Looking at the recent moves by Chilean Corfo, one could draw a parallel between increasing power of state players in lithium industry and established influence on the market by sovereigns in oil.
Corporación de Fomento de la Producción de Chile (Production Development Corporation) is a Chilean governmental organization that was founded in 1939 by President Pedro Aguirre Cerda, to promote economic growth in Chile. It has been heavily involved in commodities industry (particularly oil, power, steel and sugar) from the very beginning.
Currently CORFO oversees a variety of programs aimed at boosting the economic development of Chile, through support of investments, innovations and technological development. It reports to Chilean Ministry of Economics and government ministers sit on its board.Since the beginning of 2018 the decisions made by CORFO sent waves through global lithium market and the statements by Corfo Vice President Eduardo Bitran has been quoted through main global financial medias.
From 2014 SQM (one of the world’s top lithium producers) and CORFO has been involved in arbitration proceedings over underpayment of royalties and violation of environmental regulations.
In January the deal has been reached and SQM conceded to pay $17.5m to Corfo and agreed to pay royalties linked to the price of lithium.
There was also a change of SQM’s corporate governance. Joanne L. Boyes and Robert A. Kirkpatrick resigned from the board during the lithium producer’s board meeting on January 24. Darryl Stann was right away appointed to replace Boyes.
Dispute has been in the spotlight since increase of production quota for SQM has been at stake. If the two sides has not reached a deal, SQM would hit its total output quota limit in 2022, taking into account current levels of production.
Obviously it would be a shot into a knee-cap for SQM, Corfo and Chilean nation, which would have to say goodbye to its lithium dreams. The new deal raising production quota to 180 000 MT per annum to 2030, will also nicely replenish treasury’s coffers as according to projections revenues from taxes and royalties with increased quota could add up to USD 7-8 billion by the end of 2030.
Obviously it was never fully evident if the deal would actually take place.
Particularly considering a long-standing pressure of Corfo on Julio Ponce (who was at some point son-in-law of dictator Augusto Pinochet), to relinquish control he is excersising over SQM through a number of holding companies.
In the end during course of negotiation he yielded to some of the demands to limit his power over the company, without however expressing any intention to dispose of his stakes (understandable..)
The second wave that Corfo made on the market came with an announcement by Mr. Eduardo Bitran as reported by Reuters:
“Chile is open to negotiating an additional quota of lithium for local miner SQM to meet potential demand from U.S. electric car-maker Tesla[…]”
Mr. Bitran met with Tesla in US to discuss opportunities for company’s investment in Chile. He claimed, he had proposed to automaker that SQM could supply brine to Tesla for refining into lithium hydroxide on the ground in Chile.
Moreover Mr. Bitran mentioned that “[…] we would be willing to negotiate additional quota to make this possible”.
At the moment of writing of this article, Tesla and SQM have not released any comment on the matter. However Mr. Bitran’s statements spurred widespread speculations on the nature of SQM and Tesla cooperation, bringing lots of media buzz to the companies.
The January clearly shows the amount of power that Corfo holds not only in Chile but through a proxy in the global lithium market.