announcement that members of the Bolivarian Alternative for
Latin America (Alba)-Bolivia, Cuba, Nicaragua and
Venezuela-will set up a joint geological and mining development
council reinforces the "alternative" or "independent" regional
integration process now occurring in Latin America.
The move signals another red alert to
potential foreign investors, already on their guard following
the past year's sudden nationalizations in Bolivia and
Venezuela, including in the oil, gas, metals and
Emerging from the inaugural meeting of the
Alba mining ministries that will form the new council comes
further news that another new regional mining council,
Minerosur, possibly with similar premises, is planned for
Mercado Común del Sur (Mercosur), the southern cone
Alba, the brainchild of Venezuelan President
Hugo Chávez, is touted as a socialist alternative to the
so-far ill-fated Área de Libre Comercio de las
Américas, the more U.S.-dominated free trade area of the
Americas. Chávez finds Alba-also loosely supported by
the newly socialist Ecuador-more to his taste than the
conservative Andean Nations Community, which has virtually
collapsed since Venezuela's dramatic withdrawal about a year
Bolivia and Venezuela, which call the shots
in Alba and no doubt will dominate its mining council, also
have recently hitched up with Mercosur, despite their
geographical position outside the region. Their
entry-controversial because of the outspoken nature of their
socialist-oriented governments-has dramatically politicized the
rather middle-of-the-road grouping originally formed by
Argentina, Brazil, Paraguay and Uruguay, with Chile joining
later as an associate member.
Whether the new organizations are able to
efficiently tap Latin America's growing strength in
commodities, including in oil, gas and biofuels-remains
doubtful, and not only because the markets continue to be
dominated by Asians, Europeans and the United States. The main
problem, observers note, is the re-emergence of nationalism in
mining and other basic industries in several Latin American
countries, scaring off global investors and causing a potential
fragmentation rather than strengthening of regional selling
Venezuela's basic industries and mining
ministry, Mibam, announced in May it is preparing the text of a
new mining bill to be presented to Chávez that is
expected to establish national sovereignty in all mining
endeavors, possibly taking back existing concessions that are
not state controlled.
It is unclear how this could affect existing
foreign-controlled operations, such as Anglo American Plc's
Loma de Niquel Mine and a host of Canadian gold projects.
Bolivian President Evo Morales is understood
to be working on a similar initiative. The move follows the
clumsy expropriation of the Vinto tin smelter from Glencore
International AG in February and the oil nationalization that
in May led Brazil's Petrobras SA to sell back to the Bolivian
government for $112 million the two oil refineries it set up in
Bolivia-the only two in the country.
In Ecuador, new president Rafael Correa has
opted not to renew his country's long-standing bilateral
investment treaty with the United States.
The idea of the Alba mining council is to
create sustainable local growth models that add value to local
raw materials, a system which works best if the industries
involved are not subject to international market pricing
pressures-hence Chávez's desire to simply take the
companies involved off international markets, a move similar to
what oil-rich Venezuela is already doing on a financial level.
Chávez has announced plans to take his country out of
the "imperialist mechanisms" of the World Bank and
International Monetary Fund and has already pulled out of the
World Bank's Ciadi, an organization designed to arbitrate and
resolve disputes between governments and foreign investors.
In parallel, he is setting up the alternative
Banco do Sul, or "Southern Bank," to finance his new social
production companies. The new regional development bank already
has the support of more middle-of-the-road countries, including
Brazil and Chile.
Venezuela's steel industry is a test case for
the new model. Partly subsidized by discounted iron ore, the
nation's biggest steelmaker, Siderúrgica del Orinoco CA
(Sidor), now needs to offer discounted prices to domestic steel
users to make Chávez's model work. Sidor's controlling
shareholder, Argentina's Techint Group, reluctantly
acknowledged in mid-May that it was in negotiations, apparently
to ward off Chávez's threat to renationalize the
5-million-tonne-per-year works which was privatized in 1997,
two years before he came to office.
Sidor will need to make sure domestic demand
is fully met-currently 65 percent of its sales volume is
domestic-at prices expected to be some 15 to 20 percent below
international levels. The lower prices are intended to
encourage downstream production, which should thus grow,
effectively taking the steelmaker, previously a significant
exporter, off the lucrative export market.
The compensation is the possibility of
participating in a shared-wealth and jobs-generation plan which
could further boost Venezuela's current 8.8-percent annual
economic growth rate and enjoying discounts on services offered
by newly nationalized sectors, including electrical energy,
telecommunications and internet provision.
Such a practice has already been the order of
the day for nearly two years in Venezuela's aluminum industry.
Under government decree, mixed-capital smelters Industria
Venezolana de Aluminio CA and CVG Aluminio del Caroní SA
sell their primary metal to downstream processors at prices 1
to 10 percent below London Metal Exchange three-month
Downstream activities are indeed thriving,
although the reduced smelter profits are seen to be slowing
down planned smelter investments and have thrown a Glencore
expansion plan into what appears to be long-term hold.