Thursday, February 22, 2024
News

Chile's plan for state control in lithium frustrates business

15views

SANTIAGO, Chile (AP) — The Chilean government’s recently announced plan to let the state take a majority stake in the lithium industry unnerved business leaders, though analysts cautioned that the proposal strikes a middle ground between competing interests. Looks like it’s trying to hit.

President Gabriel Boric announced in a national broadcast Thursday night that private companies would have to partner with the government in tapping Chile’s lithium, a metal used to make rechargeable batteries.

Boric stated that the state would take a controlling interest in each partnership, leading some to call it a nationalization of the industry, while others disagree.

Nicolas Saldias, senior analyst at the Economist Intelligence Unit for Latin America and the Caribbean, said, “It is too strong to define this as a nationalization … It is a quasi-nationalization in which the playing field will now be in favor of the state.” “There is no level playing field for the private sector in Chile.”

Chile is the second largest producer of lithium and holds the third largest reserves of the metal in the world. The demand for lithium is expected to increase amid the worldwide shift to renewable energy and the increase in electric vehicles powered by lithium batteries.

The South American country has recently been losing ground to others in the race to exploit the metal, so there was much anticipation over what the country would announce as the country’s strategy for a left-wing boric industry.

“There were no big surprises, which doesn’t mean it’s not a very significant change in the model,” said Mariano Machado, principal analyst for the Americas at global risk intelligence firm Verisk Maplecroft.

Under the plan, Boric said on Thursday, all companies wanting to operate in Chile’s lithium sector would have to take the yet-to-be-formed national lithium company as a partner and “will have state control”. Existing contracts will be honored, but Boric expressed hope that they can find a way to boost state involvement in their operations before they expire.

“It’s not theft of concessions, it’s a change in regulations instead of suddenly breaking them,” said Emily Hersh, CEO of Luna Lithium, a lithium exploration company with projects in the US.

Two companies currently mine lithium in Chile, Albemarle Corp of the United States and local company SQM, with concessions set to expire in 2043 and 2030, respectively. Shares of both companies declined on Friday after Boric’s announcement.

The creation of the new company would require approval from Congress, which has already scuttled several of Boric’s major initiatives.

Until then, two other state-owned companies, Codelco, the world’s biggest copper producer, and Enami, the state mining company, will figure out how the private-public partnership will operate.

The Chilean president traveled to Antofagasta, about 1,300 kilometers (800 mi) from the Chilean capital, to give more details about his proposal to local officials.

“We are calling for a dialogue and participatory process to gather vision and knowledge about the new governance of lithium and salt flats,” Borick said.

But Chile’s business sector raised concerns.

“We were quite disappointed” by Boric’s announcement, said Ricardo Maeves, head of the Confederation of Production and Trade, a union that represents Chile’s business community.

Mewes said business leaders had expected “great private sector involvement” in the lithium sector and that now “the state will be the one that controls the industry”.

Many analysts said these concerns may be going too far.

Saldias at the Economist Intelligence Unit said the proposal “actually gives the private sector more opportunities than the current framework because … there will be more capacity to participate in projects than currently exists.”

However, he cautioned that environmental restrictions on how lithium is produced and calls for more consultation with local communities could “increase the cost of doing business” in Chile.

Machado at Verisk Maplecroft stated that “Chile has gone for a model that is central in which the state has the upper hand, given that it is a resource that is considered strategic.”

This is a different model from neighboring Bolivia, in which the state has complete control of the sector, and Argentina, in which the state only grants concessions to companies to operate.

Finance Minister Mario Marcel called for calm in the business community. He said that under the plan, private companies would contribute capital, technical know-how and experience, while the state provided “financing” as well as safeguarding the environmental conditions of the salt flats and “relations with the natives” of the affected area. Is. ,

It is not clear whether the government will contribute capital in direct proportion to its ownership stake.

Boric also said the government would move beyond being involved in only mining lithium, saying it would promote the development of lithium products with added value as it strives to become the world’s leading lithium producer.

Boric’s plan is in line with “the direction the world is going,” Hersh said at Luna Lithium.

“The push to add more value to minerals being produced and a larger share of revenue from mining activities makes sense in the long-term trend,” she said.

The real concern for Hersh isn’t necessarily that Chile is a country with a strong mining industry and existing lithium production. They worry about what message it sends to others in the region who are trying to build nascent industries, given that Mexico has already nationalized its lithium sector.

Hersh said, “You’re kind of in the crowd at the party, you can’t be seen as a useless president who’s not doing it.”

,

Politics reported from Buenos Aires, Argentina.