Extractive Industries Under the Mother Earth Law
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Corporate personhood is highly controversial in the United States, but corporations are not legally treated as citizens. What if the government extended full rights to a nonhuman? That is exactly what Bolivia’s government did in October, when it signed the Law of Mother Earth (full title, click for full text in Spanish: Ley Marco de La Madre Tierra y Desarrollo Integral para Vivir Bien). The law gives nature, writ large, the same rights as humans. Furthermore, the law’s text mentions penalties for violating rights, but does not spell out what those penalties may be. This first of its kind law puts mining, oil and gas, and other extractive industries – the base of Bolivia’s economy – in a strange and tenuous position. What effect will the Mother Nature Law have on foreign operations in Bolivia?
A Bad Year for Miners and Socialism
Bolivia has a long and colorful history of nationalizations and 2012 has seen its share, from Red Electrica’s utilities to Glencore’s tin mines to South American Silver’s telenovela-esque hostage takeover debacle. As a result, Bolivia’s extractive industries are currently dominated by the state-run mining company Comibol and a host of medium to small risk acceptant foreign outfits, many of which trade over the counter.
Aside from nationalizations, Bolivian president Evo Morales has had a tough year. A massive infrastructure project linking rural districts has been stalled by protest from the largest indigenous organization, CIDOB. Morales came to power in 2006 on a platform of inclusively indigenous socialism, but CIDOB’s protests clearly expose the tensions in protecting the territory of over 30 recognized indigenous groups and funding state socialism through massive, extractive gas and mining operations. The protests – public fights within Morales’s party MAS and cross-country marches and demonstrations – have lent a very public face to longstanding grumblings and disagreements within Morales’s wide base. The Mother Earth law is one piece of legislation meant to reconcile rhetoric and policy, but its sweeping language and undefined penalties plunges extractive industries into total uncertainty.
The law’s text states that any entity violating Mother Earth’s rights will be prosecuted but that penalties are “unprescribable.” Under the law, any extractive activity can be construed to violate the earth’s rights. All companies still operating in Bolivia and their investors should be wary of the new law, but extractive industries in particular should be bracing for legal guinea pig-hood. Many of this year’s nationalizations – particularly Glencore and South American Silver -- came after violent protests by those losing out from an operation, even when the majority of workers and communities affected by an operation were in support of continuing it. Thus, I suspect that the administration plans to use the Mother Earth law as an additional legal tool to expropriate controversial operations. The law could possibly be used to deny compensation to former operators, as the administration did with South American Silver, or even order a company to pay reparations in addition to expropriation.
Of the companies still operating in Bolivia, POSCO (NYSE: PKX) is a likely target of the new law. POSCO signed a deal with the Bolivian government in July to begin developing Bolivia’s lithium reserves, the largest known reserves in the world. The lithium is underneath the country’s pristine and surreally picturesque Salar de Uyuni and surrounding communities already expressed opposition to the project. Any politically inconvenient pressure from the communities or any logistical misstep on POSCO’s part and the project will likely be nationalized by invoking the new law. POSCO’s Bolivian venture is a potentially lucrative growth opportunity and losing that would likely hit the stock price hard.
Oil and gas companies Petrobras (NYSE: PBR) and Repsol (NASDAQOTH: REPYY.PK) should be nervous as well. These two companies extract and process the majority of Bolivia’s oil and gas. On one hand, the royalties from their operations keep Bolivia fiscally stable. On the other hand, their operations epitomize the violations detailed in the Law of Mother Earth’s text. President Morales has nationalized and renegotiated both companies’ operations before and would likely do so again if it proves to be politically expedient. Petrobras stated that its Bolivian operations amount to less than 1% of its profits and its share price barely registered the 2006 nationalization. However, Repsol’s share price dove after the nationalization in 2006 and tanked again when Argentine President Cristina Kirchner partially renationalized the company’s Argentine holdings this spring.
Bolivia’s new Mother Earth law will be an exciting legal experiment to follow from whichever side of the environmental regulation debate you hail. However, the law offers the kind of excitement that financial markets punish and that frays investors’ nerves. Bolivia is again signaling clear hostility to foreign investment, albeit in a new and intriguing way.
CallaMarie owns shares of Petroleo Brasileiro S.A. (ADR). The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Petroleo Brasileiro S.A. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.