Why is lithium not national or strategic in Argentina, as it is in Mexico, Chile, and Bolivia?

Unlike in Chile, Bolivia, or Mexico, the national State does not control lithium production in Argentina.

The provisions of the 1994 constitution granted the original domain of natural resources to the provinces, thanks to which multinationals have “investor-friendly” conditions.

“Imagine a pro-business country in South America, attractive to foreign capital and offers political stability for long-term investments.”

“Most will think of Chile.”

“But when it comes to lithium, the country in question is its dysfunctional neighbor, Argentina, better known for triple-digit inflation figures and its bickering with the IMF, where officials have made a loving offensive from Washington to London with an encouraging message: the mining sector is open for business,” writes the famous British magazine The Economist.

The prestigious US think tank Wilson Center agrees.

“Two of the world’s largest lithium producers are in South America.”

“Country number one has a booming lithium industry, with generous investment incentives attracting dozens of private investors.”

“In country number two, production is managed by the state, and only two companies operate under strict production quotas and a requirement to sell up to 25% of their production at a preferential price to local buyers.”

“Ironically, the number one country is none other than Argentina, where populism and permanent economic crisis has been the norm for decades”, and where “lithium policy is investor-friendly”.

Argentina is one of the corners of the lithium triangle, with the second largest lithium reserves in the world.

Together with Bolivia and Chile, it has 58% of the global resources of this strategic resource, followed by China (25%) and Australia (10%).

The need for lithium will grow as the manufacture of electric cars increases: two-thirds of its demand is for the production of batteries, and it is estimated that production should grow 40 times by 2040.

According to The Economist, the price of lithium carbonate rose from US$14,000 per tonne to US$80,000 in 2022.

In addition, it is estimated that the sale of electric cars will increase demand to 2.4 million tonnes in 2030, compared to 600,000 in 2022.

Regarding Argentina’s expectations, JPMorgan Chase Bank expects the country to overtake Chile as the world’s second-largest producer in 2027 and to increase from 6% of world production in 2021 to 16% in 2030.

FROM MEXICO, CHILE, AND BOLIVIA: LITHIUM AS A STRATEGIC RESOURCE

The point is that Bolivia, Mexico, and Chile all have a national policy that gives the State control over this new white gold production.

Argentina is far from that.

CHILE

In April, Chilean President Gabriel Boric announced the national strategy to develop lithium, focusing on State participation in the production cycle and a commitment to scientific and technological development to add value within the country.

A National Lithium Company was created, and the promotion and development of value-added lithium products are encouraged.

Only two private companies extract lithium in the southern country: SQM (65%) and Albemarle (35%), which have leasing contracts with the State until 2030 and 2043.

The announcement concerns the early termination of SQM’s concession to define the future of the Atacama salt flat, which has more than 90% of the country’s reserves.

This would transfer control to a separate state-owned company.

MEXICO

In February, President Andrés Manuel López Obrador decreed the nationalization of lithium “so that it cannot be exploited by foreigners, neither from Russia, nor from China, nor the United States (…) Oil and lithium belong to the nation, they belong to the people of Mexico”, stated the President.

The regulation establishes that close to 234,855 hectares of reserves in the State of Sonora are lithium mineral reserves in the country’s north.

The Mexican government must carry out their exploration, exploitation, and use.

BOLIVIA

In 2008, Evo Morales’s (2006-2019) government eliminated the concession regime.

It granted national status to exploiting the resources of the Uyuni salt flats in the country’s south.

A year later, the Bolivian constitution declared the natural resources of strategic nature and public interest, and in 2017 the public company Yacimientos Litíferos Bolivianos (YLB) was created.

Since colonial times Bolivia’s natural resources have been exploited by multinationals.

THE ARGENTINE CASE

The 1994 constitution, which emerged after the Olivos Pact between the Peronist and Radical parties, was drafted during the government of Carlos Menem (1989-1999), at the height of neoliberalism in the world, when everything from Russia to Argentina was being privatized for coins.

Article 124 of the Constitution establishes that the provinces have the “original domain of the natural resources existing in their territory”.

Thus, the provinces decide on the country’s natural and strategic resources, not the national government.

This was enthusiastically supported by the governors of the oil and mining-rich provinces, among them Néstor Kirchner of the Patagonian Santa Cruz, and by his wife, Cristina Fernández de Kirchner, who was a constituent convention member and ardently defended this reform.

At that time, the poor provinces of northern Argentina, including Salta, Jujuy, and Catamarca, were the most affected.

Now, the lithium miracle happened in these three provinces.

For this reason, these governors recently shouted out loud when there was talk of a lithium OPEC (Organization of Petroleum Exporting Countries) with Chile and Bolivia, and they were delighted with the nationalization drives in neighboring countries because they believe that investors will prefer the more “friendly” business climate in Argentina.

“Congratulations that they are going backward,” said the governor of Jujuy, Gerardo Morales, on Chile’s decision to consider lithium strategic.

“And Bolivia, too, so more investments are coming to Argentina”, he added.

In her speech on May 25, Vice President Cristina Kirchner referred to these governors criticizing them precisely for their “colonial vocation” and proposed to industrialize Argentine lithium to make “a part of the battery or the whole battery” in the country.

But the Vice President does not propose reforming the regressive constitutional text of 1994, which took control of the main resources away from the nation to leave it in the hands of the governors of poor provinces, who negotiate in inferior conditions with the large multinationals and only receive crumbs.

This is the key to the matter.

To make matters worse, this burdensome concession from the national State to the provinces comes hand in hand with legislation favorable for foreign investors and unfavorable for the country.

As the pro-government senator Oscar Parrilli wrote, the Mining Code 1886 establishes that the State, despite being the salt flats and mines owner, cannot exploit them but must grant a concession to a private party that becomes the owner forever, and can sell, rent or inherit them.

In addition, the 1993 Mining Investment Law – also passed during the Menem Government – established enormous benefits for mining companies, which pay the province’s royalties of 3% on the mine mouth price, from which transportation, crushing, and administration costs are deducted, have financial stability for 30 years, are exempt from income tax and import duties and receive export refunds from the nation, ranging from 2.5% to 5% of sales.

On the other hand, in Chile, royalties are at 40%, the canon is in dollars, and companies must invest part of their profits in the communities and science and technology projects.

The company NewCo, a product of the recent merger of the US company Livent and the Australian company Allkem, operates the only two projects in production in Argentina: Fénix, in the Hombre Muerto salt flat, Catamarca (Livent), and the Olaroz salt flat, in Jujuy (Allkem).

With the merger, the company becomes the fifth largest lithium company in the world and the only Western company among the first five since the other four are Chinese.

The two companies were responsible in Argentina for lithium carbonate sales abroad for US$696 million in 2022.

Thus, lithium production in the country is a monopoly of a US company.

According to Senator Parrilli, the export price declared by the two companies operating in Argentina is much lower than the market price and the price declared by the companies in Chile.

The under-invoicing of prices and quantities has already resulted in the companies receiving several lawsuits.

US INTEREST

Argentina has been the largest exporter of lithium to the US in recent years, concentrating 54% of purchases from the Anglo-Saxon country between 2017 and 2020, according to the Wilson Center study.

The Inflation Reduction Act (IRA), approved by the US Congress in 2022, covers an investment of US$400 billion in the chapter of electromobility subsidies for the purchase of electric vehicles, so a jump in demand for lithium is expected.

The problem is that these subsidies will be for the manufacture of vehicles with resources from the US or from countries with which it has free trade agreements.

That is where Argentina could be left out of the business, precisely the exception Washington seeks to make.

If Argentina wants to take advantage of the lithium revolution, it must start with a progressive policy on natural resources to return to the nation the original domain of these resources, which requires constitutional reform.

This is neither proposed by the Frente de Todos, which governs Catamarca, nor by the opposition Juntos por el Cambio, which governs Jujuy.

Neither the libertarian economist Javier Milei nor the national government itself proposes it.

If the example of Mexico, Bolivia, and Chile is not followed, even though Argentina has white gold in its hands, it will evaporate faster than water in the salt flats.

With information from Sputnik

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