13 Aug RESERVED COPPER’S LAW, A COLUMN BY LEOPOLDO REYES
Good news was brought by the government’s initiative to repeal the Reserved Copper’s Law and establish a new mechanism to finance the Armed Forces through a project that has other two strands: the definition of a multi-year standing fund of strategic capabilities and the other setting a limit to the strategic contingency fund. Added to the aforementioned is the aim of making transparent to the country resource allocation and control for defense. With the new project, this is subject to the scrutiny of the Congress, as well as the other items of the national budget.
Instead, it’s not good news for Codelco that, for the next eight years, it’s taxed by 10% of its copper gross sales by the Chilean public tax administration office, contrary to the provisions contained in the various bills announced in the last twenty-five years that were precisely inspired by the release of Codelco from a discriminatory tax that seriously affects its management.
Codelco is the largest copper producer in the world, and competes with all the other big mining companies globally. However, this competition occurs in unequal conditions, not only because of the historic reinvestment of profits that, in the case of this state company, are far short of the reinvestment for private mining, but also, contrary to the Armed Forces, maintains uncertainty regarding its funding capability in a business where is essential to plan, finance and materialize its investments in a long-term context.
In this way, while the government initiative seeks to ensure the Armed Forces get resources on a multi-annual basis and even if Codelco suffers losses, as it has happened in the recent past, condemns the company to depend on annual budgetary approvals that are uncertain, deepening the issues it faces due to capitalization and indebtedness.
It seems entirely inconsistent that the company whose results are intended for defense resources to depend, continues to lack mechanisms for its development, create value for all Chileans and compete under equal conditions in the global copper industry. More inexplicable this initiative is, exactly for a period where must inevitably materialize the so-called “structural projects” that are essential for the company to be able to sustain its current production volume in the future.
It’s evident that the initiative raised will mean that Codelco continues to increase its level of indebtedness, weakening even more its financial situation and increasing its costs on this, in a global scenario where an increase in interest rates is expected.
Cesco has consistently advocated for Codelco not to suffer the “cash cow” syndrome and, apart from repealing taxation imposed by the Reserved Copper Law, its given the capabilities proper for a modern enterprise, the biggest one in the country.
To deal with this situation, we can only hope that, when discussing this initiative in the Congress, parliamentarian analyze with responsibility an initiative that, although being worth submitting the defense budget to an approval process that is transparent and democratic, it doesn’t resolve the detriment taxation imposed to Codelco, maintaining the serious consequences it implies for the main national company.
Leopoldo Reyes, Chairman of Cesco