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Natural Resources

Chile Debates Control over Lithium Production

SANTIAGO DE CHILE, Jul 15 2012 (IPS) - The Chilean government’s decision to invite companies to tender offers for mine lithium resources has been widely rejected by mining trade unions and legislators of the opposition.

These sectors demand that lithium be nationalised to reverse – at least symbolically – what they refer to as the process of natural resource “expropriation” of the last two decades.

“Mining is one of the key elements that Chile has for financing social programmes, which is why we are concerned over how governments have acted since the return to democracy in 1990, renouncing our sovereignty in favour of multinational corporations that leave next to nothing in the state’s coffers,” Jedry Velis, general secretary of the Confederation of Copper Workers (CTC), the union of outsourced copper workers, told IPS.

Lithium, a soft and light metal, is found in abundance in the salt flats of northern Chile, in the Atacama Desert, the world’s driest desert.

It has long been used in the manufacture of lubricants and heat resistant glass, as well as in the pharmaceutical industry. In the last 20 years it has also been a key component of rechargeable batteries for cell phones, portable computers and digital cameras and it has a great potential in the development of electric cars.

Because of its use in battery applications, by the year 2020 the lithium industry is expected to have grown more than seven percent, and the price of the metal will continue on the rise. In the last decade, prices saw an increase of more than 200 percent.

In this context, the right-wing government of Sebastián Piñera launched a bidding process for the extraction of up to 100,000 tonnes of lithium over a 20-year period.

On Sep. 27, the government will announce the name of the company awarded the extraction rights. The operating contract is expected to bring in nearly 350 million dollars for the government, according to official estimates.

The contract includes the payment of a monthly royalty equivalent to seven percent of the company’s net lithium sales. This percentage, the government says, is in line with that earned by other lithium producing nations, like Australia and Argentina.

But legislators of the opposing central-left Concertación por la Democracia (Coalition of Parties for Democracy) argue that that percentage is nothing compared to the benefits that would be obtained if lithium extraction operations were conducted directly by the state.

And mining unions insist that the government has to authorise a special fund for the state-owned copper company Corporación del Cobre (Codelco) to extract and produce the mineral.

The Federation of Copper Workers (FTC), which represents Codelco plant workers, cautioned that the tendering of “a strategic resource” merely “reflects the privatising policy” of the government.

Chile reformed its mining laws during the dictatorship of Augusto Pinochet (1973-1990) and opened the industry up to private investment, focusing on copper, the country main source of wealth, and established distinctions between “concessionable” minerals (minerals for which concessions could be granted) and “non-concessionable” minerals.

Most minerals were included in the first category, thus effectively doing away with one of the most notable gains of the socialist government of Salvador Allende (1970-1973): copper nationalisation.

But lithium was classified as non-concessionable because it was considered a “strategic” resource for its potential use in nuclear fusion reactors. And, as stipulated in the national constitution, production of such resources can only be in the hands of the state or contracted out through special agreements.

When mining laws were amended, however, there were two lithium extraction and production concessions, which were exempted from this ban and which are now responsible for Chile’s production of this metal.

Chile is currently the largest producer of lithium in the world, with 41 percent, followed by Australia, China and Argentina. It exports to Belgium, China, Germany, Japan, South Korea and the United States.

South America has 75 percent of the world’s lithium reserves, and the countries in the region with the largest deposits are Bolivia, with 35 percent, and Chile, with 20 percent.

Under the tender process announced, the government will award a special operating contract, as stipulated in the constitution for exceptional cases.

According to the CTC, the government is “circumventing the constitutional ban to avoid an amendment,” for which it would need the approval of the opposition.

Codelco announced in late July that it would purchase the bidding documents to study the possibility of making an offer.

This prompted mixed reactions from Codelco workers, even though they all agree that Codelco should be involved.

“We think the government and the state should adopt a fixed policy of exploiting the country’s resources to raise state revenue,” Velis said.

In contrast, mining undersecretary Pablo Wagner said Codelco can engage in lithium production directly, as it owns deposits, but that the state needs to allow private investors to make their bids so that Chile can compete with other lithium producing countries around the world.

According to Jaime Alee, director of the Lithium Innovation Centre of the University of Chile’s School of Physics and Mathematics, the lithium debate is “political”.

“Lithium is a very cheap and abundant product, which has absolutely no economic repercussions for the country, neither now or in the future, so that this whole discussion doesn’t make much sense,” he told IPS.

In his opinion, the debate should focus on the mineral’s potential added value. “That’s something that we should be conscious of and we should concern ourselves with,” he said.

Chile’s economy depends on exports of raw materials, and if the country wants to advance to a higher stage of development, it needs to train human resources and create added value, he argued.

“If it just goes on selling agricultural commodities, copper and minerals, it will never be more than a middle-level country, like so many others that have, for example, oil and yet are not rich,” he said.

For Velis, putting raw material production in the hands of the state would help reduce the gap between rich and poor, which is one of Latin America’s greatest inequalities.

As an example, the trade unionist mentioned Argentina’s nationalisation of the oil company YPF in May of this year.

“We pay close attention when a neighbouring government or state implements policies aimed at effectively reducing inequality,” Velis said. “Argentina is, without a doubt, a model for us.”

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