EconomyFinancialWhat Mexico can (and should) learn from what happened...

What Mexico can (and should) learn from what happened with lithium in other Latin American countries

The time is running. The administration of President Andrés Manuel López Obrador must publish in mid-July the decree by which the new state company in charge of exploiting lithium will be created, after the changes to the Mining Law last month. Little is known of the next company. Some names have been rumored and the president has compared it to the CFE, but its composition remains a total mystery and the idea of a state agency that is exclusively in charge of the activity is seen from the outside with disbelief.

The reform to the Mining Law raises a couple of premises that will govern the future of lithium exploitation in the country: there will be no more concessions and it prohibits the participation of private capital in the exploitation and commercialization of the mineral. But until now, no state-owned company at an international level has been able to advance the entire production chain without private investment and without companies with previous experience, mainly from countries like Australia and China that lead the exploitation of the mineral. Mexico’s bet could be very ambitious.

The fever for lithium, which remains one of the essential components towards the energy transition, has brought a wave of nationalism to the countries of Latin America, which have historically been the suppliers of raw materials to the large economies, but without receive benefits in return in their regions.

That nationalism, promoted by the leftist governments of countries like Peru and Chile, has had a great echo in Mexican rhetoric. The intention was not new, but the government has decided to turn to the Southern Cone and take it as an example. Argentina, Chile and Bolivia, the region that is known as the ‘lithium triangle’ because it holds more than 60% of the world’s reserves of the mineral, share borders, but the decisions they have made regarding lithium have been different and the results have also .

Bolivia is perhaps the case most taken up by the Mexican government. The country is recognized as the main holder of lithium, with about 27% of world reserves, founded in 2017 Bolivian Lithium Deposits – more than a decade after Evo Morales became president and made the first promises around the lithium–, but it has not yet slipped into the top places of large producers. The list is headed by Australia, Chile, China and Argentina. The two Latin American countries have as a common denominator the injection of private capital, the other two accumulate decades of experience, large amounts of budget and incidence in other countries that possess the mineral. The largest deposit in Mexico, located in Sonora, is in the hands of the Chinese company Gangfeng.

Bolivian Lithium Deposits was created to comply with the regulatory framework that establishes that only the Bolivian State could participate in the extraction of the mineral, considering it a strategic resource. Bolivia’s salt flats have been declared as fiscal reserves and no company can exploit them. An idea similar to the one that governs the changes to the Mining Law promoted by President López Obrador.

But Bolivia had to relax its premise and allow the participation of private capital a couple of years ago. It closed the exploitation of lithium for the State, but allowed private companies to participate in the transformation of the mineral, through the choice of strategic partners.

The exploitation of the mineral took more than a decade. The Bolivian plan began in 2008, the studies of the reserves were carried out in 2013 and by 2017 the pilot tests of four plants for the transformation of lithium began. And something similar could happen in the Mexican case. The process takes time and is made up of different phases: prospecting, exploration, economic evaluation, feasibility and exploitation, experts on the subject explain. The industrial part of the production chain is a longer process.

Mexico is barely in the prospecting phase and still without tangible data on the amount of lithium in the territory. “I hope that what is going to come out in these 90 days of the deadline after the approval of the law is something very general so that we do not commit ourselves to something that remains a white elephant. It is important that things are done well. There is significant potential, hopefully at least during this year more information is collected and based on this this potential state company can be developed,” says Luca Ferrari, an academic from UNAM.

The Bolivian state company had two alliances at the door before the political crisis that led Evo Morales to go into exile. The Bolivian government had announced two alliances, with a Chinese and a German company. The second would lead the country to enter the European market and export lithium batteries. But everything has been put on hold due to the political crisis that the country has been going through since 2019.

The Chilean case is totally different, although the newly elected government of the leftist Gabriel Boric has promised to bring about a change that pays for the nationalism that has emerged in the region. Chile is the second country with the most lithium reserves and the second producer worldwide, only behind Australia. The South American country has been exploiting the mineral for more than five decades and perhaps apart from that it should be added to the top of the list, but also to the private investments that for years have extracted and produced the mineral known colloquially as white gold. The first studies date back to 1969, when electric batteries and decarbonization were not yet central elements in economies. Since that year, the Chilean Ministry of Mining appointed the first team of geologists to create the first mineral databases.

Chile has used its potential to export the mineral, and the transformation of lithium has left it to foreign companies that take it to their countries to create batteries and other products. But Boric has made a promise to the Chilean people: to create a new state lithium company and thus, the dynamics of the South American country could change by joining the Latin American trend. But a setback came before Boric: the Chilean justice ordered in January the suspension of a tender to exploit 160,000 tons of lithium in the Atacama region, which had been awarded to a Chinese and a Chilean company.

Argentina has also opened up to private investment. Lithium in the country on the southern tip of the continent began to be exploited in 1980, although its exploitation intensified in the 2000s. The Argentine model leaves the stewardship of the resource to the state governments, but leaves it open to alliances with other foreign companies with experience in the activity. Data from the Argentine government say that the country has 19 mining projects, although only two are in the exploitation phase. The prospect of the South American nation is to achieve a production of 375,000 tons of lithium in the coming years, from the 37,500 it currently produces.

Mexico will begin the creation of a new company dragging with a failed precedent: Uramex. The defunct state company was created at the end of the 1970s with the intention of extracting uranium to encourage generation via nuclear power plants. But the company’s idea was left only with the intention of displacing fossil fuels. The lack of resources and the absence of interest from the preceding government left the mineral out of government priorities and Uramex as a promise. The last attempt to create a state-owned company in the country has been by the Obradorista government with the subsidiary CFE Telecomunicaciones e Internet para Todos. The company is about to celebrate three years of its creation, but still without any firm step. The intention was again political and not economic: to bring the Internet to all the regions where private companies have not reached.

“It is not a secret, the great criticism of public companies in different sectors, but especially energy, is the issue that there is a lot of corruption and that they are inefficient. It is the ‘bogeyman’ of public companies in all countries and throughout the literature, and the politicization of decisions, that decisions are not made for reasons of efficiency or rationality of the exploitation of economic activity, but for political reasons” says César Hernández, a former official and specialist on the subject.

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