RE:Regarding the "lithium legislation" proposed by CongressAs you may already seen in the news (1), congresswoman Yessica Apaza has presented a new legislative proposal (2) with the goal of declaring of public necessity and national interest the exploration, exploitation and industrialization of lithium and uranium in Peru. It seems that, after finding out more information about the subject, she has added more articles to her proposal. The main additions are the following:
1. Uranium included Article 2 of the proposal says:
Prospecting, exploration and exploitation, benefit/refining, processing, commercialization and industrialization (electrochemicals, cell production and assembly) of lithium and derivatives throughout the national territory shall be declared as strategic activity, of public necessity and national interest . (...) Uranium will have the same treatment as lithium where appropriate. In other words, uranium exploitation is being declared of national interest too. The fact that the proposal has the signatures of the other members of her parliamentary group means they have no objection against uranium mining, which is certainly encouraging.
2. Fiscal incentives for lithium Article 3rd establishes some fiscal incentives:
3.1. Refund of the General Sales Tax and Municipal Promotion Tax during the prospecting and exploration phase.
3.2 Refund of the General Sales Tax and Municipal Promotion Tax during the construction phase of the plants to benefit/refine and industrialize lithium.
3.3 Guarantee legal, tax and foreign exchange stability for investments that exceed 50 million dollars for prospecting, exploration, exploitation, benefit/refinement and construction.
Point 3.1 has already been provided for the mining industry by Law 27623 (3). Regarding point 3.3, tax stability is also already provided by Article 155 of the General Mining Law (4) for a period of 10 years. What about the legal and foreign exchange stability? I'm not sure what does that mean or how it could be implemented.
And point 3.2? Well, if concretized, this refund of taxes on the construction phase is indeed a big incentive. For example, if PLU had to buy $300 millions worth of machinery and equipment for Falchani, the General Sales Tax (IGV,
Impuesto General a las Ventas) would be approx. 15% of that amount ($45 millions) which would be refunded (!).
3. About lithium's industrialization Article 4th states the following:
It is established as a national priority the obligation assumed by legal persons and/or natural persons who are engaged in the exploitation (of lithium) to develop the process of benefit/refinement of lithium and derivatives until it is converted into a battery or others.
As well as, the priority of national demand in the commercialization (of lithium) for the technological development of local companies, allowing the export of the remaining lithium and derivatives, with prior authorization issued by the executive.
I think nobody will argue against the benefits that the "industrialization of lithium" would provide to the country, but the way in which this article has been worded makes it (and the whole legislative proposal) against the Constitution. No law can force any business to engage in any specific enconomic activity (like battery manufacturing) nor it can force the business to sell its product to a specific buyer (local companies in this case). I assume that this article will be corrected after receiving Minem's opinion, which is part of the process.
4. Royalties Article 6 establishes the royalties for lithium and uranium:
For the exploitation of lithium and uranium, a 10% royalty is established that all companies that exploit these resources must pay to the State, which will be calculated on the quarterly operating profit, considering the following calendar quarters: January-March, April-June, July -September, October-December. I don't think it is necessary to establish a royalty for lithium and uranium, because royalties for mining companies are already established in a special law (5). The rate (also payable each quarter) varies from 1% to 12% depending on the operating margin (the higher the margin the higher the rate) and cannot in any case be lower than 1% of revenue. Based on this law, the Falchani PEA estimated the royalty rate to slowly increase from 1% to 6.6% as the operation is ramped up, so by establishing a fixed 10% royalty this legislative proposal is effectively increasing the rate for lithium and uranium.
I also expect this article to be modified (or outright removed) as a result of the conversations with Minem's officials.
5. Uranium transport and export regulation The fina article of Apaza's proposal says:
The Executive Branch, within 90 calendar days, must regulate the transport and commercialization of lithium and uranium. This snippet is imo the most pertinent of the whole text. Is it normal that the Congress, through a law, imposes a certain term for the Executive Branch to ellaborate a regulation? Yes, it is completely normal and usual. In fact, this is exactly the way it is done. A law is issued declaring something (lithium and uranium in this case) of national interest and then a specific term is provided for the Executive Branch to issue the required regulation.
How long it could take for this proposal to become law, if it ever happens? Well, it will first depend on what is the opinion of the other political forces represented in the Energy and Mines Commission. From the discussion inside that commission I'm aware of, there shouldn't be any fundamental opposition to this proposal, maybe some minor changes or additions. The big changes will come when Minem's officials review the proposal and are invited to the Comission. They will highlight the unconstituional article and also the articles that overlap tih existing regulation, mainly the one regarding the royalties. But what makes me particularly curious is what the Minem's officals will have to say about the uranium transport and export regulation, now that a specific article about it has been included in the legislative proposal. I hope the session will be available online again!
(1)
https://www.bnamericas.com/es/noticias/congreso-de-peru-recibe-proyecto-para-fomentar-industrializacion-del-litio-y-uranio (2)
https://leyes.congreso.gob.pe/Documentos/2016_2021/Proyectos_de_Ley_y_de_Resoluciones_Legislativas/PL07039-20210204.pdf (3)
https://intranet2.minem.gob.pe/web/archivos/dgm/legislacion/LEY%20N_27623.pdf (4)
https://www.peru.gob.pe/docs/PLANES/94/PLAN_94_DL%20N%C2%BA%20109_2008.pdf (5)
https://www2.congreso.gob.pe/sicr/cendocbib/con4_uibd.nsf/7C82015CC10716F905257C200053BB29/$FILE/29788.pdf