Chile a step closer to scrapping copper sales funding for military

Chilean lawmakers have unanimously approved changes to a law that forces state-own Codelco, the world’s largest copper producer, to transfer 10% of its annual export sales to the country’s armed forces.

The ruling, known as Ley Reservada del Cobre (Restricted Law on Copper), has been on the books since 1958 and was strengthened during the 1973-90 military dictatorship of Augusto Pinochet.

The decades-old law has limited the amount of funds Codelco has available for reinvestment when is in the midst of a multi-billion overhaul of its aging mines

The minimum contribution expected is $180 million a year, though in periods with high copper prices, such as during the super cycle at the start of the decade, it increases to nearly $1 billion.

The funding has transformed Chile’s armed forces into one of the most capable in the region, with equipment superior to any other neighbouring country.

The decades-old law has limited the amount of funds Codelco has available for reinvestment at a time when is in the midst of a $39-billion,10-year overhaul of its aging mines.

It has also been an obstacle for the copper giant to invest in foreign projects or form joint ventures in other countries, as other governments are not keen on the idea of indirectly helping to finance the armed forces of a regional competitor.

Defence minister Alberto Espina told Soy Chile that the “historical change,” which has yet to be approved by the lower chamber of parliament, would increase the transparency of military financing.

According to official data, over the past 17 years Codelco has injected about $13.7 billion into the country’s armed forces coffers.

Two previous governments have tried and failed to eliminate the controversial law, but Sebastián Piñera’s administration is confident this time the modifications will be approved.

The copper giant holds vast deposits of the red metal, accounting for over 10% of the world’s known proven and probable reserves and about 11% of the global annual copper output with 1.8 million tonnes of production.

Production decline, together with lower copper prices and higher costs, saw Codelco’s annual profits drop by a third last year to $2 billion, not counting paper losses worth almost $400 million, as it wrote down the value of its assets, including its Ventanas smelter and the open pit at its Salvador division.