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Wednesday, April 19, 2023 1:02:07 AM
Lithium_mining in_Chile explained_in 6_pages prior_SP jump
We are reprinting 6 pages from the United Nations CEPAL report titled Adding value in the production of lithium compounds in the region of the lithium triangle https://repositorio-cepal-org.translate.goog/handle/11362/48055?locale-attribute=es&_x_tr_sl=es&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp
Click here for full 76-page report in Spanish
The 6 pages that should bring you up to speed on lithium mining in Chile are below translated into Google English.
Note:
NLC = National Lithium Company (ref Boric/Hernando)
CLN = National Lithium Commission (ref Bachelet/Williams)
... these two acronyms are completely different animals.
The Doctor
--------------------------------------
https://repositorio.cepal.org/handle/11362/48055?locale-attribute=en
https://repositorio.cepal.org/bitstream/handle/11362/47060/S2100288_es.pdf%3B
See pages 31 through 37 (pdf pages 33 through 39)
III. Regulatory and institutional framework for lithium
Poveda, (2020), in the case study of lithium governance in Chile, describes the milestones in the Construction of public lithium policy in Chile. Identifies four stages with configurations that range from a State that intervenes with active policies to a State that trusts in the market, with different results at all times. In the last stage, we observe that the State defined lithium governance guidelines with a more comprehensive look. In addition, we check the conditions that regulate the use of the mineral and the implementation of public policies from a more demanding perspective of income appropriation, real territorial distribution, value tangible sharing, environmental safeguards, and productive chains and innovation associated with the lithium value chain.
On this occasion, a closer look is made at the public policies deployed by Chile in search of productive sophistication and the promotion of research and development in the supply chain utilization of lithium. Thus, this section analyzes the regulatory and institutional framework that regulates lithium exploitation activities from its exploration, exploitation, processing and use in Chile. Discerning the regulatory framework allows greater clarity regarding institutional rules, generally legally formalized, and implicit informal rules. This framework provides the opportunities and tools for action and sets the limits and barriers to management capacity and incidence of the participants in their interaction and mobilization of resources.
In order to understand the regulatory framework for lithium in Chile, it is necessary to establish a turning point in the history of public policies that have been created, reformed or eliminated, which, As will be seen later, it is connected to the strategies and mining, productive and research, and horizontal and sector-by-sector policies (see Chart 7). Although a good part of the strategies, political decisions and public policies have not been directly associated with the lithium-ferrous mining and, in general, have been adopted with a horizontal character and, in some cases, linked to the copper sector, there are meeting points in the established trajectories and the spills produced that will impact the lithium production chain and Chile's lithium value addition strategy.
The starting point in the case of policies, regulations, strategies, and incentives for value addition and innovation and research associated with the productive links of lithium is given for the creation of the National Lithium Commission (CNL) in 2014 and the subsequent negotiation of contracts de Albemarle (2016) and SQM (2018) by CORFO. After establishing the terms and conditions of the new contractual clauses, CORFO is implementing the value policies aggregate and innovation through various tenders that will be addressed in detail in the next section. Setting a starting point within the dynamic processes of public policy development does not mean This means that the preamble of policies and productive milestones that existed (see annex 2) is unknown and that configured the political will of the participants in relation to a determined collective problem: in this case the need to incorporate innovation, technology and added value to production processes beyond the extraction of minerals, particularly lithium as a raw material.
During the course of the study, the leading role of certain participants (30) will be identified who, within of the fields of action (formal and informal) and with the heterogeneity of scope and disposition of resources (31) affect the placement and notoriety of a topic on the media agenda, its subsequent inclusion in the political debate and, finally, the elaboration of a policy that seeks to provide a solution to a particular collective problem.
A. The regulatory isolation of lithium in mining legislation
Chile's mining regulatory system was designed with an extra-activist vision of natural resources, as part of a development strategy based on the free market, which prioritizes the attraction and protection of investments for the use of mining resources and the processes of privatization of companies and services. In the period of military dictatorship that Chile went through from 1973 to 1990, the norms, principles and institutions that have governed the public mining policy of the country. These are mainly: i) the Political Constitution of the Republic (CP) from 1980; ii) the Foreign Investment Statute (Decree Law 600) promulgated in 1974, in force until the year 2016); iii) the Organic Constitutional Law on Mining Concessions (LOCM) in force since the 7th of January 1982, and iv) the Mining Code (CM) promulgated on September 26, 1983.
Among the characteristic features of Chilean mining regulations can be distinguished, the property mining industry regulated at the constitutional level (32), the concessions regime (33), and the existence, within a model that seeks to limit the direct participation of the State in productive activities, in two public companies, the National Mining Company (ENAMI) (34) and the National Corporation of Copper (CODELCO) (35).
In Chile, lithium is regulated by a specific regulation that excludes it from the regulatory framework described miner. During the military dictatorship, which had designed the legal framework for the use of mining resources, the legal scaffolding was also built that declared the lithium a strategic resource reserved for the State and not concession-able, and established the mechanisms for State and private participation in its exploitation. The state reserve regulatory barrier created by the military regime for strategic security reasons did not encourage the creation of a public company or the delegation of this activity to existing state companies (CODELCO and ENAMI). the same military regime designed participation in partnership with the private sector as a management model for exploitation of its lithium resources. On the basis of this legal framework, during the decades of the 1980s and 1990s, signed the agreements between the State (CORFO) and the private companies SQM and Albemarle, where the conditions for exploration and exploitation of lithium were established.
In the context of the Cold War, the military dictatorship that ruled Chile established a framework regulatory and institutional framework on materials considered to be of nuclear interest. Initially in 1976, through Decree Law No. 1557, granted the Chilean Nuclear Energy Commission (CChEN) the capacity to control the trade and collection of materials of nuclear interest and the power to declare of public utility and expropriate-able to nuclear materials. Then, in 1979, with the publication of the Decree Law No. 2,886, lithium was reserved for the State for reasons of national interest, it was excluded from the mining concession regime and the guardianship of the CChEN was determined for any act or contract related to the mineral. Additionally, the Mining Code was amended, eliminating the uranium, lithium and thorium as elements on which mining ownership could be established, that is, leaving them out of the mineral concession regime. In the 1980 Constitution, it was delivered to the law the power to determine the elements not subject to concession and it was provided that the exploration, the exploitation or benefit of deposits containing substances not susceptible to concession, could be executed directly by the State or its companies, or through administrative concessions or special operating contracts.
Subsequently, through the approval of the Constitutional Organic Law on Concessions Mining companies, in January 1982 the non-susceptibility of lithium mining concession was ratified jointly with liquid and gaseous hydrocarbons, reaffirming the exclusion of this rule of those titles miners that were constituted before the validity of the Decree or began its process of processing registration before January 1, 1979 (36), except for the mining titles of lithium held by CORFO and which will later be the only ones that have been exploited. Finally, In October 1983, the new Mining Code was issued, confirming as a general rule the concession of all minerals under the regime of full ownership guaranteed by the Constitution, with the exception of lithium. This constitutional and legal framework is still in force.
The first associative initiative of the State that gave rise to the current Albemarle contract is the agreement signed in 1975 to carry out exploration studies in the Salar de Atacama between the American company Foote Mineral Company and the Government of Chile. Later, in 1980, the CORFO and Foote Mineral formed the Chilean Lithium Society (SCL) with 55% ownership by Foote Mineral and 45% by CORFO. Once the company was incorporated, it signed the Basic Agreement with CORFO where SCL (Chilean Lithium Society) was assigned a production quota of 200,000 tons of contained lithium or equivalent and SCL was given exclusivity for eight years to operate in the Atacama salt flat (Gravel, 2015). The Basic Agreement is the contract signed between CORFO (State of Chile) and the Chilean Lithium Society (today Albemarle) that established the conditions for the exploitation of the mining belongings of the Salar de Atacama until its modification in the new contract of the year 2016. In 1984, the first SCL plant (55% Foote Mineral and 45% CORFO) started up, placing Chile on the world stage of lithium carbonate production. Between 1988 and 1989, Foote Mineral Company acquired 45% of CORFO's participation in SCL (Lagos, 2012). In 1998, Foote Mineral was bought by the German Chemetall which, in 2004, was acquired by the American Rockwood Holding Inc. Finally, in 2015 Albemarle bought Rockwood Holding Inc (Obaya and Pascuini, 2020).
On the other hand, the original background of SQM's current exploitation in the Salar de Atacama refers to the international tender carried out by CORFO in 1983 to produce potassium salts, boric acid and lithium, awarded to the American companies AMAX Inc and the Chilean Molymet (37). Then After the award, in 1986, Minsal Minera Salar de Atacama was established, made up of Amax Inc. (63.75%), CORFO (25%) and Molymet (11.25%) with the corporate purpose of exploring, exploiting and commercializing potassium, boron, lithium and any other product or by-product from the brines of the Salar de Atacama. In addition, it was agreed to limit total lithium production to 180,001 metric tons of lithium. cash within 30 years. Between 1993 and 1995, the Chilean company Sociedad Minera y Química de Chile Soquimich (SQM) purchased 100% of the shares represented by Amax, Molymet and CORFO, consolidating the ownership of Minsal and changing its corporate name to SQM Salar S.A. TO from the beginning of the production of lithium carbonate of Minsal (SQM) in 1996, there was a jump production relevant to the country that consolidated its leadership worldwide from 1997 to 2011. In 2012, during the first term of President Piñera, an attempt was made to expand the productive offer of lithium through a tender that was finally canceled due to non-compliance with the bases of the process of the winning company: SQM. This failed initiative prevented new participants from participating in the exploitation of the mineral, maintaining the historical oligopolistic position of the two companies that Until today they extract lithium from the Salar de Atacama.
B. The lithium boom and linkage policies productive and innovation
In the governance of lithium in Chile, a breaking point is observed after the creation of the Commission Nacional del Litio (CNL) in 2014, at the beginning of the second term of former President Bachelet; the renegotiation of contracts with the companies Albemarle and SQM in charge of lithium exploitation between 2016 and 2018; and, finally, the implementation of value-added and research tenders and development that are in process since 2017.
In a context of high commodity prices and lithium notoriety on the public agenda, intensified in previous years by the disputes between the State and the producing companies and by the failed attempts to expand the productive offer of the previous government, the then incoming president Michelle Bachelet, making use of her political leadership and influence and using political support and consensus38 at the beginning of her government (2014), she convened a Presidential Advisory Commission (39) called National Lithium Commission. This Commission had the objective of generating a strategic vision around to a National Lithium Policy (NLP). This political signal was part of the ideological orientation of the government that sought a more leading role for the State in the governance of extractive resources. At the same time, as will be analyzed in the next chapter, the same government formed another Presidential Advisory Commission to discuss the collective problems that had been positioned in the mining political debate on the development model based on the exploitation of natural resources, and the sustainability challenges that had to be faced by virtue of the slowdown in the pace of mining investments, the deterioration of confidence, the productivity gaps detected and the complex relationship with the peoples and communities in the areas of extractive influence.
Within the CNL National Lithium Commission there was a political debate that initially focused on setting a royalty and which later included as a central theme the role that the State should have in the exploitation of the mineral and in the establishment of industrial policies, as well as the risks in the sustainability of the fragile salt flat systems. Finally, the CNL presented its report with a series of public policy guidelines aimed at:
i) the recognition of lithium as a resource strategic, this time due to its link with the global energy transformation;
ii) the prioritization of environmental and social sustainability in the use of resources in fragile ecosystems such as salt flats;
iii) the central participation of the State in the exploration, exploitation, control and inspection of the natural resource; and
iv) the establishment of policies to strengthen the local capacities of research and technology linked to value chains in the forms of extraction and uses of lithium, associated with the solar potential of Chile.
After the report was presented, without the institutional reforms having materialized suggested, CORFO, between 2016 and 2018, based on the interest of SQM companies and Albemarle to expand its extraction quotas, renegotiated the current agreements with the aforementioned companies. As can be seen in the following table, the new terms and conditions of the contracts established greater powers of the State for control and supervision, the expansion of the extraction quotas, a greater appropriation of rent by the State via fixing royalties variable and incremental linked to the extraordinary price of the mineral and economic contributions in favor of the communities. Likewise, the contracts with Albemarle and SQM included two clauses contractual. A so-called "value added", which consists of the obligation to sell a quota of up to 25%40 of the production of each one of the companies at a preferential price in favor of specialized lithium producers that advance in the lithium value chain and develop their work of production in Chile. The second, a clause called "Research and R&D Development", in by virtue of which the companies committed to making annual contributions of financial resources for research and development in public or private entities
Table 2
Comparison of the conditions of the Albemarle and SQM contracts
Albemarle new sales quota: 262,132mt + remaining 110,000mt of the previous quota 200,000mt
SQM new sales quota: 349,553mt + remnant of 64,816mt from the previous 180,000mt brine extraction
Albemarle water usage: Use of 442 liters per second (l/s) of brine with water rights for 23.5 l/s
SQM water usage: Remains at 1,500 l/s and water rights of 240 l/s
Albemarle term: 12-31-2043 (not set before)
SQM term: 12-31-2030 (maintained)
Albemarle Royalty: 6.8% to 40% for Li's price. (before it did not exist)
SQM Royalty: 6.8% to 40% due to the price of Li (before 5.8% fixed)
Contributions for R&D Between USD$6 and USD$12.4 million annually (previously not existed)
Between USD$10.7 and USD$18.9 million per year (before 0.8% 5.8%)
Albemarle Value Added Incentive: Up to 25% of production at a preferential price.
SQM Value Added Incentive: Up to 25% of production at a preferential price.
Albemarle Communities contribution: 3.5% of sales.
SQM Communities contribution: Between USD$10 and USD$15 million
In short, the promoting role throughout the value chain in the governance of lithium, including productive chains and innovation, is assumed from the public by the Central Government to through the CNL National Lithium Commission, led by the Ministry of Mining. The Ministry of Mining, which traditionally it has not had a greater political relevance within the government structure, it had an important political space in the formation of the two Presidential Advisory Commissions before mentioned. Subsequently, CORFO took the lead in defining the strategies and their implementation. Since the 1980s, CORFO (42) has played a leading role in the Configuration of the lithium industry in Chile. At first, when applying for mining holdings in the salt flats and promote exploration studies and by signing strategic alliances with private companies for the exploitation of lithium. Later, between the 1980s and 1990s, without a leading role, having resigned its role in productive activity in favor of its former private partners. From 2014, in the participation in the construction of the National Lithium Policy (NLP) and in the complex negotiation of the contracts with companies that operate in the salt flats (43). Finally, from 2017, leading the strategies and tenders to promote value-added policies downstream and innovation that are detailed below. CORFO has been not only a key government agency in the lithium sector, but also also an executing arm of the transversal policies of productive development and innovation designed from the Ministry of Economy and implemented by this institution through programs such as Startup, Research Centers of Excellence and Alta Ley that will be described in the next chapter.
As seen in the first chapter, the two main lithium production companies in the world operate in Chile, one of US origin Albemarle and the other originally from Chilean capital SQM (44). These companies are part of the global governance of lithium in the first production link. Albemarle (formerly Rockwood) and SQM, through their economic and technological resources, have had a promoter role of extractive activity in Chile. However, this extractive leadership position does not has been connected in a significant way with the efforts of innovation, research and productive linkages. After 35 years of exploitation of the Salar de Atacama and the technology transfer of exploitation processes in brine introduced by Foote Mineral (today Albemarle) and adopted by SQM to its productive projects, in addition to the training of local capacities and the optimization and innovation of their processes with the development of patents own, there has not been a significant link with the national university and scientific environment to advance research and development of industrial processes in the lithium value chain. The dissimilarities that exist between the interests and incentives of SQM or Albemarle in the application of the value-added clause compared to those of specialized manufacturers are a challenge in the short and long-term, and will require innovative relationships that seek to consolidate an alliance relationship between the parties, where the role of CORFO will be conclusive.
1. Value-Added Tenders
In a context of consolidation of the global megatrends of energy transition and of the global policies against climate change (see annex 3) that drive the demand for minerals critics such as lithium, after the signing of CORFO contracts with the Albemarle companies and SQM, and by virtue of the application of the “value added” clause (45), CORFO decided to carry out two separate tenders, one for each of the contracts. In the case of Albemarle, an international call during the year 2017 in which 12 projects participated, they were shortlisted to seven for a second stage of evaluation46 and three were selected in March 2018 (47). However, In July 2019, CORFO officially announced the withdrawal of the three selected companies, vanishing expectations of investments valued at USD$750 million that had been announced in the selection of the companies and failing the first test that CORFO had tried to give a leap in the lithium value chain in Chile.
The failure seems to obey a sum of participants. First, and perhaps most important, the lack of clarity in the bidding conditions on the so-called preferential price. According to interviews made to participating companies, expectations were high regarding the advantages that in the business model a lower price of lithium in relation to the market value. However, in the way in which the preferential price was finally defined did not imply a competitive advantage significant. This agreement between CORFO and Albemarle regarding the preferential price, which took several months and almost ended in international arbitration, delayed the process. Since the tender was launched in 2017 and 2019 when it was possible to finish the contest, the conditions of the international market of lithium changed drastically. The perception of lithium scarcity and uncertainty from the side of the supply that drove the growth of the price and the appetite from the demand in the manufacturing centers to ensure its supply (48), it became an oversupply of the mineral that impacted the demand reducing its value.
One of the barriers to entry that companies that did not have the development technology itself were the high costs of royalties for the patents that must be used in the process manufacturing materials or elements of the lithium value chain, inescapably linked to the standards and technical requirements of the manufacturers of the next link. According to former Executive Vice President of CORFO, Albemarle's role in the failure of the tender was determinant, referring to the fixing of the preferential price, in addition to the alleged lack of CORFO to demand through arbitration the fulfillment of the obligations of Albemarle (49).
In short, the challenges for investments in the lithium value chain are numerous. He lithium is only a small proportion of the raw material cost of a lithium ion battery (10% at the 2019 price), without a sufficient supply of other raw materials such as nickel or cobalt that have a significant impact on the cost structure. On the other hand, the absence of a qualified labor market for this particular industry and an established supply chain and Asia-focused make more than a preferential price incentive arguably necessary to promote productive investments (CRU, 2019; Roskill, 2019b).
The participation of leading players worldwide in lithium production chains such as Samsung SDI and Pohang Iron and Steel Company (POSCO), or from participants with local knowledge such as Molymet, world leader in the extraction of molybdenum, could have allowed us to have a group of participants that, on the basis of their techno-productive and commercial capacities, will promote a successful implementation of lithium value-added production processes in Chile, achieving the linkage with local capacities and national research and innovation networks and international. It is pertinent to remember that Samsung SDI, Pohang Iron and Steel Company (POSCO) was part of the Korean-Japanese consortium POSCO CONSORTIUM that participated in the tender for the Special Operation Contract for the Exploration, Exploitation and Benefit of Lithium Deposits (CEOL) of 2012, initially awarded to SQM and finally annulled. This reiterated interest of Korean companies in the extraction and manufacturing of lithium components in Chile, may be positive for the ongoing process. From another perspective, the lack of specificity of the two initiatives of the State of Chile in attracting investment, initially for the exploitation of the mineral in 2012 and later for the installation of specialized manufacturers in 2017, it can undermine the confidence of international companies in the face of new government projects.
The Chilean government, in the value-added clause (Preferred Lithium Prices), defined expressly what would be considered to add value to lithium, defining the production of lithium cathodes, lithium battery components and lithium salts, and excluding the possibility that the price incentive can be used for the sale of products such as lithium hydroxide or lithium chloride in any of its qualities. However, in the contract with Rockwood (today Albemarle) it was considered the option of an extra quota (to the additional 262,132mt of LME) of production subject to the condition of build a battery grade lithium hydroxide plant. This incentive was given considering that At the time of contract negotiation -including 2019- the only installed production capacity of lithium hydroxide in Chile belongs to the SQM company, while Albemarle maintains its capacity production of lithium hydroxide outside of Chile.
In April 2019, CORFO and the Chilean Investment Promotion Agency carried out the second call for the installation of specialized producers in the lithium value chain, this time using as input the lithium products produced by SQM (lithium carbonate and hydroxide) with a preferential price until the year 203050. According to the schedule of the international call, the proposals had to be delivered in March 2020 (before January). In this case, it has already been defined the preferential price, the availability of products and the supply times. Without However, according to the companies interviewed, there is no major variation regarding the conditions of the failed process and, in this case, the incentive seems even less attractive if one considers the structure of SQM and the short duration of the benefit, from six to seven years. like a wink In addition to this incentive, in the first R&D tender, which will be discussed later, established a kind of cross-subsidy in favor of the eventual winner of this value bid aggregate, which consisted of the obligation to allocate at least 10% (USD$19.3 million) of the contribution of R&D delivered by SQM for research and development activities, technology transfer and innovation, specialized technological and technical assistance, whose main beneficiaries will be those that CORFO selects as specialized manufacturers.
In June 2020, CORFO announced the award to the Chilean company Nanotec (only offer) to become a specialized producer and add value to lithium. The project presented to CORFO consists of producing lithium nanoparticles and additives, which will enable the development of lighter, more flexible batteries with more efficient charging and higher performance, applicable to phones cell phones, sensors, and medical devices, among others. The project must be able to produce lithium nanoparticles within two years, and the new infrastructure that Nanotec will have to materialize in a period of three years will be located in San Bernardo, Metropolitan Region (51). Nanotec is a national company with activities since 2010 in the field of applied nanotechnology, with a focus on R&D and production of copper nano-composites (52). The award to a local company without the technological, productive and commercial capacities of the large international manufacturers in the different links of the lithium chain does not meet the initial aspirations that projected by the Chilean government when designing and promoting the processes. However, it opens a space for the promotion of local capacities in a niche market.
The little interest in this process seems foreseeable considering the few adjustments made by CORFO in the terms of the tender and the non-variation of the international market structure of lithium since the failure of the previous tender. To this must be added the distrust of the industry Due to the previous lack of clarity, the local context affected by the uncertainty that the process brought social and political in which Chile has been transiting since October 2019 and the global pandemic of COVID-19 since the beginning of 2020.
We are reprinting 6 pages from the United Nations CEPAL report titled Adding value in the production of lithium compounds in the region of the lithium triangle https://repositorio-cepal-org.translate.goog/handle/11362/48055?locale-attribute=es&_x_tr_sl=es&_x_tr_tl=en&_x_tr_hl=en-US&_x_tr_pto=wapp
Click here for full 76-page report in Spanish
The 6 pages that should bring you up to speed on lithium mining in Chile are below translated into Google English.
Note:
NLC = National Lithium Company (ref Boric/Hernando)
CLN = National Lithium Commission (ref Bachelet/Williams)
... these two acronyms are completely different animals.
The Doctor
--------------------------------------
https://repositorio.cepal.org/handle/11362/48055?locale-attribute=en
https://repositorio.cepal.org/bitstream/handle/11362/47060/S2100288_es.pdf%3B
See pages 31 through 37 (pdf pages 33 through 39)
III. Regulatory and institutional framework for lithium
Poveda, (2020), in the case study of lithium governance in Chile, describes the milestones in the Construction of public lithium policy in Chile. Identifies four stages with configurations that range from a State that intervenes with active policies to a State that trusts in the market, with different results at all times. In the last stage, we observe that the State defined lithium governance guidelines with a more comprehensive look. In addition, we check the conditions that regulate the use of the mineral and the implementation of public policies from a more demanding perspective of income appropriation, real territorial distribution, value tangible sharing, environmental safeguards, and productive chains and innovation associated with the lithium value chain.
On this occasion, a closer look is made at the public policies deployed by Chile in search of productive sophistication and the promotion of research and development in the supply chain utilization of lithium. Thus, this section analyzes the regulatory and institutional framework that regulates lithium exploitation activities from its exploration, exploitation, processing and use in Chile. Discerning the regulatory framework allows greater clarity regarding institutional rules, generally legally formalized, and implicit informal rules. This framework provides the opportunities and tools for action and sets the limits and barriers to management capacity and incidence of the participants in their interaction and mobilization of resources.
In order to understand the regulatory framework for lithium in Chile, it is necessary to establish a turning point in the history of public policies that have been created, reformed or eliminated, which, As will be seen later, it is connected to the strategies and mining, productive and research, and horizontal and sector-by-sector policies (see Chart 7). Although a good part of the strategies, political decisions and public policies have not been directly associated with the lithium-ferrous mining and, in general, have been adopted with a horizontal character and, in some cases, linked to the copper sector, there are meeting points in the established trajectories and the spills produced that will impact the lithium production chain and Chile's lithium value addition strategy.
The starting point in the case of policies, regulations, strategies, and incentives for value addition and innovation and research associated with the productive links of lithium is given for the creation of the National Lithium Commission (CNL) in 2014 and the subsequent negotiation of contracts de Albemarle (2016) and SQM (2018) by CORFO. After establishing the terms and conditions of the new contractual clauses, CORFO is implementing the value policies aggregate and innovation through various tenders that will be addressed in detail in the next section. Setting a starting point within the dynamic processes of public policy development does not mean This means that the preamble of policies and productive milestones that existed (see annex 2) is unknown and that configured the political will of the participants in relation to a determined collective problem: in this case the need to incorporate innovation, technology and added value to production processes beyond the extraction of minerals, particularly lithium as a raw material.
During the course of the study, the leading role of certain participants (30) will be identified who, within of the fields of action (formal and informal) and with the heterogeneity of scope and disposition of resources (31) affect the placement and notoriety of a topic on the media agenda, its subsequent inclusion in the political debate and, finally, the elaboration of a policy that seeks to provide a solution to a particular collective problem.
A. The regulatory isolation of lithium in mining legislation
Chile's mining regulatory system was designed with an extra-activist vision of natural resources, as part of a development strategy based on the free market, which prioritizes the attraction and protection of investments for the use of mining resources and the processes of privatization of companies and services. In the period of military dictatorship that Chile went through from 1973 to 1990, the norms, principles and institutions that have governed the public mining policy of the country. These are mainly: i) the Political Constitution of the Republic (CP) from 1980; ii) the Foreign Investment Statute (Decree Law 600) promulgated in 1974, in force until the year 2016); iii) the Organic Constitutional Law on Mining Concessions (LOCM) in force since the 7th of January 1982, and iv) the Mining Code (CM) promulgated on September 26, 1983.
Among the characteristic features of Chilean mining regulations can be distinguished, the property mining industry regulated at the constitutional level (32), the concessions regime (33), and the existence, within a model that seeks to limit the direct participation of the State in productive activities, in two public companies, the National Mining Company (ENAMI) (34) and the National Corporation of Copper (CODELCO) (35).
In Chile, lithium is regulated by a specific regulation that excludes it from the regulatory framework described miner. During the military dictatorship, which had designed the legal framework for the use of mining resources, the legal scaffolding was also built that declared the lithium a strategic resource reserved for the State and not concession-able, and established the mechanisms for State and private participation in its exploitation. The state reserve regulatory barrier created by the military regime for strategic security reasons did not encourage the creation of a public company or the delegation of this activity to existing state companies (CODELCO and ENAMI). the same military regime designed participation in partnership with the private sector as a management model for exploitation of its lithium resources. On the basis of this legal framework, during the decades of the 1980s and 1990s, signed the agreements between the State (CORFO) and the private companies SQM and Albemarle, where the conditions for exploration and exploitation of lithium were established.
In the context of the Cold War, the military dictatorship that ruled Chile established a framework regulatory and institutional framework on materials considered to be of nuclear interest. Initially in 1976, through Decree Law No. 1557, granted the Chilean Nuclear Energy Commission (CChEN) the capacity to control the trade and collection of materials of nuclear interest and the power to declare of public utility and expropriate-able to nuclear materials. Then, in 1979, with the publication of the Decree Law No. 2,886, lithium was reserved for the State for reasons of national interest, it was excluded from the mining concession regime and the guardianship of the CChEN was determined for any act or contract related to the mineral. Additionally, the Mining Code was amended, eliminating the uranium, lithium and thorium as elements on which mining ownership could be established, that is, leaving them out of the mineral concession regime. In the 1980 Constitution, it was delivered to the law the power to determine the elements not subject to concession and it was provided that the exploration, the exploitation or benefit of deposits containing substances not susceptible to concession, could be executed directly by the State or its companies, or through administrative concessions or special operating contracts.
Subsequently, through the approval of the Constitutional Organic Law on Concessions Mining companies, in January 1982 the non-susceptibility of lithium mining concession was ratified jointly with liquid and gaseous hydrocarbons, reaffirming the exclusion of this rule of those titles miners that were constituted before the validity of the Decree or began its process of processing registration before January 1, 1979 (36), except for the mining titles of lithium held by CORFO and which will later be the only ones that have been exploited. Finally, In October 1983, the new Mining Code was issued, confirming as a general rule the concession of all minerals under the regime of full ownership guaranteed by the Constitution, with the exception of lithium. This constitutional and legal framework is still in force.
The first associative initiative of the State that gave rise to the current Albemarle contract is the agreement signed in 1975 to carry out exploration studies in the Salar de Atacama between the American company Foote Mineral Company and the Government of Chile. Later, in 1980, the CORFO and Foote Mineral formed the Chilean Lithium Society (SCL) with 55% ownership by Foote Mineral and 45% by CORFO. Once the company was incorporated, it signed the Basic Agreement with CORFO where SCL (Chilean Lithium Society) was assigned a production quota of 200,000 tons of contained lithium or equivalent and SCL was given exclusivity for eight years to operate in the Atacama salt flat (Gravel, 2015). The Basic Agreement is the contract signed between CORFO (State of Chile) and the Chilean Lithium Society (today Albemarle) that established the conditions for the exploitation of the mining belongings of the Salar de Atacama until its modification in the new contract of the year 2016. In 1984, the first SCL plant (55% Foote Mineral and 45% CORFO) started up, placing Chile on the world stage of lithium carbonate production. Between 1988 and 1989, Foote Mineral Company acquired 45% of CORFO's participation in SCL (Lagos, 2012). In 1998, Foote Mineral was bought by the German Chemetall which, in 2004, was acquired by the American Rockwood Holding Inc. Finally, in 2015 Albemarle bought Rockwood Holding Inc (Obaya and Pascuini, 2020).
On the other hand, the original background of SQM's current exploitation in the Salar de Atacama refers to the international tender carried out by CORFO in 1983 to produce potassium salts, boric acid and lithium, awarded to the American companies AMAX Inc and the Chilean Molymet (37). Then After the award, in 1986, Minsal Minera Salar de Atacama was established, made up of Amax Inc. (63.75%), CORFO (25%) and Molymet (11.25%) with the corporate purpose of exploring, exploiting and commercializing potassium, boron, lithium and any other product or by-product from the brines of the Salar de Atacama. In addition, it was agreed to limit total lithium production to 180,001 metric tons of lithium. cash within 30 years. Between 1993 and 1995, the Chilean company Sociedad Minera y Química de Chile Soquimich (SQM) purchased 100% of the shares represented by Amax, Molymet and CORFO, consolidating the ownership of Minsal and changing its corporate name to SQM Salar S.A. TO from the beginning of the production of lithium carbonate of Minsal (SQM) in 1996, there was a jump production relevant to the country that consolidated its leadership worldwide from 1997 to 2011. In 2012, during the first term of President Piñera, an attempt was made to expand the productive offer of lithium through a tender that was finally canceled due to non-compliance with the bases of the process of the winning company: SQM. This failed initiative prevented new participants from participating in the exploitation of the mineral, maintaining the historical oligopolistic position of the two companies that Until today they extract lithium from the Salar de Atacama.
B. The lithium boom and linkage policies productive and innovation
In the governance of lithium in Chile, a breaking point is observed after the creation of the Commission Nacional del Litio (CNL) in 2014, at the beginning of the second term of former President Bachelet; the renegotiation of contracts with the companies Albemarle and SQM in charge of lithium exploitation between 2016 and 2018; and, finally, the implementation of value-added and research tenders and development that are in process since 2017.
In a context of high commodity prices and lithium notoriety on the public agenda, intensified in previous years by the disputes between the State and the producing companies and by the failed attempts to expand the productive offer of the previous government, the then incoming president Michelle Bachelet, making use of her political leadership and influence and using political support and consensus38 at the beginning of her government (2014), she convened a Presidential Advisory Commission (39) called National Lithium Commission. This Commission had the objective of generating a strategic vision around to a National Lithium Policy (NLP). This political signal was part of the ideological orientation of the government that sought a more leading role for the State in the governance of extractive resources. At the same time, as will be analyzed in the next chapter, the same government formed another Presidential Advisory Commission to discuss the collective problems that had been positioned in the mining political debate on the development model based on the exploitation of natural resources, and the sustainability challenges that had to be faced by virtue of the slowdown in the pace of mining investments, the deterioration of confidence, the productivity gaps detected and the complex relationship with the peoples and communities in the areas of extractive influence.
Within the CNL National Lithium Commission there was a political debate that initially focused on setting a royalty and which later included as a central theme the role that the State should have in the exploitation of the mineral and in the establishment of industrial policies, as well as the risks in the sustainability of the fragile salt flat systems. Finally, the CNL presented its report with a series of public policy guidelines aimed at:
i) the recognition of lithium as a resource strategic, this time due to its link with the global energy transformation;
ii) the prioritization of environmental and social sustainability in the use of resources in fragile ecosystems such as salt flats;
iii) the central participation of the State in the exploration, exploitation, control and inspection of the natural resource; and
iv) the establishment of policies to strengthen the local capacities of research and technology linked to value chains in the forms of extraction and uses of lithium, associated with the solar potential of Chile.
After the report was presented, without the institutional reforms having materialized suggested, CORFO, between 2016 and 2018, based on the interest of SQM companies and Albemarle to expand its extraction quotas, renegotiated the current agreements with the aforementioned companies. As can be seen in the following table, the new terms and conditions of the contracts established greater powers of the State for control and supervision, the expansion of the extraction quotas, a greater appropriation of rent by the State via fixing royalties variable and incremental linked to the extraordinary price of the mineral and economic contributions in favor of the communities. Likewise, the contracts with Albemarle and SQM included two clauses contractual. A so-called "value added", which consists of the obligation to sell a quota of up to 25%40 of the production of each one of the companies at a preferential price in favor of specialized lithium producers that advance in the lithium value chain and develop their work of production in Chile. The second, a clause called "Research and R&D Development", in by virtue of which the companies committed to making annual contributions of financial resources for research and development in public or private entities
Table 2
Comparison of the conditions of the Albemarle and SQM contracts
Albemarle new sales quota: 262,132mt + remaining 110,000mt of the previous quota 200,000mt
SQM new sales quota: 349,553mt + remnant of 64,816mt from the previous 180,000mt brine extraction
Albemarle water usage: Use of 442 liters per second (l/s) of brine with water rights for 23.5 l/s
SQM water usage: Remains at 1,500 l/s and water rights of 240 l/s
Albemarle term: 12-31-2043 (not set before)
SQM term: 12-31-2030 (maintained)
Albemarle Royalty: 6.8% to 40% for Li's price. (before it did not exist)
SQM Royalty: 6.8% to 40% due to the price of Li (before 5.8% fixed)
Contributions for R&D Between USD$6 and USD$12.4 million annually (previously not existed)
Between USD$10.7 and USD$18.9 million per year (before 0.8% 5.8%)
Albemarle Value Added Incentive: Up to 25% of production at a preferential price.
SQM Value Added Incentive: Up to 25% of production at a preferential price.
Albemarle Communities contribution: 3.5% of sales.
SQM Communities contribution: Between USD$10 and USD$15 million
In short, the promoting role throughout the value chain in the governance of lithium, including productive chains and innovation, is assumed from the public by the Central Government to through the CNL National Lithium Commission, led by the Ministry of Mining. The Ministry of Mining, which traditionally it has not had a greater political relevance within the government structure, it had an important political space in the formation of the two Presidential Advisory Commissions before mentioned. Subsequently, CORFO took the lead in defining the strategies and their implementation. Since the 1980s, CORFO (42) has played a leading role in the Configuration of the lithium industry in Chile. At first, when applying for mining holdings in the salt flats and promote exploration studies and by signing strategic alliances with private companies for the exploitation of lithium. Later, between the 1980s and 1990s, without a leading role, having resigned its role in productive activity in favor of its former private partners. From 2014, in the participation in the construction of the National Lithium Policy (NLP) and in the complex negotiation of the contracts with companies that operate in the salt flats (43). Finally, from 2017, leading the strategies and tenders to promote value-added policies downstream and innovation that are detailed below. CORFO has been not only a key government agency in the lithium sector, but also also an executing arm of the transversal policies of productive development and innovation designed from the Ministry of Economy and implemented by this institution through programs such as Startup, Research Centers of Excellence and Alta Ley that will be described in the next chapter.
As seen in the first chapter, the two main lithium production companies in the world operate in Chile, one of US origin Albemarle and the other originally from Chilean capital SQM (44). These companies are part of the global governance of lithium in the first production link. Albemarle (formerly Rockwood) and SQM, through their economic and technological resources, have had a promoter role of extractive activity in Chile. However, this extractive leadership position does not has been connected in a significant way with the efforts of innovation, research and productive linkages. After 35 years of exploitation of the Salar de Atacama and the technology transfer of exploitation processes in brine introduced by Foote Mineral (today Albemarle) and adopted by SQM to its productive projects, in addition to the training of local capacities and the optimization and innovation of their processes with the development of patents own, there has not been a significant link with the national university and scientific environment to advance research and development of industrial processes in the lithium value chain. The dissimilarities that exist between the interests and incentives of SQM or Albemarle in the application of the value-added clause compared to those of specialized manufacturers are a challenge in the short and long-term, and will require innovative relationships that seek to consolidate an alliance relationship between the parties, where the role of CORFO will be conclusive.
1. Value-Added Tenders
In a context of consolidation of the global megatrends of energy transition and of the global policies against climate change (see annex 3) that drive the demand for minerals critics such as lithium, after the signing of CORFO contracts with the Albemarle companies and SQM, and by virtue of the application of the “value added” clause (45), CORFO decided to carry out two separate tenders, one for each of the contracts. In the case of Albemarle, an international call during the year 2017 in which 12 projects participated, they were shortlisted to seven for a second stage of evaluation46 and three were selected in March 2018 (47). However, In July 2019, CORFO officially announced the withdrawal of the three selected companies, vanishing expectations of investments valued at USD$750 million that had been announced in the selection of the companies and failing the first test that CORFO had tried to give a leap in the lithium value chain in Chile.
The failure seems to obey a sum of participants. First, and perhaps most important, the lack of clarity in the bidding conditions on the so-called preferential price. According to interviews made to participating companies, expectations were high regarding the advantages that in the business model a lower price of lithium in relation to the market value. However, in the way in which the preferential price was finally defined did not imply a competitive advantage significant. This agreement between CORFO and Albemarle regarding the preferential price, which took several months and almost ended in international arbitration, delayed the process. Since the tender was launched in 2017 and 2019 when it was possible to finish the contest, the conditions of the international market of lithium changed drastically. The perception of lithium scarcity and uncertainty from the side of the supply that drove the growth of the price and the appetite from the demand in the manufacturing centers to ensure its supply (48), it became an oversupply of the mineral that impacted the demand reducing its value.
One of the barriers to entry that companies that did not have the development technology itself were the high costs of royalties for the patents that must be used in the process manufacturing materials or elements of the lithium value chain, inescapably linked to the standards and technical requirements of the manufacturers of the next link. According to former Executive Vice President of CORFO, Albemarle's role in the failure of the tender was determinant, referring to the fixing of the preferential price, in addition to the alleged lack of CORFO to demand through arbitration the fulfillment of the obligations of Albemarle (49).
In short, the challenges for investments in the lithium value chain are numerous. He lithium is only a small proportion of the raw material cost of a lithium ion battery (10% at the 2019 price), without a sufficient supply of other raw materials such as nickel or cobalt that have a significant impact on the cost structure. On the other hand, the absence of a qualified labor market for this particular industry and an established supply chain and Asia-focused make more than a preferential price incentive arguably necessary to promote productive investments (CRU, 2019; Roskill, 2019b).
The participation of leading players worldwide in lithium production chains such as Samsung SDI and Pohang Iron and Steel Company (POSCO), or from participants with local knowledge such as Molymet, world leader in the extraction of molybdenum, could have allowed us to have a group of participants that, on the basis of their techno-productive and commercial capacities, will promote a successful implementation of lithium value-added production processes in Chile, achieving the linkage with local capacities and national research and innovation networks and international. It is pertinent to remember that Samsung SDI, Pohang Iron and Steel Company (POSCO) was part of the Korean-Japanese consortium POSCO CONSORTIUM that participated in the tender for the Special Operation Contract for the Exploration, Exploitation and Benefit of Lithium Deposits (CEOL) of 2012, initially awarded to SQM and finally annulled. This reiterated interest of Korean companies in the extraction and manufacturing of lithium components in Chile, may be positive for the ongoing process. From another perspective, the lack of specificity of the two initiatives of the State of Chile in attracting investment, initially for the exploitation of the mineral in 2012 and later for the installation of specialized manufacturers in 2017, it can undermine the confidence of international companies in the face of new government projects.
The Chilean government, in the value-added clause (Preferred Lithium Prices), defined expressly what would be considered to add value to lithium, defining the production of lithium cathodes, lithium battery components and lithium salts, and excluding the possibility that the price incentive can be used for the sale of products such as lithium hydroxide or lithium chloride in any of its qualities. However, in the contract with Rockwood (today Albemarle) it was considered the option of an extra quota (to the additional 262,132mt of LME) of production subject to the condition of build a battery grade lithium hydroxide plant. This incentive was given considering that At the time of contract negotiation -including 2019- the only installed production capacity of lithium hydroxide in Chile belongs to the SQM company, while Albemarle maintains its capacity production of lithium hydroxide outside of Chile.
In April 2019, CORFO and the Chilean Investment Promotion Agency carried out the second call for the installation of specialized producers in the lithium value chain, this time using as input the lithium products produced by SQM (lithium carbonate and hydroxide) with a preferential price until the year 203050. According to the schedule of the international call, the proposals had to be delivered in March 2020 (before January). In this case, it has already been defined the preferential price, the availability of products and the supply times. Without However, according to the companies interviewed, there is no major variation regarding the conditions of the failed process and, in this case, the incentive seems even less attractive if one considers the structure of SQM and the short duration of the benefit, from six to seven years. like a wink In addition to this incentive, in the first R&D tender, which will be discussed later, established a kind of cross-subsidy in favor of the eventual winner of this value bid aggregate, which consisted of the obligation to allocate at least 10% (USD$19.3 million) of the contribution of R&D delivered by SQM for research and development activities, technology transfer and innovation, specialized technological and technical assistance, whose main beneficiaries will be those that CORFO selects as specialized manufacturers.
In June 2020, CORFO announced the award to the Chilean company Nanotec (only offer) to become a specialized producer and add value to lithium. The project presented to CORFO consists of producing lithium nanoparticles and additives, which will enable the development of lighter, more flexible batteries with more efficient charging and higher performance, applicable to phones cell phones, sensors, and medical devices, among others. The project must be able to produce lithium nanoparticles within two years, and the new infrastructure that Nanotec will have to materialize in a period of three years will be located in San Bernardo, Metropolitan Region (51). Nanotec is a national company with activities since 2010 in the field of applied nanotechnology, with a focus on R&D and production of copper nano-composites (52). The award to a local company without the technological, productive and commercial capacities of the large international manufacturers in the different links of the lithium chain does not meet the initial aspirations that projected by the Chilean government when designing and promoting the processes. However, it opens a space for the promotion of local capacities in a niche market.
The little interest in this process seems foreseeable considering the few adjustments made by CORFO in the terms of the tender and the non-variation of the international market structure of lithium since the failure of the previous tender. To this must be added the distrust of the industry Due to the previous lack of clarity, the local context affected by the uncertainty that the process brought social and political in which Chile has been transiting since October 2019 and the global pandemic of COVID-19 since the beginning of 2020.
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