Progress And Pitfalls In Lithium Regulation'An Investor's Guide To Navigating The Changes

• Published date: 22 September 2023
• Subject Matter: Corporate/Commercial Law, Environment, Energy and Natural Resources, Corporate and Company Law, Energy Law, Environmental Law, Mining, Renewables
• Law Firm: Urzua Abogados
• Author: Mr Daniel Weinstein

Chile not only possesses the world's largest lithium reserves but also has unique advantages that should position it as a global leader in lithium production. Yet, due to a restrictive legal framework, the nation's lithium sector remains largely underdeveloped. As we progress through 2023, however, a palpable shift in policy and legal initiatives promises to unlock enormous potential for both the state and private companies.

I. Current Regulation of Lithium in Chile

1. An Archaic Legal Framework: The existing regulation, rooted in the 1979 Decree Law 2,886, is both outdated and unduly restrictive. Initially established due to fears of lithium's potential nuclear applications, the law has failed to adapt to the element's current, predominantly non-military uses such as renewable energy and electric vehicles.
2. Restricted Private Sector Involvement: Current legislation imposes severe limitations on private sector engagement. Companies can only participate under two conditions
   • Through an administrative concession or a Special Operation Lithium Contract (CEOL), governed by a Presidential Supreme Decree or
   • If they held a mining concession prior to the 1979 Decree Law.
3. The Current State of Affairs: As it stands only two private companies are actively engaged in lithium extraction, although many others are in the exploration phase hoping to secure a CEOL. And this year, there has been a surge in interested investors, attracted by the changes promised by the government.

II. New National Lithium Strategy: Promising Opportunities

1. Public-Private Partnerships: The recently introduced National Lithium Strategy (NLS) marks a potential turning point. Contrary to some narratives, there is no intention to nationalize lithium companies. The focus is on building strong public-private partnerships for sustainable lithium exploitation.
2. Market Diversification: The NLS aims to welcome a broader range of actors, including smaller enterprises and those offering disruptive technologies.
3. Control and Management: Private companies may take control in public-private associations for lithium exploitation in non-strategic salt flats. It has also been hinted that in certain cases, private companies won't even be required to partner with the state to be granted a CEOL.
4. State's Role in Strategic Salt Flats: For strategic salt flats, state-run companies like Codelco and Enami will maintain a controlling stake in the partnerships that will be formed with private companies. .
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