Protests in Chile drive government to propose new constitution

In a bid to end weeks of anti-government protests and riots that have left at least 26 people dead and 13,500 injured, Chile’s political parties have agreed on a process to design a new constitution.

The deal, reached in the early hours of Nov. 15, strives to resolve Chile’s worst political crisis since its return to democracy a generation ago and marks a step into the unknown for a country long lauded as the most stable and business friendly in the region.

At a referendum in April next year, Chileans will be asked whether they want a new constitution, and if so, whether the document should be written by a constitutional convention consisting of elected citizens, or one in which half will be elected citizens and the other half elected officials from the country’s current Congress.

The elections to the constitutional convention would be held in October 2020, and the convention would then have nine months (which can be extended by another three months) to come up with a text that is approved by two-thirds of its members. If successful, the document will be put to a second referendum in late 2021 or early 2022.

Chile’s current constitution, designed 40 years ago under former dictator Augusto Pinochet’s rule by U.S.-trained economists, refashioned the economy along free-market principles.

Chile President Sebastian Pinera speaking to the media in July 2019. Credit: Government of Chile.

Since then, it has been championed by business leaders as underpinning much of the country’s economic success. But critics have said for decades that it doesn’t enshrine social rights or offer any kind of a safety net for the poor. Some of its more unpopular tenets include a ban on strikes by workers in the public sector and protections for private property that even extend to private ownership of water from rivers and other waterways.

While the process for writing a new constitution now looks clear, however, the new constitution’s impact on the mining sector is “a big ‘if,’” says Marco Zavala, a mining lawyer at Santiago law firm Guerrero Olivos.

“No one knows what it will look like,” he says.

Chile has received more than US$90 billion of foreign investment over the last 40 years, half of it into the mining industry, transforming it into the world’s largest copper producer, as well as a major exporter of molybdenum, precious metals, and more recently, lithium.

Decades later, mining companies are still lining up to invest.

Last year, the Chilean Copper Commission identified US$65.7-billion worth of mining projects that could be developed over the next decade.

This is possible, advocates argue, thanks to the constitution’s emphasis on property rights and rules prohibiting any government to expropriate natural resources.

These cast-iron guarantees — together with the 1983 Mining Code and foreign investor contracts, which ensured stable tax rates and access to foreign capital — allowed Chile to lure back investors just a decade after the nationalizations of the 1970s.

Although nationalization of the country’s copper mines is still raised by occasional firebrands, the view is not widely shared.

“I have not heard anyone significant calling for expropriation,” says Pablo Mir, a mining lawyer in Santiago. “The overwhelming majority understand the importance of mining for development, and this has to be done with private capital.”

Lithium Chile’s Salar de Atacama lithium property in Chile’s Antofagasta region. Credit: Lithium Chile.

The two-thirds majority required to approve the new constitution should ensure that moderate views prevail, some observers say, and most protesters appear more concerned with day-to-day issues such as low pensions and wages and the state of public healthcare.

Chile’s multiple bilateral investment treaties also mean that constitutional safeguards are no longer as necessary, some say. Foreign investment contracts are already being phased out.

Furthermore, a new constitution proposed in 2017 by former president Michelle Bachelet (but dropped by President Sebastian Pinera when he took office last year) made no changes to Chile’s mining laws, notes Cristian Quinzio, former chief counsel at state copper company Codelco.

Still, there could be significant changes in some areas.

A new constitution would likely give more prominence to Indigenous minorities. The number of Chileans claiming an Indigenous identity has tripled over the last 20 years, according to a recent census, and the multicoloured banner of the Mapuche people (Chile’s largest Indigenous minority) has been as visible as the Chilean flag during the protests.

Such groups could be granted greater control over their traditional lands and what activities may be undertaken there.

Similarly, with the effects of climate change becoming palpable in Chile, the new constitution is likely to put greater emphasis on environmental protection.

The country’s unique system of private property rights over water, enshrined in the constitution, is unlikely to survive unscathed, especially as water resources grow scarce. Most new mining projects already must use desalinated water in their operations because of the lack of alternatives.

Public consultation over new investment projects could be made binding while special protections could extend to glaciers and coastal areas and other sensitive but strategic phenomenon.

“My fear is that it is going to become much more difficult to develop new projects,” Quinzio said.

But changing the constitution could also bring opportunities. Geologists have complained about an antiquated and cumbersome claims system, which has allowed a handful of companies to tie up huge areas of northern Chile. Under the current rules, companies can stake as much land as they want for a minimal fee and hold it indefinitely with no obligation to drill or mine it. Critics say this encourages speculation and hoarding, and means fewer areas are left for juniors who want to explore in the country.

It could also loosen Cold War-era regulations over lithium resources, which have hindered investment in recent years.

But for now the biggest impact of a new constitution will be uncertainty, experts suggest.

“While there is no clarity about the contents of a new constitution, there is going to be an impact on investment decisions,” says Juan Carlos Guajardo, executive director of consultancy firm PlusMining.

Nobody is pulling out of Chile yet. Projects already under construction will go ahead.

Teck Resources (TSX: TECK.B; NYSE: TECK) is in the midst of a US$4.7-billion project to expand its Quebraba Blanca operation into one of the world’s largest copper mines.

In November, Ricardo Ramos, the CEO of Sociedad Quimica y Minera de Chile (NYSE: SQM), said that the lithium producer is committed to its plan to quadruple production from its operations on the Salar de Atacama over the next four years.

But it’s possible that companies with projects at earlier stages of development will hold off.

In November, private consultancy Corporacion de Desarrollo Tecnologico de Bienes de Capital cut its estimate for investment into major projects in all industries over the next five years to US$63 billion, down 7% from three months earlier, largely as a result of the recent protests.

Further cuts seem likely as Chile debates its future.