Chile is the country with the largest lithium reserves in the world; however, we are far from realizing the potential that we could have as lithium producers, and the reason for that is only one: an inadequate legal framework. Indeed, lithium is subject to an exceptional regulation, different from the one applicable to the vast majority of minerals, which has made its exploitation difficult.
As a general rule, in Chile, all mineral substances can be exploited by any person or company that requests a mining concession over the area where the minerals are located. However, certain minerals are non-grantable, among them, lithium. This exception itself has exceptions though, which allow companies, either national or international, to exploit lithium in certain cases described below.
The exceptional legal framework for lithium exploitation is not only inadequate, but also unjustified. Lithium was first reserved for the State in 1979, due to its potential nuclear uses. We must remember that, in 1979, Chile was ruled by a military government, and the Cold War was a factor that affected many decisions. It made sense at the time to introduce special regulation for a substance believed to be potentially very important for military purposes. But that is not the situation anymore. Lithium is no longer relevant for nuclear use; instead, in the last decade, it has acquired a vital importance for electromobility, reaching an unprecedented high price. Is Chile taking advantage of that surge in price and demand? No, or at least, not as it should. And the mentioned regulation of 1979, the Decree Law 2,886, is still in force.
As we emerge from a failed constitutional process a few months ago and now enter another one, it is important to note that the lithium special regulation is not contained in the Chilean Constitution (enacted in 1980 and heavily amended in 2005), but on Law 18,097 of Mining Concessions, enacted in 1982. This law is not an ordinary law, but a "constitutional law", therefore requiring a higher quorum for any amendment. Additional regulation can be found in the mentioned Decree Law 2,886 and in the Mining Code of 1983.
As per the current regulation, lithium can be explored or exploited only by the State, directly or through its companies, or by civilians or non-governmental companies in two cases:
- When an administrative concession or a special operation contract has been granted, subject to requirements and conditions to be defined, in each case, in a Supreme Decree of the President of the Republic (although, in practice, this is done through the Ministry of Mining); or,
- When the mining concession over the area where the lithium is located was granted prior to 1979.
If a company is in one of the abovementioned situations, it must request an authorization from the Chilean Commission of Nuclear Energy to commercialize the lithium that has been exploited. Why? Because lithium is still considered of nuclear relevance, although it is common knowledge that it is not.
Currently, only two companies are exploiting lithium in Chile, and there are many others, both national and international, that own either mining concessions granted prior to 1979 or expect the granting of a special operation contract by the Ministry of Mining, to develop lithium operations in their mining concessions. However, there is an even greater number of companies, especially from abroad, looking to explore or acquire lithium projects, but holding back their investment due to the difficulties that the legal framework applicable to lithium poses on the project developers.
If Chile wishes to take advantage of the surge in demand for lithium, the best way to do it would be by amending the laws that established lithium as a non-grantable mineral substance. There is no reason to have a special regulation for lithium, different from the one applicable to the rest of minerals. The "general" mining law framework has proven successful and has made Chile one of the most important mining jurisdictions in the world and the largest copper producer by far. Private mining companies have been material in the development of the economy, which has made Chile one of the richest countries in Latin America as measured by GDP per capita.
The second-best way to fully develop Chile's potential in lithium would be to start granting special operation agreements to the companies that have mining concession in areas rich in lithium, such as the Salar of Atacama, or to promote public-private partnerships between the government or its companies, such as Codelco, Corfo, and Enami, with private companies that have the capabilities to explore and exploit lithium.
If Chile does not take measures to actively promote private investments in lithium projects, we will miss a great opportunity to obtain financial resources that can be used in the benefit of the population. Due to the high price of lithium, in 2021, one of the companies that currently exploits lithium, SQM, a Chilean corporation, paid a higher sum in taxes than the amount of surplus distributed by Codelco (the state-owned Chilean copper company) to the Treasury.
We are now facing an unprecedented opportunity to create value for the country, but need to take action soon. Chile has probably never been in a position in which a simple action -the amendment of certain laws- could unlock so much growth in the economy. Let's hope that the relevant authorities take note of this and start to actively promote private investments in lithium.
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