VZCZCXYZ0006
RR RUEHWEB

DE RUEHLP #0439/01 0521736
ZNR UUUUU ZZH
R 211736Z FEB 06
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC 8139
INFO RUEHAC/AMEMBASSY ASUNCION 5613
RUEHBJ/AMEMBASSY BEIJING 0410
RUEHBO/AMEMBASSY BOGOTA 2879
RUEHBR/AMEMBASSY BRASILIA 6752
RUEHBU/AMEMBASSY BUENOS AIRES 3974
RUEHCV/AMEMBASSY CARACAS 1322
RUEHPE/AMEMBASSY LIMA 1221
RUEHME/AMEMBASSY MEXICO 1653
RUEHMN/AMEMBASSY MONTEVIDEO 3574
RUEHNE/AMEMBASSY NEW DELHI 0058
RUEHQT/AMEMBASSY QUITO 3959
RUEHSG/AMEMBASSY SANTIAGO 8476
RUEHTC/AMEMBASSY THE HAGUE 0723
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 000439 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/AND LPETRONI 
ENERGY FOR CDAY AND SLADISLAW 
COMMERCE FOR JANGLIN 
TREASURY FOR SGOOCH 
 
E.O. 12958: N/A 
TAGS: EMIN ECON EINV PGOV BL
SUBJECT: BIDDING ON MUTUN IRON ORE PROJECT DELAYED AGAIN 
 
REF: 05 LA PAZ 3771 
 
¶1. (U) Summary: Shortly before an earlier sixty-day delay 
expired, the GOB announced plans to postpone for an 
additional ninety days international bidding on the rights to 
develop Mutun, one of the world's largest iron ore deposits. 
Interested firms may now be expected to fund not only the 
extraction of iron ore, but also its domestic 
industrialization and related construction projects. 
Observers worry that GOB officials' plans to revise existing 
bid protocols and to modify its proposed joint venture 
contract may undermine investors' confidence in the bid 
process, noting that since officials have failed to offer 
specifics, interested firms face significant uncertainty and 
the possibility of further delays.  End summary. 
 
¶2. (U) On February 19, the GOB postponed for ninety days 
international bidding on the rights to develop Mutun, one of 
the world's largest iron ore deposits.  The news came just 
days before the expiration of a sixty-day delay announced 
December 20, 2005 (reftel) and revealed the GOB's intentions 
to revise existing bid protocols and to modify the joint 
venture contract the GOB will sign with the winning bidder. 
Officials indicated they would seek favorable mineral prices 
for the state; require the domestic industrialization of iron 
ore extracted from the Mutun deposit; mandate the eventual 
use of natural gas (instead of coal) to power the site's 
proposed processing facility; and compel the construction of 
a canal and railroad spur to link the project to a nearby 
riverine port. 
 
¶3. (U) Five firms, including the Netherlands' Mittal Steel, 
Brazil's EBX Siderurgica, Argentina's Techint-Siderar, 
China's Luneng Shandong, and India's Jindal Steel and Power, 
have expressed interest in the project, each apparently 
having determined that potential profits from the development 
of the deposit's estimated 40 billion tons of iron ore and 
associated magnesium make bearing the political risks of 
Bolivia's uncertain investment climate worthwhile.  To 
continue, each firm will have to demonstrate its ability to 
raise enough cash to cover a projected $1.7 billion total 
investment.  Given proposed changes to the contract, the 
winning bidder will not only be expected to build a $500 
million industrial plant to process iron ore, but also to 
construct a $400 million pipeline to supply the project with 
Bolivian natural gas (note: Brazil currently consumes all gas 
shipped through the region's existing pipeline) and to build 
a $170 million canal and 140-kilometer railroad spur to link 
the project to a port (which must also be constructed) at 
Puerto Busch, a facility designed to provide access to the 
Paraguay River and the Atlantic Ocean. 
 
¶4. (SBU) Comment: Historically high mineral prices and the 
GOB's promise of reasonably priced natural gas may make the 
Mutun project economically viable, but investors must weigh 
potential profits against the risk of doing business in an 
increasingly uncertain investment climate.  Observers worry 
that GOB officials' plans to revise existing bid protocols 
and to modify its proposed joint venture contract may 
undermine investors' confidence in the bid process, noting 
that since neither President Evo Morales nor any of his 
advisors or ministers have offered specifics, interested 
firms face significant uncertainty and the possibility of 
further delays.  Business and community leaders in Santa Cruz 
and towns near the project have vowed to initiate roadblocks 
if the process is postponed again, leading some to wonder if 
the issue won't evolve into a power struggle between the new 
MAS-led administration - which has repeatedly declared its 
desire to nationalize Bolivia's natural resources, revise the 
mining code, and raise mineral royalties - and the region's 
business interests, which favor a private sector-led 
development strategy.  End comment. 
GREENLEE