementing my regular articles on the subject. My readers should be aware here that many of the intuitions I advanced in them as well in the interviews I have given to prestigious news agencies such as Reuters and Bloomberg over the last year or so have been confirmed.  

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

• A reply to a newspaper columnist in Bolivia on the lithium industrialization project carried out by the government.
• It also describes the weaknesses of the mixed company the government is planning to consolidate with a German firm that has neither the technical nor the financial capacity to undertake.

In a recent article, published in El Diario under the title "The race for lithium in the world," it is stated that "the country opted for the German company ACI Systems to install four lithium plants in Salar de Uyuni, with an investment of 1.328 billion dollars, which will be contributed by the two partners of the project in proportion of their participation: The Bolivian State 51% and the German partner 49%. This opening to private companies is a positive step, as it commits this sector to continue working for the country. "

Due to the importance of the subject, I am forced to make some comments. I start by indicating that either the author of the opinion note is confusing things or has privileged information not accessible to the rest of the people. If the first were the case, it would call for an immediate rectification on his part, while if we were facing the second event, his assertion would put one of the most publicized projects by the government into question.

Let me explain. According to the news released by the different government authorities since April of this year, the amount of 1,328 million dollars referred to the contribution of ACI Systems to the mixed company (to be made up of the German consortium and Bolivian Lithium Deposits - YLB ) on the understanding that Bolivia had already invested/committed investment resources by around $1 billion in the development of the pilot plants of potassium chloride, lithium carbonate, cathode material and lithium-ion batteries, industrial plants of potassium chloride and lithium carbonate, as well as in the construction of the entire infrastructure constituted by the set of solar evaporation ponds currently in place in Salar de Uyuni.

What the commentator says would be something very different. He would be saying in short two things. The first is that, in order for Bolivia to be a majority shareholder of the new venture, it must invest about 677 million dollars more and, secondly, that the previous investment made by the country would not count in the new company.

Apparently, what the columnist did not realize is that if the agreement were finalized in those terms, the new mixed company to be created, as established by the Supreme Decree No. 3627 approved in August 2018, that has even already obtained a juicy budget of $3 million from the General Treasury of the State for its preliminary work, could be more disadvantageous for the country than the contract that the government of Jaime Paz Zamora signed in February 1992 with FMC Corporation, better known at that time as former Lithco, and that the Congress of the Republic observed in July of that year, which finally led the American company to leave the country. It should be noted that I have referred in other contributions to this problem highlighting my rejection of the contract with the former Lithco for having considered it as an attempt against national interests.

But, let's go back to our comparative exercise. In effect, while the "Joint Venture" with the former Lithco supposed the concession of 9% of the richest lithium resources of the Salar de Uyuni for 40 years to the transnational company in exchange for which it would commit the total amount of the investment necessary for the development of the project and generate taxes for the State, it turns out that now Bolivia would commit without limits its lithium resources, in addition to all the investments mentioned above, along with more than additional $677 million, in return of a fictitious majority position in the new JV with a company that has neither the technological know-how nor the experience necessary to handle complex lithium projects such as that in Salar de Uyuni and much less for the manufacture of cathodes or batteries in Bolivia or anywhere in the world.

As I have noted in other articles, outside the mining area - an area completely unrelated to its main activity - although "Energy Storage " is included on its website among its business areas, it only appears as a complement to "Photovoltaic Systems " According to its explanatory folder, the company provides "turnkey" solutions for automation, robotics and precision assembly tasks in the first area, as it only distributes photovoltaic systems and develops different solutions and concepts for the demand and specific projects of individual clients in the second.

Therefore, it is difficult to understand why both the general manager of YLB and Bolivia’s Deputy Minister of High Alternative Energies believe that "the technology, the type of batteries and the feasibility of the project tipped the balance in favor of the transnational company" and how ACI Systems Gmbh will produce lithium cathode material, as well as lithium battery cells for the German electromobility industry, particularly given the fact that Varta, itsalleged strategic partner in batteries, does not manufacture this class of products.

In an analogy in the field of gastronomy, all the above would be like asking a restaurant to manufacture in a few months its own classic sausages and even introduce new and more sophisticated sausage products to the market. I do not doubt that it could fulfill that goal - because nowadays it is possible for almost anyone to do many things - but the question is whether it will be able to do it competitively.

Moreover, YLB will also have to demonstrate the economic viability of the German proposal, after the announcement of Contemporary Amperex Technology Limited (CATL), China's largest battery producer, that by 2022 it will build its first European battery plant for electric vehicles in Germany with a production capacity of 14 GWh or the news that the thriving German country is the best option for Tesla to build a new giga-battery plant in the coming years.

In this context, something that should call our attention deeply is the possibility that, behind this lousy lithium industrialization project, it is only intended to turn Bolivia into another supplier of lithium carbonate or lithium hydroxide for such battery plants as, according to the writer, the general manager of YLB himself would seem to have indicated.

It is also worth noting the disorientation of the aforementioned authority regarding the main technological and market trends in the lithium energy value chain, highlighted in its recent announcement that the battery plant to be built in Bolivia will have an initial capacity of 8 GWh a year producing 400 thousand batteries for electric vehicles, without taking into account that this would imply betting on batteries with a capacity of 20 kWh for electric mini-cars with a maximum autonomy of 150 km, which as of June of this year have started to be displaced from the Chinese market and that BAIC, the largest manufacturer of electric vehicles in that country, has just launched to the market the first more advanced models of these vehicles with batteries of greater energy capacity in the neighboring republic of Paraguay.

In addition, the Bolivian government must also explain the reasons why it is placing all its bets on a company that, according to data recorded in the Federal Gazette of Germany, only six years ago, had just 62 thousand Euros as equity capital. Under these circumstances, it would seem that we are facing the possibility of Bolivia lending itself to a typical financial-securities game through which the lithium of the immeasurable Salar de Uyuni could very well serve as a mechanism for leveraging financial resources either in the form of a sale of shares for ACI Systems or debt for the Bolivian State. Gone are the times when many authorities of the national government filled their mouths with slogans contrary to the subjection of the country to the designs of the international market; at present, these same officials would be prepared to increase our external obligations under the apparent auspices of diligent German banks.

Given the arguments presented above, I wonder if the author of the commented journalistic contribution will continue to see the YLB agreement with ACI Systems as a positive development for Bolivia.