Chilean lithium policy

On 1 June, Chile's President Sebastián Piñera said during his annual address to Congress that the government was announcing a national lithium policy "soon". Chilean law classes lithium as a strategic mineral and does not allow concessions. Therefore, only the state, state-owned companies, or private companies operating under partnerships with the Chilean Production Development Corporation (CORFO) can develop the mineral.

Piñera did not provide specifics, but in his previous government (2010-2014) he promoted Special Lithium Operating Contracts (Contrato Especial de Operación de Litio: CEOL), which allowed companies to explore, exploit, and benefit from a set quota of lithium. However, this was never implemented because of lack of clarity on some legal terms. Only two private players currently develop the mineral in partnership with CORFO, Chile's SQM and the US-based Albemarle.

Chile is estimated to have more than half of the world's economically extractable reserves of lithium, mainly at the northern Atacama Salt Flat, but the impossibility of concessions, a lack of clarity in the contracts and the existence of government quotas has made it lose ground to other competitors, such as Argentina.

Significance

Piñera is seeking to unblock investment in the mining sector and is likely to propose a legal framework that allows more private actors in lithium development. Although his national lithium policy is unlikely to allow concessions, it is likely to standardize royalties (which up until now have been established with the companies via their contracts with CORFO) and loosen production quotas. However, sectors of the left-wing opposition are demanding the full nationalization of the lithium industry.

In October 2018, the lower chamber passed a bill submitted by Party for Democracy (Partido por la Democracia: PPD) and Socialist Party (Partido Socialista: PS) parliamentarians to demand the president nationalize the industry and expropriate SQM, which he is unlikely to do. These demands are likely to delay implementation, but unlikely to derail a new lithium policy, which is prerogative of the executive.

An indicator of increased chances of consensus with the opposition will be if a state agency is given a central role in lithium development. If other opposition parties also join calls for nationalization, this will be an indicator of further difficulties in implementing the policy.

Posted 06 June 2019 by Carla Selman, Principal Research Analyst, Country Risk, S&P Global Market Intelligence