"There is a lot of talk in geopolitical circles at the moment about a ‘pink tide’ overwhelming South America, but if you look at the changes which have taken place, it is not necessarily a move to the left – it is a move against the status quo.”
Do you view the election of left-wing governments in Latin America in recent years as a long-term trend or something more cyclical?
MC: There is a lot of talk in geopolitical circles at the moment about a ‘pink tide’ overwhelming South America, but if you look at the changes which have taken place, it is not necessarily a move to the left – it is a move against the status quo. In Ecuador, as a counter point, there was a move to the right after 15 years of correísmo. The mid-term elections in Argentina at the end of 2021 saw a move away from Kirschner and Fernandez. Inequality, that has been a problem in Latin America for centuries, has been aggravated by Covid-19, and people feel disenfranchised in the socio-economic systems that exist. So rather than calling this a ‘pink tide’, I prefer to think of it as a reactionary tide against the status quo.
Last year FTI Consulting published a report on mining royalty reform in Chile that stated copper producers could see tax rates increase by 80%. Could radical reforms such as this pass through congress?
DC: The mining royalty bill was approved last year by the lower Chamber of Deputies in Chile’s congress, and then passed to the Senate where it was significantly revised and ‘deradicalised’ from the perspective of the mining sector. The bill now moves to the Senate finance committee and the hope is that it could become law in March 2022. While there has been moderation from the more radical original language, the mining sector is still understandably concerned. The Mining Counsel in Chile considers the profitability tax to be ‘a disincentive to future investment in Chile’ because the tax does not account for depreciation or start-up expenses, representing a departure from the current specific tax on mining activity.
Do you think there have been certain misconseptions about the type of government Boric will run?
MC: During the election campaign there was a perception, which was encouraged by Boric’s opposition, that his coming to power would be a Chávez type moment for Chile. That was erroneous for a number of reasons, including the strength of Chile’s institutions, and the fact that rhetoric which was used to energize Boric’s left-wing base is very different to the reality of governing a country. The government’s ministerial appointments, most notably finance minister Mario Marcel, who very successfully ran the Chilean central bank from a fiscal management point of view, went a long way to alleviate market fears.
In Boric, we see a new generation leader who will try and implement something along the lines of Scandinavian welfare state politics rather than old-school communism. He will be more to the left than the mining industry will like, but not far enough left in the eyes of his base.
DC: We have to remember that campaigning is not governing, and the radical proposals made in an election period are often moderated once a candidate has been elected. In addition to challenges faced in congress, Boric has the task of improving Chile’s socioeconomic landscape after the pandemic, which will require cooperation with the mining sector.
How important is Chilean mining when it comes to the energy transition?
DC: As the world’s largest producer of copper and second largest producer of lithium, Chile will play a key role in the energy transition. Boric has stated numerous times that he is committed to this transition, and if he wants to foster Chile as a leader in green energy, he will have to involve the private sector.
MC: One thing we are seeing from the new wave of young leaders is less concern with traditional left or right-wing politics, and more concern for societal issues such as the environment. The amount of women chosen in the new cabinet is a positive step which is illustrative of this progressive approach.
What advice would you give to mining companies to ensure that enough local benefits are felt by Chilean communities?
MC: Mining companies need to proactively stay ahead of the curve instead of waiting for governments to impose standards for them. Looking at the commonality between the campaigns of Castillo in Peru and Boric in Chile, there was an overriding sentiment of ‘no more poor people in a rich country’. The mining sector also needs to have serious conversations with governments about their role in the development of remote areas, so companies are not seen as surrogates responsible for building hospitals and schools. This should be a collaborative effort between the mining company, communities and governments.
Better communication is also key. Sometimes a mining company will think they know a community after dealing with a handful of local authority figures who might be corrupt, but the benefit of their operation does not funnel down to the grass roots. My core message is do your homework and really understand your communities, gathering deep intelligence on the constant changes happening in evolving human and environmental relations; and once you start helping the right people, really communicate those poisitive acts to a wide audience, but don’t forget to also communicate it to the local community and leaders.
To what extent do you think issues surrounding water supply could impact the viability of mining projects in Chile?
MC: In the Atacama, water is everything. Due to the scarcity of this resource, it can also transmogrify into a geopolitical issue because of historical problems surrounding water access between the three neighboring countries on the border region.
DC: The new draft of the constitution which has been written by the constitutional assembly contains water rights as one of the main issues, highlighted by the environmental commission. The environmental committee also voted in favor of opening discussions on an initiative that would require mines, farms and utilities to seek permits for water use. The proposal would annul the water use rights granted to the private sector and require mines, farms and utilities to apply for temporary use permits. Let’s see where this ends up after it is voted on by the Constituional Convention, but in Colombia for example, rivers have the same rights as human beings, and considering how delicate this subject is in mineral rich parts of Chile, radical constitutional changes could be taken which could have a bigger impact on mining operations than the royalty bill. For all our mining clients, we are watching this space very closely.
Which of FTI Consulting’s services do you expect will be most relevant for Chilean mining companies in the coming years?
MC: One area which is inevitably going to come the fore will be a ramp up in international arbitration. At the very least under the Boric administration, there will be changes to the royalty regime which will create disputes over what was promised when agreements were negotiated. FTI Consulting provides expert witnesses in the fields of economic damages, mining engineering, civil engineering and geopolitical analysis – just to name a few areas.
Mining focused, deep stakeholder mapping is another area we are seeing growth in. As communities expect Boric to deliver on his exaggerated campaign promises, we expect to see vocal resistance from locals who are waiting for ‘their turn to eat’. Due diligence is necessary to see who mining companies are dealing with, whether their concerns are legitimate, and how solutions can be found. We help on all fronts.