August 6, 2018 / 7:09 PM / 6 months ago

Chile's government plans end to Codelco financing military

SANTIAGO, Aug 6 (Reuters) - Chile’s government announced on Monday a plan to abolish a decades-old law by which state-run Codelco helps to fund the country’s military, potentially boosting the copper miner’s coffers as it seeks to revamp its aging mines.

The 1958 law, which was strengthened during the dictatorship of Augusto Pinochet, transfers to the military 10 percent of Codelco’s export sales.

Chilean President Sebastian Pinera said in a speech at the presidential palace La Moneda that the law provided neither transparency nor stability.

He said it was “absurd” that the strategic spending of Chile’s armed forces was impacted by a fluctuating copper price, proposing in the future that it be funded by central government, as military salaries and operational costs are at present.

The change to the law would bring better oversight of military priorities as strategic spending would be debated in Congress each year, Pinera said.

If passed, the proposal should also provide a welcome boost to Codelco’s finances. Codelco is the world’s top copper miner, producing 1.73 million tonnes of the red metal in 2017, but needs to invest an estimated $39 billion in a 10-year revamp of its aging facilities to keep output flowing.

The company turns over all its net profits to the government. In the past, chief executive Nelson Pizarro has said the company would be in a stronger financial situation without the military-funding law.

Codelco did not respond to a request for comment.

Pinera, a conservative billionaire who became president in March, proposed changing the law in 2011 during his first term in office, and during last year’s election campaign both he and his left-wing presidential rival outlined plans to repeal it.

The center-right government’s bill must still be approved by Congress, and would see Codelco continue to hand over export sales earnings on a sliding scale.

“We are seeking to repeal the copper law but what will remain for a period of time is the support that Codelco provides, if not to the military which will be financed from the nation’s coffers, but to the state more generally,” Pinera said.

“For the next eight years that support will from this year gradually reduce to ensure a transition that will prevent any abrupt impact on state funds.”

In June, the government said it would inject $1 billion in “extraordinary” capitalization into Codelco to help keep the company’s ambitious mines overhaul on track.

Reporting by Antonio de la Jara, Aislinn Laing and Dave Sherwood; editing by Clive McKeef and Rosalba O'Brien

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