The study, “New estimates of the wealth given away to large private copper mining companies: Chile 2005-2015”, addressed the economic rent obtained by the 10 largest mining companies in Chile. Using official World Bank (WB) data for the period 2005-2014 and applying a modern and conservative methodology, it was estimated that these mining companies obtained an economic rent of US$120 billion. The 10 large transnational mining companies considered in this study were: Anglo American Sur, Mantos Copper, Los Pelambres, Candelaria, Quebrada Blanca, Escondida, Collahuasi, Cerro Colorado, Zaldívar and El Abra.
According to economist Julián Alcayaga (2020):
At the end of the dictatorship, in 1989, there were only 3 moderately large foreign mining companies, “La Disputada” which had belonged to the State until 1979, “Mantos Blancos S.A.” and “Minera El Indio”, which produced a total of 214,000 tons, the rest were produced by State companies, Codelco and Enami, of the total 1,609,000 tons produced by Chile in that year. In other words, only 13% of Chilean copper was produced by foreign companies. Today, in 2019, foreign companies produce 70% of Chilean copper. This means that in these 30 years, foreign investment has been spectacular.
According to Cochilco’s yearbooks, foreign mining companies have taken a whopping 85,818 tonnes of fine copper equivalent out of Chile between 1990 and 2019, which at the average price of the last few months (3 dollars per pound) is equivalent to around US$ 567,760 million. But that is the export declared by the companies themselves, but it is public knowledge that the real export should be at least 20 to 25% higher than the official figure, which would mean that the export of copper by foreign mining companies would reach 100,000 tons and its value should exceed US$ 680,000 million, to which should be added 30% more for gold, silver, molybdenum, rhenium, cobalt, etc., contained in the export of copper concentrates, which, when added up, means that foreign mining companies have taken around 900 billion dollars from our country. This is the dimension of the extraordinary wealth that copper represents for Chile, however, as we said above, this has been a disaster for our country, although perhaps the disaster derives directly from the governments, we have had for the last 30 years, who have consciously allowed this embezzlement.
This is explained by the fact that of the 900,000 million dollars that the foreign mining companies have taken, how much have they paid in taxes to the State and to all Chileans? It is difficult to know because taxation has been secret in Chile since 1995, precisely so that Chileans would not find out that foreign companies in general, and mining companies in particular, pay little or no income tax in Chile. However, the taxation of foreign mining companies became known thanks to a SII report requested by the Senate in 2003 and in a report requested to the SII by the deputy Claudia Mix. These reports indicate that from 1990 to 2019, income taxation plus the specific tax on mining known as royalty, has been US$ 29,030 million.
This means that they took 900 billion dollars out of Chile and left only US$ 29.03 billion in the country in 30 years of exploitation, that is to say, they left a minuscule 3.2% of a wealth that has already disappeared from our soil forever.
Why have foreign mining companies taken so much copper and other by-products and paid so few taxes? This is where the disaster allowed by our rulers from 1990 onwards comes in. Until 1989, foreign mining companies had to pay tax on the basis of presumed income, i.e., on what they sold. No mining company could escape paying income tax, because as soon as it had to sell or export the first tonne of copper, whether it made a profit or not, it had income and had to pay the tax. Everything changed in June 1990, when Law 18.985 was passed, which changed the tax for large mining companies from presumptive income to effective income, that is, if the mining companies obtain or declare profits or earnings, they pay income tax, but if they declare losses they do not pay tax, in fact, they accumulate losses, and will not pay tax until the eventual future profits absorb all the accumulated losses. Foreign mining companies came to our country en masse, because Law 18.985 would allow them to take the copper and by-products they wanted without taxes. Along with that law, later, the government of Eduardo Frei Ruiz-Tagle passed Law 19.389, which established secrecy for companies’ tax information. In the same vein, the government of Ricardo Lagos, by passing law 19.738, increased the tax benefits for transnational copper companies, because it allowed them, contrary to what should be the case, to obtain compensation for the loss of value suffered by the deposit when it is exploited, when it should be the country and its people who receive compensation for the enrichment of the private sector at the expense of a non-renewable natural resource that is becoming extinct.
It all starts with the fact that the investment that the parent companies make in Chile is not made through direct investment, but that it is their “Chilean” mining subsidiary that has to get into debt with finance companies related to the parent company and domiciled in tax or fiscal paradises, finance companies to which the “Chilean” mining companies pay interest and commissions far above the normal market. In some mining companies, financial expenses have reached 40% of their total expenses, and in this way, they diminish or make profits in Chile disappear.
Another form of evasion is transfer pricing both in what they buy and what they sell to related companies. For example, those huge mining trucks, worth around 5 million dollars, are not bought from the manufacturer but from a related commercial company domiciled in a tax haven to which they pay 7 or 8 million dollars, which increases the expenses of the “Chilean” mining company, in order to reduce profits so as not to pay taxes. They export the concentrate to a related company, in a related company’s ship and insurance, and smelting and refining costs are much higher than market prices, so that sales are much lower than they should be at market prices. The profits from these overprices are received by related companies of the same group, but abroad, and the higher expenses for the “Chilean” mining company serve to reduce or make its profits disappear, so that it does not pay income tax in Chile.
There are many other ways of artificially generating expenses, which are even more illicit, such as sales in futures markets to related companies that earn what the “Chilean” mining company loses. They reduce the quantity and metal content of copper and other by-products that go into the concentrate, under cover of the fact that Customs, Cochilco or the S.I.I. do not control copper exports. Why don’t these bodies control foreign mining companies, if that is their role? Because the directors and officials of these bodies cannot supervise foreign mining companies, but receive direct orders from the government authorities. This is why we are talking about the disaster that Chile’s governments have caused for copper and mining in general.
In addition to the tax royalties, the copper production model that since 1990 has given impetus to the export of copper concentrate (classified as a raw material or sub-material), implies significant losses for the country, with Chile becoming the world’s leading exporter of copper concentrate, since of the total mineral we export, 1/3 is copper concentrate.
And exporting copper concentrate implies huge losses, since the price of buying and selling is not defined by the metal exchanges, but is subject to the arbitrariness of the participants in the transaction, who are generally related partners. In addition, whoever exports or sells the copper concentrate is tied to obligatory 20-year contracts, having to pay the cost of freight by ship to smelters and refineries in Asia or Europe, as well as the required insurance. Added to this is a loss of 4% of the copper contained in the concentrate, as smelters pay for only 96% of the copper they buy. In the case of Codelco, these are direct and significant losses for the country that would be avoided by refining and smelting the concentrate in the country.
We also lose income because of the so-called impurities or by-products contained in the copper concentrate (estimated at more than 30 metals and non-metals), the transnationals pay an approximate amount for the gold and silver, while for the rest of the content, which is considered insignificant and worthless by the companies (which the supervisory bodies accept) they do not pay a peso. In this regard, the academic Juan Camus of the Universidad de Playa Ancha estimated in 2012 that Chile lost more than 9 million dollars for every 1,000 tonnes of copper concentrate exported, an amount that is even greater when considering that between 11 and 12 million tonnes of copper concentrate are sent abroad annually.
In short, the damage to the country by exporting concentrate and not refining or smelting copper in the country reaches gigantic dimensions, in multimillion-dollar figures that are very difficult to measure and translate into reality. For the past decade (2000 to 2010), the detriment to the country is estimated at 120 billion dollars, according to the Faculty of Economics of the University of Chile; 190 billion dollars, according to the World Bank, and close to 300 billion dollars, according to the Copper Defence Committee (Comité de Defensa del Cobre).
On the other hand, nationalisation is a possible path, especially in Chile where the current Political Constitution maintains the decision to take advantage of natural resources for the benefit of the Chilean people.
And nationalisation is possible today, as demonstrated by the Bolivian government’s decision in 2006 to take hydrocarbons out of the hands of the transnationals, thus obtaining a significant development benefit for its people. In addition, in 2013, as a result of intense social mobilisations, the principle that gas is first for Bolivians and then for export was adopted and put into practice.
In short, from 2006 to 2019, thanks to this decision to nationalise gas and oil, the Bolivian people obtained US$37,484 million in oil revenues, income that benefits programmes and projects in the sectors of health, education, housing, employment, food production, among others. This recovered wealth also finances a large part of the social bonds and income for the benefit of children and young people, single mothers and the elderly.