One "political reason" is that its a relatively easy campaign promise that Boric can at least appear to be trying to fulfill, while the govt. is paralyzed or failing on other fronts. Also, it should be noted that the law is already facing pushback and Boric govt (which needs COngress approval) has signaled willingess to negotiate. So this is an opening negotiating position, and perhaps even at that not so wild-eyed as you seem to be making it.
You're the expert on property rights and commitment. One could view this as a leftist govt suddenly and wrecklesly threatening to expropriate mining operators in a way that will only scare investment and harm the country by breaking commitments not to expropriate. But I Boric was brought to govt by a wave of discontent... the shift in property rights legitimacy was in the air, and Boric is now articulating a vision. He's no Chavez or Morales. More of a moderating figure within his weak leftist coalition, hemmed in by weak support in Congress and rising unpopularity.
Chile has exclusive right to all mineral resources and GDP and state finances depend heavily on natural resource rents. Chile's state CODELCO extracts about 30% of copper, but most mining is based on leases or concessions. This creates an inherent dilemma. Leases can be expropriated/renegotiated before expiration (particularly when demand surges for a resouce like lithium). In a simple environment with perfect commitment, the optimal policy to avoid a resource trap would be to offer a very long contract (in effect sell the resource) at a competitive price. But the real world is more complicated -- the costs of expropriation are not infinite but finite and politically determined, and bidding is not always competitive (a few large firms dominate).
In Chile there is a widespread and not entirely incorrect perception that many great fortunes were made from insider dealing in the privatization of state natural resource assets in the Pinochet era, cemented in place by the Pinochet constitution, and that these companies have corrupted the political system via bribes and illegal campaign contributions, and revolving door relationships. I'm not here to debate the relative merits of such claims but the view is quite widespread and this is one reason why a 'new national lithium policy' became a campaign promise.
SQM one of three largest lithium producers in the world, started as a state corporation but was privatized in 1983, w/ 93% of shares in the hands of then 37-year old forestry school graduate Julio Ponce Lerou, who just happened to be Pinochet's son-in-law and who had, until the year before headed the state development corporation CORFO which had held the privatized companies, and also negotiates lithium concessions. In recent years SQM was caught in high-lvel tax fraud and bribery/illicit political campaign contribution scandals (they were illegally finacing politicians across the party spectrum). This and other scandals and revolving door relations contributed to cynicism, especially among younger voters, and loss of popularity of most of the concertacion and traditional right parties that ruled Chile in democracy. The last election was a two-way race between the current populists on the left (which won) and the extreme right.
This is a proposed partial nationalization in that future lithium production contracts would have to be joint public-private ventures with 51% state participation (I thought it incentivates but does not compel SQM and Albemarle to renegotiate current contracts -- and as recently as March the Boric govt completed long-term leases with other companies that had been initiated by his conservative predecessor). Boric camp claims this will help shape a more developmental rather than 'extractivist' path, with more value added in Chile. Private companies are shouting bloody murder. I don't know enough about the industry to judge whether it's gone too far.. but I don't think this is the final draft.
From what I understand, there's also a law making progress to somewhat increase royalty rates in copper and other mining contracts. This would raise royalties slightly (to levels that industry of course describes as bloody murder) but at the same time makes royalty rates more contingent on market conditions meant to capture more for the state on the upside and penalize private investors less on the downside (whether they are involved or not I don't know but Chile has a track history of interesting procurement contract design).
Maybe things will go to pot, but I think that with negotiation there is room for things to move in the direction of a new institutional framework for natural resource exploitation that is seen as more legitimate by the broader polity, captures more of the resouce windfalls for society, but also does not scare away investors.
One "political reason" is that its a relatively easy campaign promise that Boric can at least appear to be trying to fulfill, while the govt. is paralyzed or failing on other fronts. Also, it should be noted that the law is already facing pushback and Boric govt (which needs COngress approval) has signaled willingess to negotiate. So this is an opening negotiating position, and perhaps even at that not so wild-eyed as you seem to be making it.
You're the expert on property rights and commitment. One could view this as a leftist govt suddenly and wrecklesly threatening to expropriate mining operators in a way that will only scare investment and harm the country by breaking commitments not to expropriate. But I Boric was brought to govt by a wave of discontent... the shift in property rights legitimacy was in the air, and Boric is now articulating a vision. He's no Chavez or Morales. More of a moderating figure within his weak leftist coalition, hemmed in by weak support in Congress and rising unpopularity.
Chile has exclusive right to all mineral resources and GDP and state finances depend heavily on natural resource rents. Chile's state CODELCO extracts about 30% of copper, but most mining is based on leases or concessions. This creates an inherent dilemma. Leases can be expropriated/renegotiated before expiration (particularly when demand surges for a resouce like lithium). In a simple environment with perfect commitment, the optimal policy to avoid a resource trap would be to offer a very long contract (in effect sell the resource) at a competitive price. But the real world is more complicated -- the costs of expropriation are not infinite but finite and politically determined, and bidding is not always competitive (a few large firms dominate).
In Chile there is a widespread and not entirely incorrect perception that many great fortunes were made from insider dealing in the privatization of state natural resource assets in the Pinochet era, cemented in place by the Pinochet constitution, and that these companies have corrupted the political system via bribes and illegal campaign contributions, and revolving door relationships. I'm not here to debate the relative merits of such claims but the view is quite widespread and this is one reason why a 'new national lithium policy' became a campaign promise.
SQM one of three largest lithium producers in the world, started as a state corporation but was privatized in 1983, w/ 93% of shares in the hands of then 37-year old forestry school graduate Julio Ponce Lerou, who just happened to be Pinochet's son-in-law and who had, until the year before headed the state development corporation CORFO which had held the privatized companies, and also negotiates lithium concessions. In recent years SQM was caught in high-lvel tax fraud and bribery/illicit political campaign contribution scandals (they were illegally finacing politicians across the party spectrum). This and other scandals and revolving door relations contributed to cynicism, especially among younger voters, and loss of popularity of most of the concertacion and traditional right parties that ruled Chile in democracy. The last election was a two-way race between the current populists on the left (which won) and the extreme right.
This is a proposed partial nationalization in that future lithium production contracts would have to be joint public-private ventures with 51% state participation (I thought it incentivates but does not compel SQM and Albemarle to renegotiate current contracts -- and as recently as March the Boric govt completed long-term leases with other companies that had been initiated by his conservative predecessor). Boric camp claims this will help shape a more developmental rather than 'extractivist' path, with more value added in Chile. Private companies are shouting bloody murder. I don't know enough about the industry to judge whether it's gone too far.. but I don't think this is the final draft.
From what I understand, there's also a law making progress to somewhat increase royalty rates in copper and other mining contracts. This would raise royalties slightly (to levels that industry of course describes as bloody murder) but at the same time makes royalty rates more contingent on market conditions meant to capture more for the state on the upside and penalize private investors less on the downside (whether they are involved or not I don't know but Chile has a track history of interesting procurement contract design).
Maybe things will go to pot, but I think that with negotiation there is room for things to move in the direction of a new institutional framework for natural resource exploitation that is seen as more legitimate by the broader polity, captures more of the resouce windfalls for society, but also does not scare away investors.
P.S. -- The Economist seems more bullish on Lithium prices. https://www.economist.com/business/2023/04/20/why-crashing-lithium-prices-will-not-make-electric-cars-cheaper
P.P.S. -- that came out longer and more rambly than planned... : )