January 28, 2019 / 2:02 PM / 25 days ago

In the new lithium "Great Game", Germany edges out China in Bolivia

UYUNI, Bolivia, Jan 28 (Reuters) - When Germany signed a deal last month to help Bolivia exploit its huge lithium reserves, it hailed the venture as a deepening of economic ties with the South American country. But it also gives Germany entry into the new “Great Game”, in which big powers like China are jostling across the globe for access to the prized electric battery metal.

The signing of the deal in Berlin on Dec. 12 capped two years of intense lobbying by Germany as it sought to persuade President Evo Morales’ government that a small German family-run company was a better bet than its Chinese rivals, according to Reuters interviews with German and Bolivian officials.

While the substance of the deal has been reported, how China, Bolivia’s biggest non-institutional lender and close ideological ally, lost out to Germany has not.

China has been quietly cornering the global lithium market, making deals in Asia, Chile, and Argentina as it seeks to lock in access to a strategic resource that could power the next energy revolution.

China has invested $4.2 billion in South America in the past two years, surpassing the value of similar deals by Japanese and South Korean companies in the same period. Chinese entities now control nearly half of global lithium production and 60 percent of electric battery production capacity.

German officials told Reuters they championed the bid by ACI Systems GmbH because they saw an opportunity to lower Germany’s reliance on Asian battery makers and help its carmakers catch up with Chinese and U.S. rivals in the race to make electric cars.

The German push included a series of visits by German government officials who talked up the benefits of picking a German company. Bolivian officials also toured German battery factories, Bolivia’s deputy minister of High Energy Technologies, Luis Alberto Echazu, told Reuters.

German Economy Minister Peter Altmaier wrote a letter to Morales, an environmental champion, emphasizing Germany’s commitment to environment protection.

The lobbying effort was capped by a call last April between Altmaier and Morales, Bolivian, German and ACI officials said, without offering details of what was discussed.

German diplomats in La Paz also stressed high-level German government backing for the project, potential loan guarantees and the tantalizing prospect of supply agreements with German automakers, ACI and Bolivian officials told Reuters.

ACI’s win means Germany now has a foothold in the final frontier of South America’s so-called Lithium Triangle: the Uyuni salt flat in Bolivia, one of the world’s largest untapped deposits. The triangle comprises lithium deposits in an area that includes parts of Chile, Argentina and Bolivia.

“This partnership secures lithium supplies for us and breaks the Chinese monopoly,” Wolfgang Tiefensee, economy minister of the German state of Thuringia, an automotive manufacturing hub, told Reuters during a visit to the Bolivian capital La Paz in October.

SOME RISKS

The venture in Bolivia is not without risk for ACI.

While Uyuni boasts at least 21 million tonnes of lithium, Morales has made nationalizing natural resources a key policy plank. Bolivian officials assured ACI that foreign investments in the Uyuni would be guaranteed should anything go awry, CEO Wolfgang Schmutz said in an interview.

In addition, unlike Chile’s sun-drenched Atacama salt flats, snow and rain slow the evaporation process needed to extract lithium from brine in Uyuni, and the landlocked nation will have to use a port in neighboring Chile or Peru to ship the metal out.

ACI, a family-run clean tech and machinery supplier, has no experience producing lithium. The company dismisses concerns from some lithium analysts about its ability to deliver, saying its small size gives it more flexibility to bring partners from different fields into the project.

Schmutz said the company has preliminary lithium supply deals with major German carmakers, but declined to provide details, citing non-disclosure agreements.

None of Germany’s top three carmakers - BMW, VW or Daimler - confirmed any agreement with ACI when contacted by Reuters.

BMW said it was in preliminary talks with ACI but had made no decision. VW said ensuring supplies and stable prices for raw materials was important, but noted lithium production in Bolivia was particularly demanding. Daimler board member Ola Kaellenius said: “If it’s happening, we’re not part of it.”

ACI said the carmakers that it was in talks with would not be able to confirm anything publicly until final deals were made.

THE GREAT GAME - LITHIUM VERSION

The global battle for control of lithium has been likened to the “Great Game,” the term coined to describe the struggle between Russia and Britain for influence and territory in Central Asia in the 19th Century.

The Bolivian project includes plans to build a lithium hydroxide plant and a factory for producing electric car batteries in Bolivia. Once completed, the factory will help to fulfill Morales’ ambition to break with Bolivia’s historic role as a mere exporter of raw materials.

ACI has said it expects the lithium hydroxide plant to have an annual production capacity of 35,000-40,000 tonnes by the end of 2022, similar in output to plants operated by the world’s top lithium producers. Eighty percent of that would be exported to Germany.

ACI’s willingness to build a battery plant in Bolivia, helped to seal the deal, said Echazu, the deputy minister.

The Chinese did not want to build a battery plant in Bolivia because they felt it made no economic sense to ship in materials to make the batteries only to re-import the final product to China, he said.

China’s embassy in La Paz declined to comment on the Uyuni project, but said the potential for future cooperation with Bolivia on lithium was “huge.”

Bolivia’s state-owned lithium producer YLB will own 51 percent of the new joint venture. Control of the project was another key demand of the Bolivians, who have bitter memories of foreign powers meddling in the former Spanish colony to seize its natural resources.

Juan Carlos Montenegro, the head of YLB, said geopolitics was a factor for Bolivia in deciding which companies to work with.

“We don’t want a single country to set the rules, we want balance and other world powers must help create that balance,” he said. “So for Bolivia it’s important to have not just economic partners for markets, but geopolitical strategic partners.”

He stressed, however, that Bolivia had not been predisposed against China in deciding who had made the best offer. “China-Bolivia relations are still good. China is present in every country in the world and impossible to avoid,” he said. (Reporting by Mitra Taj in Uyuni Additional reporting by Edward Taylor and Andreas Rinke in Berlin and Jan Schwartz in Hamburg Editing by Amran Abocar and Ross Colvin)

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