On April 20, 2023, Chile’s president, Gabriel Boric announced Chile’s new policy on the extraction and production of lithium, the “National Lithium Strategy” (the “Strategy”) (speech available here). The Strategy is comprised of a set of high-level principles and general measures aimed at changing the framework applicable to the extraction and production of lithium in Chile. According to the Government, the Strategy seeks to make Chile the “biggest lithium producer in the world … based on … public-private partnerships,” while extending its economic benefits to Chilean citizens and protecting the environment. Although the Strategy’s details are yet to be determined, the Government has made clear that such a determination will secure both the state’s control over lithium exploitation and its respect for ongoing private contracts.
In this note, we provide an overview of the main new changes announced in the Strategy, and its impact on current operators.
One of the main changes is the creation of a state-owned company, Empresa Nacional del Litio (subject to Congressional approval) that will be involved in the “whole [lithium] productive cycle, from exploration to adding value” through the conclusion of public-private partnership agreements (“PPPA”). The Minister of Finance recently expressed that these PPPAs may take the form of joint venture agreements between state-owned enterprises and private investors, shareholders agreements, or a similar type of contract. According to the vice-president of CORFO (the State agency that “owns” the Atacama Salt Flat), this initiative is motivated by a desire to secure the state’s control over the exploitation of lithium.
In any case, the Strategy makes clear that any measure should also incentivize investors to provide “resources, research and development, and market connections.” Also, Chile’s president announced that until the Empresa Nacional del Litio is created, existing state-owned companies, Codelco and ENAMI, will exercise the responsibility assigned to it.
The Strategy also seeks to introduce other changes, such as the creation of a governmental agency in charge of specialized research and development (Instituto Tecnológico y de Investigación Público de Litio y Salares), and the introduction of a protection program for salt flats from exploitation. The goal is that 30% of salt flats in Chile are completely protected before 2030.
No direct takings or nationalization
Prior to the issuance of the Policy, there was speculation as to whether lithium deposits would be nationalized. The mining industry already went through a “nationalization” process in 1971, when the 1925 Chilean Constitution was amended by Law 17,450 to make the State the sole owner of all mines. Although in 1980 a new constitution went into force, mines and lithium deposits continued to be considered as – and still are –property of the State (see article 19(24)). The Strategy does not mention an amendment to this statute or envisage a direct taking from lithium investors.
Also, lithium will remain a mineral substance not subject to concessions for private parties (as prescribed by the Chilean concessions mining law) and will continue to be subject to a legal regime separate from other substances (such as copper, which can be extracted through concession contracts with the Government).
Impact on current operators
Currently, lithium is extracted in Chile by two companies: SQM and Albemarle in the Atacama Salt Flat (one of the largest lithium deposits in the world) through special agreements with CORFO. SQM is party to a lease agreement that expires in 2030, and Albemarle is party to an operation agreement that expires in 2043. Although the Government has announced it will respect these agreements, it has expressed its intention to re-negotiate their terms before their expiration, so that they are consistent with the Strategy.
The Strategy entails substantial changes to the current framework under which investors can extract lithium deposits. It is vital for current and new investors in the industry to understand the steps the Chilean Government will take to implement the Strategy as well as flexibility regarding the form of contracts the State might propose to invest in this industry. We will continue to monitor developments in Chile and encourage you to subscribe to be kept informed of the latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.