The Economy Ministry, headed by Sergio Massa, has moved forward with the elimination of a benefit that lithium exporting companies in Argentina used to enjoy. Starting this year, mining companies will not have access to export refunds, a provision that had a fiscal cost of more than US$170 million over the last seven years. The money will become part of an infrastructure fund to develop provincial mining activity, official sources said.
Although there are currently two companies that export for US$700 million per year, eight companies are expected to be operational by the end of the decade, with foreign sales worth US$6 billion per year.
News of the elimination of the refunds was published in the Official Gazette on Monday, but it had already been decided by the economic team in December. The decision, signed by Massa, establishes that export refunds for lithium, lithium hydroxide, lithium chloride and lithium carbonate are “without effect”.
The reasons were explained in the publication: “Considering that electromobility has changed the market, and that the international scenario has had an abrupt increase in lithium demand, which prompted an exponential increase in prices and the projects’ profitability, an incentive such as the reimbursement is considered to have met the goals it was originally established for.”
The decision is part of an internal debate within ruling coalition Frente de Todos about how to move forward with the industrialization of so-called “white gold”. From an industrial and federal stance, sources at the Economy Ministry said that the refunds were established in 1993, before any lithium companies had been established, and the aim was to promote the activity. Two companies are currently exporting and a third will start this year. But 36 projects are in various stages of development, from exploration to construction.
Moreover, the refunds were established on a mineral that was being sold, in the form of lithium carbonate, at US$4,000 a ton at the beginning of 2021, while today it is traded at over US$71,000, according to Trading Economics, which explains why lithium exports tripled between 2021 and 2022.
At an aggregated level, the fiscal impact of the refunds is limited because there are only two companies exporting. However, the government expects eight projects to be operational by the end of the decade, which could raise lithium exports alone to US$6 billion annually. Overall, mining sector exports could be around US$4 billion in all of 2022 –a record for the sector.
Promotion of the mining sector as a whole involves AR$58 billion of tax expenditures for 2023, while the estimated fiscal stability due to various tax exemptions is AR$1.4 billion. According to a report by Frente de Todos senators who are close to Vice President Cristina Kirchner, the State paid US$173.3 million in export refunds between 2015 and 2022. Between 2020 and 2022 alone, they came to US$65.9 million. In the years surveyed by the report, which attributes its sources to “official Customs data”, the State has lost money because refunds far exceed its earnings from export taxes.
Senator Oscar Parrilli highlighted in a Página12 article that “the State’s economic losses” in the period 2015-2022 were US$137.2 million. “We subsidized companies’ royalties and export duties with refunds, we exempt them from almost all taxes, and we allow them to under-invoice. There is no country that can take this,” wrote the Instituto Patria representative.
The decision was no surprise for the mining companies, who closely follow every step the government takes, after La Rioja declared it a strategic resource and licenses were halted. “I believe that taking away the licenses is more serious than taking away a benefit for lithium that was given back in the 1990s. It will not have an impact with these high prices, but obviously any news about it creates noise,” said a businessman in the sector.
It came as little surprise in light of Massa’s media statements over the weekend. In conversation with Infobae, he said that “compensations do not make sense” due to the current demand for lithium, and added that State resources should be used for infrastructure and added value. On the other hand, when asked by El cohete a la luna about whether export taxes of 4.5% are low, he replied: “Because of the 1994 reform, resources belong to the provinces, hence the chain of state and city taxes are above export rights.”