Bolivia will likely get its lithium industry off the ground thanks to partnerships with Chinese and Russian powerhouses, but the South American nation must still establish clear regulations and profit splits to avoid past mistakes, industry participants told S&P Global Commodity Insights.

With lithium demand surging amid global decarbonization and rising demand for electric vehicles, President Luis Arce has put lithium front and center in his national economic plan. He has struck deals with a consortium led by the China-based Contemporary Amperex Technology Co. Ltd. (CATL), the largest lithium-ion battery producer in the world; TVEL JSC, a subsidiary of Russian state nuclear company Rosatom; and Chinese conglomerate CITIC Guoan Group Corp. to build lithium carbonate plants. Together the companies have agreed to invest a total of $2.9 billion, funds that could help the country get out of its debt and currency crises and, with new extraction technology, tap into its lithium reserves.

Bolivia is ranked second in the world for combined lithium reserves and resources, according to data from S&P Market Intelligence, yet its entire lithium industry amounts to a single pilot plant in the Uyuni Salt Flat, which is managed by state-run Yacimientos de Litio Boliviano (YLB). With demand for lithium expected to rise rapidly to feed a growing global appetite for lithium-ion batteries, Bolivia could become a major player.

"Commercializing [Bolivia's lithium] eventually it is going to happen simply because the world needs more lithium and Bolivia has a huge amount of lithium," Diego von Vacano, former special adviser to President Arce on lithium matters and a political science professor at Texas A&M University, told Commodity Insights.

The country's push to develop its lithium deposits have been blocked in the past by struggles with high levels of impurities in its brine, along with waves of protests from residents in a key lithium-bearing region. But the government hopes to address both with new technology and a new lithium law. Details of the recent agreements are unknown, and none of them can be legally binding until the government amends the constitution to allow YLB to hold private partnerships.

"The largest stumbling block right now is the absence of a lithium law that would constitutionally approve Bolivia to mine lithium with associations with private companies, especially foreign companies," von Vacano said. "This is why none of these companies have contracts; these are just agreements that, in a sense, are like expanded memorandum of understandings."

Bolivia seeks to join the industry

Bolivia has struck new lithium deals amid soaring demand for lithium and ahead of a global deficit expected in 2025.

The government has touted the $1.4 billion agreement it made in January with the CATL-led consortium that would allow the companies to build two lithium carbonate plants at the Uyuni and Oruro salt flats. CATL followed up that deal when it said in June that it was considering an additional $10 billion investment into the country's lithium sector.

Rosatom and CITIC Guoan also agreed to invest $1.5 billion and build two additional lithium plants in the Pastos Grandes and Uyuni salt flats.

"What is sort of different this time is that the markets are there and certainly the demand is there for the commodity, which means that the money is there. Previously, they struggled to attract a lot of investment," said Andy Leyland, co-founder and managing director of consulting firm SC Insights.

Direct lithium extraction (DLE) technology, which the government required in a 2021 call for proposals to develop Bolivia’s lithium resources, seems to be the key to unlocking the South American country's lithium potential. The technology promises more sustainable water use and removes the high levels of magnesium and potassium, which limit lithium recovery from brine.

"When you have high concentrations of magnesium or sulfate, you lose a lot of lithium in solar ponds. Yields gets very low, and to avoid this loss, [lithium producers] have to use a lot of chemicals," Guillaume de Souza, founder and administrator at DLE technology provider Adionics, told Commodity Insights. "DLE can manage brines from Bolivia."

DLE is also expected to be cheaper than conventional evaporation technologies.

"The economic viability of the Bolivian brines has been questionable owing to the brine chemistry which make traditional solar based lithium extraction not possible." said Allan Pedersen, research director for lithium, energy transition and battery raw materials at Wood MacKenzie. "If DLE extraction techniques prove commercially viable for extracting lithium in Bolivia, then that could open up the conversion of these resources to reserves."

Legal ambiguity

The lack of clarity on the rules that will govern the industry is causing tension between the government and Comité Cívico Potosinista (Comcipo), a coalition of local officials from Potosi, one of the economically poorest departments in the country and hosts large lithium resources.

A wave of protests organized by Comcipo to demand higher royalties and more social benefits led to the cancelation of the country’s last major lithium contract, which was signed with German company Aci Systems Gmbh in 2019.

The current law, signed in 2014, requires companies to pay 3% in royalties on lithium carbonate. Comcipo is urging the government to approve a bill currently in Congress that would raise royalties to either 10% or 20%, depending on the lithium price, and require that 55% of the proceeds will be returned to the producing departments, another 40% to producing regions and 5% to lithium research centers in local universities.

A new lithium law would define taxes, royalties and domestic profit redistribution.

"We demand clear and transparent rules in the lithium negotiation with the countries China and Russia, If not, Potosí will go to the streets once again as we did in 2019," Comcipo said in a statement on July 11, calling the recently signed agreements a "political and distractive show" since CATL, Citic Guoan and Rosatom do not have experience producing lithium carbonate.

Despite requiring DLE for lithium extraction, Bolivia selected companies that have no commercial experience with the technology, von Vacano said.

"The major reasons for why I think these were selected are mainly political," said von Vacano. "They want to strengthen ties to China because China has dominated the lithium field, but also they have almost an endless amount of funding. Bolivia has had pretty strong relations with Russia even going back before the Russian war on Ukraine."

The CATL-led consortium, Russia's Uranium One Group, California-based Lilac Solutions Inc., and China's Citic Guoan and TBEA Co. Ltd. all participated in the government's tender process and tested DLE technology in the country. All companies reported lithium recoveries of at least 80%, according to a March release from YLB. However, DLE technology has yet to scale to commercial production outside China.

"If we can see that they can produce battery grade material, then they should be able to scale quite rapidly, Leyland said. "So the next year or so is really quite critical to start getting construction done, to prove the technology works and, if it goes work, then potentially there's a huge win for them."

YBL, CATL, Rosatom and Citic Guoan did not respond to requests for comment.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.