China enters Bolivia’s steel industry

With the help of a Chinese loan of US$ 405 million, El Mutún in Bolivia will produce 2 million steel sheets per year (image: Gobernación de Santa Cruz).

China enters Bolivia’s steel industry

Of incalculable value to humanity, the Bolivian Pantanal (wetlands) is also home to one of the largest iron ore mines in the world; El Mutún. For more than half a century Bolivia has sought to convert its riches into a source of income and economic development. Now it seems that China holds the key to turning this frustrated dream into a reality.

One major concern is how to extract the iron ore without destroying the environment, something the mine’s previous owners, India’s Jindal Steel & Power (JSP) threatened to do according to the Bolivian Forum on Environment and Development (FOBOMADE).

The mound of iron at El Mutún is on the Bolivian side of the Pantanal system, a section of the Amazon that provides a unique mosaic of lakes, lagoons, rivers, flood plains, palm groves, dry forests and savannahs that buttress against floods and droughts. It is spread between Bolivia and Brazil. In 2001, it was named a Ramsar Wetland of International Importance, meaning that Bolivia had to commit to measures to ensure that its ecological profile was maintained for the whole world.

With around 20,000 inhabitants, the border town of Puerto Suarez is the closest to the mine at half hour journey by car along a dirt tack. It’s on the banks of the Caceres laguna, which is connected to the Paraguay river by the Tamengo canal and can be reached only in a small boat because of its shallowness. The free trade zone of Puerto Quijarro and the Brazilian city of Corumba are also close. A modern asphalt highway links this Amazonian region of vast uninhabited areas with the urban centres along its neighbouring countries’ Pacific coasts. An old railway line connects the highway to the departmental capital Santa Cruz. The border area is key critical for the international trade of soya, oil and construction materials.

The offices of Bolivia’s state-owned El Mutún Steelworks Company (ESM in Spanish), which is tasked with industrializing the iron ore from El Mutun, is in Santa Cruz. On winning national elections 10 years ago, Bolivian President Evo Morales promised to realize the dream of creating a pole of development in the form of a steelworks at El Mutún. Morales included it in his first National Development Plan and reiterated it last year on beginning his third term as president.

After a disastrous attempt to the develop the megaproject with JSP, the Bolivian government made two key decisions. First, it decided that ESM would begin producing one million tonnes of concentrates to sell to Paraguay and Brazil, exploiting half of the southern part of the mine so as to avoid conflict over the northern part, owned by JSP and which was considered a failure.

Secondly, it authorised a group of  state-employed technicians and specialists from the public universities of Potosi, Oruro and La Pazto to design the National Steel Plan.

The plan has two strategic objectives. The first of which has three stages: to build a plant for steel to be used in construction; increasing the number of steel mills and attracting a strategic partner with a captive market. The second objective is part of the plan to develop “great logistics” to facilitate exports. In just one decade, the plan said, Bolivia would be part of a global market; competing with the likes of Brazil in producing steel for car manufacturing.

China seems to have fulfilled the first strategic objective. Last year it was announced that the state-run China Development Bank would provide ESM with a $US 405 million credit line for El Mutún. The loan was conditional on the “key-in-hand” selection of a Chinese contractor to build the first plant. It will receive the money only once work is completed according to Bolivia’s standards.

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Environmental Permits

The president of ESM’s directorate, Alberto Padilla affirms that environmental studies are advancing. He claims that the plant will neither generate a big impact on the environment nor in nearby communities. Padilla adds that “the areas around ESM are sanitised” and there will be no expropriations.

Supposedly, the big difference between the current project and that of JSP is that the Pantanal is no longer under threat from deforestation from the mine. Under new plans, the production process would use natural gas, allowing sponge iron to be obtained instead of pig iron, which is extracted from the ore by a smelting process that takes place in a charcoal-fired blast furnace. The pantanal would have provided the trees for charcoal.

Bolivia’s Ministry of Mining and Metals claims that tailings from the iron at El Mutún are more benign because they don’t contain sulfates. “It’s raining at El Mutun now, it gets wet but it doesn’t pollute, if there was sulfur, it would create acid rain,” said a ministry spokesperson adding that extraction; “will be done magnetically, and this is how the process has been conceived. The project has strict conditions and these will be in the environmental study.”

Bolivia’s internal market

Padilla, told Diálogo Chino that the commission analysing technical and financial proposals for the mine put forward proposals from three out of the seven Chinese companies invited to bid for the project between May and June. These were Sinosteel Equipment and Engineering co. Ltd. (SINOSTIL), China Civil Engineering and Construction Corporation (CCECC) and Henan Complant Mechanical and Electrical Equipment Group (HENAN). It is expected to decide on the contractor in July.

Padilla explains that the first objective is to produce 230,000 tonnes of structural steel for the domestic market by 2018. Bolivia currently imports 260,000 tonnes annually. The contractor will then will expand the plant, enabling it to produce two million steel sheets. And they will then look for a strategic partner with a captive market to sell Bolivian steel to.

Quality is not a topic for discussion at the Ministry of Mining and Metals, which claims that the process of producing structural steel is as easy as riding a bike. The complicated part, it says, is in creating alloys with magnesium, tungsten, wolfram and other minerals.

The “great logistics” project includes huge infrastructure works that will compliment the export capacity of the El Mutún steelworks and Bolivia’s industry. Padilla talks of plans for highways, railways, bridges, barges and viaducts. The energy, water and transport projects that will serve the Chinese plant, however, are still Bolivia’s responsibility.

The first of ESM’s plants will be ready within 30 months if by the third quarter of 2015 the contract has been awarded and the Chinese loan formally requested. Work is scheduled to be completed by mid-2018 and within this timeframe Chinese technicians will train 800 Bolivian workers, which represents the total number of jobs created during the first phase.

Loans promised

Among the requirements for the disbursement of loans for the ESM plant are the feasibility of the final design, the agreed contract with a Chinese contractor and the environmental impact assessment.

95% of finance will go towards the purchase of machinery and equipment from China. Alternative technologies are not an option. Bolivia’s Minsitry of Mining emphasizes that such prioritising speed, efficiency and low prices is a political decision “because the exit of Jindal Steel left a sour taste”, it said.

Hector Córdoba, the former president of Bolivia’s state-run mining and metals company COMIBOL and now an extractive sector analyst at Jubileo Foundation, reckons that the plant could be “the launch-pad for the industrialization of Bolivia’s minerals”. This means that not only would it produce sheet steel for the automotive industry but it could open up tool factories, making pliers, motors and machinery for the hydrocarbons industry. Bolivia has minerals, what it lacks is an integrated development plan. And this is a recurring an unresolved theme for the government.

 

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