Chile Lawmakers Rekindle Push to Free Codelco From Military Dutyby
Law forces Codelco to give 10% of its sales to the military
Congressional committee pushed for changes to eliminate rule
A Chilean congressional committee is pushing for legal changes to prevent the nation’s armed forces using the state-owned copper company Codelco as a cash cow to finance weapons purchases.
After a six-month investigation into the Copper Reserve Law that gives the military 10 percent of the sales of Codelco, the world’s largest copper producer, the committee recommended scrapping the rule in a report released Wednesday. Codelco has said it needs the funds to renew aging mines and head off a slump in production.
"There have been two attempts to scrap the law, in 2009 and 2012, and they were both meaningless gestures," Jaime Pilowsky, a Christian Democrat who headed the commission, said in a written reply to questions. "I hope that this government does what it promised in its own election manifesto."
Codelco gave $400 million to the military in the first half of this year, even as slumping copper prices and falling ore grades led the state-owned company to report a net loss of $97 million. With the military draining money from the company, Codelco is rethinking investment plans, while asking the government for more funds, Chief Executive Officer Nelson Pizarro told reporters last week.
For more on the impact of the Reserve Copper Law, click here
“If it wasn’t for the Copper Reserve Law, Codelco’s situation would be completely different,” Pizarro said.
Persuading the government to do anything quickly is going to be difficult.
Scrapping or changing the Copper Reserve Law “is not a short term priority because we are focused on other things, but that doesn’t mean it’s not important,” Finance Minister Rodrigo Valdes told journalists last month. The issue “deserves a wider discussion.”
A bill to scrap the law, which was created in its current form by late dictator Augusto Pinochet, has been languishing in Congress since 2011, when copper traded above $4 a pound amid surging Chinese demand. Now the metal is about $2 a pound.
Codelco gave the military as much as $14.3 billion between 2000 and 2015 -- money the company could have used to invest in its aging mines, Codelco Chairman Oscar Landerretche told the committee. Codelco reinvested 9.6 percent of its profits over the last ten years, compared with an industry average of 38.5 percent, he said.
The ratio of Codelco’s net debt to earnings before interest, depreciation and amortization, or Ebitda, surged to 8.8 at the end of last year, from 3.4 times a year earlier as it sold bonds to finance the investment plans.
While Codelco’s debts mount, Pilowsky has previously estimated that the military have built up a reserve fund of $6.6 billion, even after updating the army, navy and air force in the past decade.
"The Copper Reserve Law is a specific tax on Chile’s largest company," Pilowsky said. "We need to discuss the issue in a serious and responsible manner, or else this will become a third fruitless attempt at change."