By Alexandra Ulmer and Fabian Cambero
Chile is failing to take a firm hand in regulating its mining and energy industries, leaving billions of dollars’ worth of projects exposed to the risk of lawsuits by local communities in the world’s No 1 copper producer.
The Andean country is banking on attracting $100bn in mining investment and boosting annual copper output by more than 30 percent to over 7m tonnes by 2020.
But the government faces mass protests as Chileans demand a bigger share of copper earnings, and some critics charge that a regulatory vacuum has emerged, allowing opposition groups to jeopardise approved plans for hydropower projects in Patagonia, thermoelectric plants across the country and major copper mines high in the Andes.
Mining firms and power producers are increasingly critical of President Sebastian Pinera’s conservative government and warn of major output problems if regulatory issues are not resolved.
Experts blame inadequate land-use planning and a centralised governmental decision-making process that is often perceived as at odds with local sentiment.
These underlying regulatory gaps have increasingly come under the spotlight given environmental protests, bigger and more numerous power projects and a scarcity of uninhabited land on which to build energy complexes.
Chilean power firm Colbun SA COL.SN jolted the energy sector in late May by threatening to halt its embattled HidroAysen hydro power joint venture valued at around $6bn, demanding clearer regulations.
“The government isn’t willing to take charge of regulation. Chile’s policy is to let the market decide, and that’s irresponsible,” said Raul Sohr, author of “Chile in the Dark,” a book about energy woes that was among Chile’s best-selling nonfiction books for several weeks.
EXASPERATION
The government says previous administrations failed to spur investment to revamp a creaking energy grid and boost generation. Pinera, who came to power in 2010, has exasperated energy executives with a months-long lull in pushing forward energy plans after promising major changes to the country’s power-transmission grid.
Even world No 1 copper producer Codelco CODEL.UL has voiced concern about delays in energy projects.
“We’re worried about delays in various investments announced in previous years, because we need to be sure we’re going to have energy before starting to build new projects,” Codelco’s chief executive, Thomas Keller, said in June.
A number of authorized investments have faced legal delays as local groups file suits alleging that they were not adequately consulted.
A host of mining projects in Chile’s Atacama region are seen particularly at risk after the Supreme Court rejected Brazilian billionaire Eike Batista’s planned $5bn Central Castilla plant in August.
More than $22bn and over 8,000 megawatts in energy investment are currently suspended due in part to legal disputes and regulatory delays, according to Libertad y Desarrollo, a conservative think-tank in Santiago. Trying to ease the problem, the government will soon decree a regulatory change requiring that indigenous communities be consulted in environmental approval processes for mining and energy projects.
It seeks to fill a regulatory vacuum by enforcing an International Labour Organisation convention, but it is nonbinding and its effect is seen as marginal at best by unimpressed investors and affected communities.
The consultation focuses only on indigenous communities, meaning it ignores wider environmental and social opposition to mega-projects. It also will not shield projects from being taken to court and risks angering communities if investments are given the green light despite their objections.
Chile’s environmental impact assessment agency defends the measure as a first stab at regulating the sector.
“Of course it can be bettered, of course it can be perfected, but this is the challenge,” Ignacio Toro, the head of the agency, said, citing the difficulty of generating rapprochement between communities and companies.
He said the consultation process will more quickly clarify local communities’ concerns over projects and so leave more room to solve the issues.
Reuters
