SANTIAGO, Chile, Feb. 7 (UPI) -- Faced with budget deficit problems for the fifth consecutive year, the Chilean government has set its sights on the state-owned National Copper Corporation, Codelco, in order to assess the problem of its dwindling revenues.
Chile's copper exports account for nearly 50 percent of the country's shipments and accordingly boast a pivotal role in the liquidity of the country's coffers. According to official estimates, every one-cent fluctuation in the commodity's price in the international markets is either a loss or a gain of $100 million for the Chilean government.
The authorities have accordingly commissioned the London-based consultancy firm Commodities Research United, CRU, to analyze the efficiency of its measures to cope with the depressed copper prices. The London-based firm is being assisted by the Chilean Copper Commission, Cochilco, a government advisory agency.
Patricio Cartagena, executive vice-president of Cochilco, pointed out how in spite of Chile's dominating position in the world copper industry it has not capitalized on is huge leverage to prevent the price falls or the excess production that has largely caused them.
"The most important thing here is that the authorities can count on a tool that goes beyond those provided by the market. We are the main copper producer in the world and we have to maintain our leadership," Cartagena stated.
Chile is the world's largest copper producer, accounting for 35 percent of international production. Codelco, which is the single largest copper producing company, accounts for 13 percent of the world output of the commodity.
Even though the copper price is presently enjoying an upward swing and is currently at over 70 cents per pound, the last two years have been particularly critical for the industry as demand has decreased and prices fallen.
This dip has been reflected in Codelco's revenues. Although the company's profits in 2002 reached some $400 million, the figures are still a far cry from the earnings of $1 billion it generated in the mid-90s or the government's plans for the company to reach $1.7 billion by 2006.
The joint CRU-Cochilco report is expected to be ready in March, when it will be delivered to both Mining Minister Alfonso Dulanto and President Ricardo Lagos. Its conclusions should help to determine the elasticity of the copper price in the face of production swings. Although Cartagena stated that production cuts do generate a short-term rise in prices, the Chilean government has not yet determined the effectiveness of its measures over time.
Codelco's dwindling revenues have been the subject of serious debate as some analysts point out how in spite of the state company's production cuts, private companies operating in Chile have refused to reduce their production, thus driving the commodity's price downwards.
Sen. Jorge Lavandero, a member of the Christian Democrat Party, is one of the leading proponents of the latter thesis and has repeatedly denounced the allegedly deliberate overproduction undertaken by foreign mining companies, most of which began operating in the country in the early '90s. Lavandero is a critic of foreign mining operators, which he says operate in the country without sufficient regulation.
The senator was the first to denounce Exxon Minerals International Inc., after it was reported in 2001 that despite operating in the country for more than two decades, the company has paid no income taxes. The situation caused a stir as at the time Exxon was planning to sell its $1.3 billion copper mining asset, Disputada de Las Condes, to South Africa's Anglo American.
Lavandero is in addition pursuing legal action against 11 mining companies -- including Phelps Dodge, BHP Billiton, and the local Antofagasta Minerals -- for the alleged damage their business practices have caused the Chilean economy. The lawsuit, which was filed in July 2002, demands a $32 billion reparations payment, accusing the companies of vices such as accountancy fraud and tax evasion.
According to Lavandero, between 1990 and 1994 world copper production was cut by 62,000 tons. But Chile increased its output by almost ten times that figure. Since, during that same period, Codelco cut its production by 109,000 tons, the private mining companies were responsible for the explosive output growth.
Cartagena refutes this and points out how the excess production of copper was due to an error in estimating demand growth projections and the fact that the industry did not foresee the Asian economic crisis and its devastating effects.
Several years before the Asian crisis and the subsequent fall in copper prices, Chile was already largely responsible for much excess copper in the world markets, as the commodity experienced a 20 percent price drop between 1989 and 1994. During the '90s, Chile was responsible for 83 percent of the growth in world copper production.
