How legal reforms in permitting matters for investment projects could impact the mining industry
Chile’s plan to become one of the world’s foremost leaders in the mining industry faces some hurdles when it comes to development projects. Ranked as 59th on the World Bank’s Ease of Doing Business Index, Chile has a complex regulatory framework for obtaining permits, resulting in declining approvals for mining projects and ultimately, a decrease of investment in this industry. What roadblocks stand in the way of investment, and how can legislative reform impact the position of mining in Chile?
Current challenges
Over the last two decades, the processing times and costs of mining projects have increased significantly.
Despite being a multi-causal problem, one of the main factors responsible of this situation is the complex social and regulatory requirements to build and operate these types of projects. A recent study conducted by the National Commission for Evaluation and Productivity (CNEP), indicates that – on average – the development timeline for a new large-scale mining project in Chile spans approximately 9 years from inception to asset exploitation and commencement of revenue generation.
This regulatory landscape represents a complexity that must be resolved in order to improve Chile’s competitive position against other countries that are actively developing mining projects in Latin America and beyond.
Legal reform
In an attempt to address this problem and to stimulate national economic growth cited in the so-called “Fiscal Pact”, of January 2024, the current administration submitted two Bills to Congress:
1) The “Environmental Assessment 2.0 Bill”.[1]
Proposes to strengthen different administrative authorities with environmental assessment powers and improve their efficiency by amending Law No. 19.300 and other laws. The initiative places particular emphasis on the modernization of the Environmental Impact Assessment System (SEIA).
The Bill is based on three main concepts (i) the reduction of uncertainties and processing times for communities and investors along the procedure; (ii) strengthening the technical evaluation and environmental management tools, giving greater powers to the Environmental Evaluation Service (SEA) and eliminating political bodies such as the Committee of Ministers, placing the administrative decision on all claims in the Executive Directorate of the SEA; and (iii) improvement of citizen participation process in the environmental assessment of projects applying the provisions of the Escazú Agreement.
The main amendments proposed are: (i) adjustments to the grounds for mandatory entry into SEIA, including seawater desalination and green hydrogen projects; (ii) elimination of the Environmental Evaluation Commission (COEVA) a political body which is currently in charge of the environmental approval of the projects, placing their function in the Regional Directorate of the SEA, a rather technical body; (iii) reforms in the administrative appeals system with respect to SEA decisions, eliminating political bodies such as the Committee of Ministers, placing the administrative decision on all claims in the Executive Directorate of the SEA; (iv) creation of an early citizen participation procedure that will be voluntary and prior to evaluating projects in the SEIA.
Although this project is an important step to modernize and improve the SEIA, it is questionable whether it will effectively eliminate the political criteria in the decision of the claims, since the executive direction of the SEA is appointed by the “government in office”, i.e., it continues to be politically driven and could increase the rate of prosecution of environmental permits, directly affecting mining projects (there are multiple examples that show that this type of project has suffered the most from this feature of the current system).
In this sense, the Bill could be adjusted to effectively place the environmental assessment process within a professional and entirely technical independent entity. Therefore, during the Bill’s legislative process, there could be modifications and adjustments aimed at enhancing and professionalizing the environmental evaluation of projects, thereby reducing political and judicial interference in the final stage of the process.
2) The “Framework Law on Sectorial Authorizations Bill”.[2]
This Bill intends to carry out a comprehensive overhaul of the permit system and aims to reduce processing times by 30%, providing greater certainty to all stakeholders involved in economic activities that require sectorial authorizations, as mining activity.
According to CNEP, there are 434 procedures that imply state intervention for the approval of investments, where 309 are permits that depend on 53 different public agencies and 63 are critical permits (i.e., if they are not approved, they paralyze subsequent procedures).
The most important elements of this Bill are: (i) creation of the System for Sectorial Regulation and Evaluation (SSRE), comprising a set of policies, institutions and rules to ensure the correct processing of sectorial authorizations applicable to projects or activities, under the principles of standardization, predictability, proportionality, administrative simplification and facilitation; (ii) creation of mechanism so that certain permits may be replaced by alternative enabling techniques, such as notices and affidavits; (iii) creation of the Unified Information System of Sectorial Permits (UISSP), which is an electronic system of information and management of sectorial authorizations, affidavits and notices, functioning as a “one-stop shop”.
Chile’s current permitting ecosystem is affecting investment – including mining projects – and urgently needs to be reformed. This issue has been elevated as a critical node for investment, and today there is a transversal political agreement to prioritize improvement and reform, and ensure this Bill is aligned with that objective.
In its current state, it is clear that the Bill has some weaknesses and problems. For example: (i) the absence of new incentives for compliance with existing and new permitting timelines; (ii) does not contemplate deadlines for the issuance of the necessary regulations to simplify and decongest the permitting system; (iii) does not eliminate or substantially simplify existing permits, which contrasts with some successful international experiences in this area.
It will be essential during processing to define clear consequences for the authority’s failure to comply with legal deadlines when processing permits, and to further simplify approval of critical permits.
Environmental Superintendency – legal reform
In addition to these Bills , the current administration has submitted to legislative procedure a Bill that strengthens and improves effectiveness of the Environmental Superintendency Legal Reform (SMA), by amending various legal bodies. [3]
The most important provisions included are: (i) optimization of the sanctioning procedure, creating a simplified procedure for minor infractions; (ii) creation of “early correction mechanisms” that the SMA may apply instead of the sanctioning procedure, such as warning letters, correction plans or other instruments in the case of minor infractions; (iii) strength of compliance incentive instruments such as “Compliance Programs”; (iv) increase in penalties, up to five times for minor infractions and up to twice as much for serious and grave infractions (for example, grave infraction may be sanctioned from USD 8 million to USD 16 million approx.).
Although some of the proposed modifications could effectively alleviate congestion within the SMA in its auditing and sanctioning function, others warrant review, due to potential overreach by the SMA or the disproportionate impact of the proposed penalties on companies, including those in the mining sector.
Conversely, while the Bill aims to align the SMA with the new regulatory demands and increasing citizen expectations, the agency’s understaffing remains a significant issue (substantial budgetary increase for the SMA to meet these demands is still pending, and the current Bill does not appear to address this issue).
Moving forward
Undoubtedly, these legislative initiatives represent a new chapter in Chile’s environmental institutionality, which has always been pioneering in the region since the early 1990s. However, they may undergo important modifications during the legislative process, and it is not possible to know what the final directive will be.
It will be vital for the mining industry to closely follow the legislative process, given the impact they stand to make on regulatory challenges in obtaining necessary permits for the materialization of projects and the SMA’s inspection activities.
Collectively, the reforms represent a comprehensive effort to modernize and strengthen Chile’s regulatory framework for permits and environmental institutionality, aiming to provide greater legal certainty for investors and enhance efficiency, transparency, and consistency in project evaluation and authorization. There is room for refinement, but these bills attempt to resolve a problem that has been dragging on for several years and have been common during several governments of different political sectors: to reduce permitting times and requirements for investment projects without lowering environmental protection standards.
To really solve these problems and ensure that any legal winds of change are properly implemented and have a positive impact on economic indicators of the mining industry, it is not enough to just process these Bills: full legal certainty must be presented to project developers and investors.
To this end, it will be essential to have a majority political agreement regarding the elimination or reduction of roadblocks, and minimalize political influence on technical decisions, and substantially improve the efficiency of public administration. A strong commitment to the necessary economic resources for effective implementation of these legal reforms will also be paramount in advancing real change.
If you have any questions about this topic, please reach out to José Domingo Villanueva.
[1] http://www.senado.cl/appsenado/templates/tramitacion/index.php?boletin_ini=16552-12. In June 2024, the Senate approved in general the Bill and the legislative process has followed its regular course to this date.
[2] https://www.camara.cl/legislacion/ProyectosDeLey/tramitacion.aspx?prmID=17134&prmBOLETIN=16566-03. In October 2024, it passed from the Chamber of Deputies to the Senate to continue its legislative process.
[3] https://www.camara.cl/legislacion/ProyectosDeLey/tramitacion.aspx?prmID=17133&prmBOLETIN=16553-12. As of July 8th, 2024, the project has been reviewed by the Supreme Court, which has issued a report on it, while it continues to be analyzed by the Environment and Natural Resources Committee and the Finance Committee, both of the Chamber of Deputies. To date, it is still under legislative discussion in the Chamber of Deputies.
