FILE PHOTO: Evaporation pools for lithium extraction are seen as part of the Lithium Carbonate Industrial Plant, in the Salar de Uyuni, in Potosi, Bolivia December 15, 2023. REUTERS/Claudia Morales/File Photo

By Daina Beth Solomon

(Reuters) -Bolivia's election of centrist Rodrigo Paz is raising cautious hopes that a more market-friendly leader could pave the way for international investment in the country's ample lithium reserves after years of false starts under two decades of socialist rule.

Bolivia holds the world's largest resources of the ultralight metal used in electric vehicle batteries, but development has been hamstrung by political opposition and a law mandating state control of the sector that has chilled broad investor interest.

Lithium deals under outgoing President Luis Arce with companies from allies China and Russia were blocked in Congress, and Paz has said he would scrutinize the contracts to ensure transparency, a move that could create fresh opportunities but also spark investor jitters.

To be sure, Paz's campaign focused less on lithium than on other priorities such as maintaining cash transfers to the poor, decentralizing government and private sector-led growth, part of an effort to not alienate former supporters of leftist Evo Morales who founded the ruling MAS party.

In that vein, Paz has also vowed not to "sell out" the vast Uyuni salt flat famed for its dazzling fields of white salt, a nationally beloved symbol of Bolivia's national sovereignty and Indigenous heritage.

Beyond calling for foreign investment that benefits the local Potosi region, he has not discussed a policy plan for Bolivia's 23 million metric tons of lithium resources.

Diego von Vacano, a Bolivia expert at Texas A&M University, said Paz needs to announce details within the first few months of his presidency for the global mining community to take him seriously.

"Otherwise, investors will say, okay, it's more of the same ... and Bolivia might be seen again as having missed the boat," he said.

LEGAL ROADBLOCKS AND TECHNICAL CHALLENGES

Among other issues, Paz faces a decision on whether to modify a Bolivian law dictating that only the state can extract lithium, which has cramped investor interest both locally and abroad. Changing it would require constitutional referendum or reform. Paz and his advisors have yet to weigh in on the question.

There are technical challenges, too, in tailoring extraction technology to the exact composition of the salty brine deposits that hold Bolivia's lithium. Past efforts with traditional evaporation ponds proved inefficient due in part to high naturally occurring concentrations of magnesium.

State-run lithium company YLB opened its first plant at the end of 2023 and last year brought in $15.6 million with production of 2,000 metric tons of the battery metal, a fraction of commercial scale.

Chile, the world's second-largest producer, turned out nearly 300,000 tons of lithium last year while Argentina, which ranks fourth globally, produced 70,000 tons.

Although Bolivia missed the 2022 peak of lithium prices, it could theoretically ramp up some production in time to latch on to demand that is expected to grow in the coming years in line with EV sales.

Lithium companies will carefully watch Paz's first moves once he takes office on November 8.

His Christian Democratic party does not hold a majority in the legislature, which will now be dominated almost entirely by centrist and right-wing groups after the loss of seats for the outgoing ruling party, MAS. That could help accelerate more investor-friendly rules if infighting does not prevail.

SEEKING STABILITY

Teague Egan, CEO of U.S. lithium company Energy X, which lost a prior bid for a Bolivia project, welcomed Paz's U.S.-friendly stance, but said that scrapping the Russia and China deals could set a worrisome precedent for what could happen under the next president in five years.

"If he annuls those contracts, I would be very hesitant to re-enter Bolivia," Egan said. The Bolivian salt flats are large enough to offer numerous areas for exploration, but projects could be constrained by the government's limited capacity to award contracts and oversee production.

Russian state nuclear corporation Rosatom, which signed a lithium deal with Bolivia in 2023, defended its project in a statement to Reuters as beneficial to the economy and local communities and said it would press for its implementation.

Chinese battery maker CATL, which also inked a major Bolivia lithium agreement in 2023, did not reply to a request for comment.

Felipe de Mussy, South America president for U.S. lithium technology firm Lilac, which lost a prior bid in Bolivia, said he would look at fresh opportunities if Paz ensured stable regulation and transparency.

"With clearer rules and openness to new technologies, Bolivia could unlock its vast lithium potential," he said.

Bolivia could be a good fit for smaller companies aiming to prove their technology, as well as larger companies with the financing backing to absorb risk, said Chilean mining lawyer Pablo Hamilton, who is aiming to help connect foreign investors with energy and lithium opportunities in the new government.

He is hopeful that Paz's centrist position could bring advantages, compared to conservative rival Jorge "Tuto" Quiroga.

"Although he's less clear on what he wants to do, he's in a better position to speak with people from both sides of the spectrum – the right and the left – in order to bring more stability for investors," he said.

Analysts also see a potential opening for the U.S. just as President Donald Trump is attempting to ramp up influence in critical minerals, including lithium, to counter China's dominance.

U.S. Secretary of State Marco Rubio congratulated Paz and said the Trump administration was interested in bilateral investment, without detailing in which sectors.

"After two decades of misguided administrations, the election of Rodrigo Paz marks a transformative opportunity for both nations," he said in a statement.

(Reporting by Daina Beth Solomon in Santiago. Additional reporting by Daniel Ramos and Monica Machicao in La Paz, Rodrigo Gutierrez in Tarija, Lucinda Elliott in Montevideo, Anastasia Lyrchikova in Moscow and Amy Lv in Beijing. Editing by Christian Plumb and Marguerita Choy)