Chile is a country with a long shoreline and a scarcity of fresh water in the regions where most of the mining activity is developed.1 Therefore, desalinization appears as the perfect solution to meet the rising demand for water, especially in the mining industry. Chile currently has 24 desalinization plants operating, with a combined capacity of 8,000 liters per second. As per the Chilean Copper Council (Cochilco), by the year 2033, 71% of the water used for the mining of copper shall be desalinated water. To meet that demand (plus the demand of desalinated water for other uses), several desalinization plants will have to be built in the coming years.
However, Chile does not have a comprehensive regulatory framework for desalinization. This creates a degree of uncertainty for investors, which could potentially obstruct the development of the industry. Furthermore, the lack of regulation and the ensuing uncertainty affect third-party project developers' ability to obtain financing, as banks often seek for a higher degree of certainty.
In practice, the lack of a special regulatory framework means that the developer of a desalinization plant must request a myriad of permits to different governmental agencies which, in the majority of cases, were thought for projects other than desalinization plants. Similarly, whoever is extracting seawater and producing desalinated water must comply with all applicable laws, which are dispersed throughout different legal bodies and regulations.
There may be significant repercussions depending on how a nation regulates (or does not regulate) the right to use desalinated water. In some countries -like Chile-, desalinated water is regarded as an industrial product that belongs to its producer, either due to a specific regulation or because there is none. This means that the developer of the desalinization plant has the right to deliver the desalinated water to the mine without the need of a special concession granted to allow it.
The ownership and/or right to utilize desalinated water, however, may be restricted in some jurisdictions, and in certain circumstances, the authority may order that water intended for the mine site be diverted for use elsewhere, like for residential use. In these cases -and especially in those cases in which these powers do not have clear limits, the potential developer or financer of a desalinization project will ponder carefully this limitations before investing on it, as it may not obtain the projected gains or benefits.
A nation might promote investment in the sector, guarantee the viability of desalinization initiatives, and give its people access to dependable and clean water supplies by setting clear legislation for desalinization. The following are some suggestions to encourage the construction of desalinization facilities in Chile:
1. A thorough regulation that takes into account every stage of the desalinization procedure.
Desalinization plant development may be encouraged by systematized regulations that take into account the extraction of seawater, the generation of desalinated water, its transportation, and its final usage. Doing so could incentivize the development of desalinization plants, as building the plant will no longer require dozens of permits from different sectorial authorities. Moreover, this could decrease the time needed to get all the permits and give certainty to the developers and financers.
2. Regulation of the case in which a third-party build, owns and operates a desalinization plant, which sells the desalinated water to a mine.
A challenge for the development of desalination projects is the absence of recognition and regulation of the situation in which the developer of a desalinization plant is not the final user of the desalinated water. These challenges are mostly caused by a lack of understanding that, in some circumstances, the company developing a desalinization plant is a third party who is not acting on behalf of the end user, that is, the mine.2 In this instance, a developer funds and constructs the facility, which will be owned by it and not by the mine. The lack of acknowledgement of this scenario could imply, for instance, that certain permits to build the desalinization facility are required by the local authorities to be requested by the mine, or that the mine is considered jointly and severally responsible by the courts for cases in which they have not intervened, as it is considered that the mine is the owner of the facility and the developer just a contractor.3
3. The right to use the desalinated water by its final user must be guaranteed and secured.
A significant investment is needed to build a desalination plant, which may not be financially feasible if the project developer is uncertain that its right to use and/or sell the water will be safeguarded. Desalinated water is a result of an industrial process rather than an element present in nature.Desalination plant developers, end users, and financiers must therefore be assured that their investment will be safeguarded, either through ownership of the desalinated water or through a right of use that cannot be revoked or altered except in extraordinary circumstances, and always paying the corresponding amount as compensation. This does not mean that the developer of a desalinization project cannot, voluntarily, agree with the nearby communities to give them a portion of the desalinated water free of charge. Even more, it should be considered a good practice, which allows the project developer and/or the mine to obtain a social license to operate.
Although the desalinization industry in Chile is advanced in comparison to other countries of Latin America, there is a need of huge investments in desalinization plants in the coming years, both for the mining industry but also for residential use. To remain attractive to investors, Chile should enact regulation that incentivize and promote the construction of desalinization plants, as we cannot put in risk neither the mining industry nor the human consumption due to a lack of available water.
* The author has led the legal negotiation of contracts and advised in the construction phase of three desalination plants for the mining industry in northern Chile.
Footnotes
1. Although desalinated water is used for different purposes, this article refers mainly to its use in the mining industry.
2. However, in these cases is it normal to put in place a contract between the developer of the desalinization facility and the mine, before the former start the construction of the plant. In Chile -at least in mining- there is only one case in which this model has been applied to date: a Build, Own, Operate and Transfer (BOOT) contract between Spence (a company owned by BHP) and Caitan (a joint venture between Tedagua and Mitsui), in which the latter committed to build a desalinization plant, operate it, and sell the water to Spence and, in 20 years, transfer it to Spence. A second desalinization plant that will use a similar contractual structure has been announced by CODELCO.
3. Regulations prohibiting the sale of water could present an even more challenging barrier. For instance, the unsuccessful version of Chile's new constitution, which was defeated in a referendum in September 2022, would have prohibited the sale of water as, although the language did not directly include desalinated water, it could have been interpreted to do so.
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