CHAPTER 10 WATER FOR MINING IN CHILE: SEARCHING FOR SUSTAINABLE USE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2013)
CHAPTER 10
WATER FOR MINING IN CHILE: SEARCHING FOR SUSTAINABLE USE
Carla Araya Pizarro ^*
Legal Counsel, Minera Esperanza
Santiago

CARLA ARAYA P. is an in-house counsel for Minera Esperanza ('Esperanza'), a subsidiary of Antofagasta Plc. She obtained an LLM in Natural Resources and Environmental Law from the University of Denver Sturm College of Law, Colorado, USA, and her J.D. degree from the University of Chile, Santiago, Chile. Before joining Esperanza, Mrs. Araya worked with Antofagasta Minerals, a subsidiary of Antofagasta Plc, practicing mining and water law.

I. Introduction

Mining is the most important economic activity in Chile and the main engine for the economic development reached in the past 20 years. Nevertheless, Chile is not outside the water shortage problem seen in the world and already faces a water resource deficit that is expected to increase in the near future. Thus, the country faces the challenge of how to maintain the economic development while also ensuring the well-being of people and the protection of the environment.

This article deals with the water shortage situation in Chile and the efforts done by the mining industry to face this challenge, improve the effectiveness in the use of the water resource in the past years, and introduce innovations that are changing the way to do mining in Chile.

II. Shortage of water in the world

Water, an indispensable resource for life, is a scarce asset. While 71 percent (71%) of the land surface is covered by water, it is mainly located in seas and oceans (97%) and only the remaining three percent (3%) is fresh water. From this three percent (3%) of fresh water in the world, near two percent (2%) is frozen and only one percent (1%) is liquid natural fresh water.¹ Thus, only a reduced percent of the total water available is useful for human use and the productive activity.

According to experts, this shortage situation shall become deeper for 2030, when a forty percent (40%) shortage is estimated, based on the existing demand. The above is explained by the world population increase, estimated in 30% for 2025 and 50% for 2050, as compared to the population as of 2000 and the economic growth that shall increase the demand of water for human use and food production.² The above, along with the effects of the climate change, shall lead homes, industry and agriculture to increasingly compete for water, thus leaving just a minimum amount for ecosystem maintenance.

III. Water shortage in Chile

Chile is not outside this water shortage scenario. While Chile is a country rich in water resources, the analysis in detail shows a different reality: from the capital city of Santiago to the north, dry conditions prevail, where the mean water availability is much lower than to the south of Santiago.³

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In fact, the northern region of the country is one of the driest in the planet, with scarce surface water resources and an increasing demand for water from the different productive activities and human consumption.⁴

While mining is the most important economic activity in Chile, it is not the most demanding activity in water resources. Agriculture is the most water-demanding activity, as 73% of water extraction at national level is used for irrigation, whereas the mining accounts just for 9% of the total water extraction. On the other hand, the industrial and domestic uses account for 12% and 6%, respectively, of the total extractions.⁵

Similarly to the forecast for the rest of the world, the shortage of water in Chile would also increase in the future. An important factor shall be the climate change: whether for the estimated temperature or precipitation changes, the dryness would increase in the north of the country.⁶ On the other hand, growth of the Chilean economy, based on the production of natural products using a significant amount of water resources, shall result in increased water demand. In fact, as estimated by the General Water Department (DGA), the northern region of the country, where most mining projects are located, there is already an important deficit that would increase to near 55%-80% in 2025.⁷

1. Water regulation in Chile

In Chile, water is a national property for public use.⁸ In accordance with the definition in the Civil Code, it refers to a category of property that is owned by the nation as a whole and whose use belongs to all the nation's inhabitants.⁹ On the other hand, the 1981 Water Code regulates the legal system applicable to terrestrial water where the surface and groundwater are located,¹⁰ by providing private entities with the ability to obtain the right to use the water (water right). This right, protected by the constitutional guarantee of the property right,¹¹ provides the owner with the power to legally

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Department, Region for Latin America and the Caribbean. CHILE, Water Resource Management Diagnostic, March 2011, at 5. Hereinafter, "World Bank Report 2011". Available in http://water.worldbank.org/node/83999. and freely use, enjoy and dispose of the water in accordance with the law.¹² The foregoing means that the owner may use the water as deemed convenient, establish encumbrances on this water right and transfer it freely.

The General Water Department (DGA) is the entity responsible for granting the water rights. They are granted on a cost-free basis, provided the following requirements are met: i) that the application shall be legally relevant; ii) that the existence of water resources available in the natural source shall be technically verified, and iii) that the new use shall not affect old owners of current rights.¹³ The lawmaker does not privilege any use in particular, so, in case there are two or more applications for the same water and there are no sufficient resources to satisfy all requirements, and once the existence of water available for the establishment of new rights is certified, the DGA grants these rights through an auction.¹⁴

This regulation, which seeks to establish safe, intangible and transferable water rights, is neoliberal and, like all the economic reforms conducted by the Military Regime, considered the market laws as the most efficient resource allocator. Thus, the 1981 Water Code follows the trend contrary to its predecessor, the 1951 Water Code, which was modified in 1967 in order to support the Agrarian Reform and redistribute the water resources with strong interference of the State on the water resource planning and management.¹⁵

The water rights may be consumptive and non-consumptive.¹⁶ Consumptive rights entitle the owner to consume all the water in any activity, whereas the non-consumptive rights permit using the water without consuming it. For non-consumptive uses, the extraction or restoration of water shall not affect third-party rights on the same water source in terms of quantity, quality, substance, time and other particular features.¹⁷ This distinction was introduced to support the development of the hydro-electricity in the high parts of watersheds without affecting the existing uses downstream. At present, from the total water used in the country, 89% is for non-consumptive uses and 11% for consumptive uses.¹⁸

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This liberal water allocation system has not been free of criticism.¹⁹ Under the original regulation, for example, applicants were not bound to justify the potential use of the water rights they were applying for which, along with the system free-cost modality, gave rise to an excessive accumulation of rights with speculative purposes and without a predictable future use.²⁰ Following a reform the processing of which took almost 13 years, law N°20017-2005 was passed, mainly aimed at fighting against the speculation risks, the entry barriers, and the legal, but not real, shortage of water, establishing, among others: i) the need to justify the water request by associating it to the potential use to establish the relevant water right; ii) DGA power to limit the water right application in case there is no equivalence between the amount of water requested and the use invoked by the applicant; and iii) the need to pay for a license for non-use of water.²¹

There are different opinions on whether the reform of 2005 has complied with its purposes. Some people think that this reform has contributed to advance in this matter, as part of a gradual system improvement process seeking to face its weaknesses;²² or this reform has significantly resolved the current problems of entry barriers and legal shortage of water, making it possible that owners of unused water rights do not keep them or do not obtain new rights subsequently.²³ On the contrary, a survey conducted by Cristi and Poblete in 2011 concludes that the license for non-use of water rights has not been effective in encouraging the reduction of non-use rights, as between 2008 and 2009, only 2.08% of water rights subject to a license payment was used or returned to the State. Likewise, this effect was concentrated on agriculture, which only accounts for 5.87% of the water flow subject to license payment in 2008.²⁴

The mining activity mostly uses groundwater rights and in 2006, it accounted for 63% of the water rights used by this industry.²⁵ Due to the existing water shortage situation, mainly in the northern and central regions of the country, the establishment of new groundwater rights has been restrained, and in some cases, prohibited.²⁶ In fact, due to observed aquifer over-exploitation, 106 of the 238 aquifers studied by the DGA have been declared as restriction areas, and 6 as prohibition areas for new operations in the northern and central regions of the country.²⁷

2. Use of water by the mining industry

Mining is the main economic activity in Chile. In 2011, it accounted for 15.2% of the Chilean Gross Domestic Product (GDP), equivalent to 20.6% of the tax income for...