'We are following a logic of halting projects at the slightest procedural or administrative excuse'

Project permitting is a topic that never tends to drift far out of the spotlight in Chile, where bills to modernize and streamline processes are being debated in congress.

The reform push comes after years of project owners decrying sectoral and environmental review processes that, while robust, are deemed lengthy and overly complex and a source of project development risk and delay. This compounds a design problem: the system was never originally intended to process hundreds of projects a year, rather a handful of large initiatives such as hydroelectric power stations. 

Permitting was propelled back onto the front pages recently when generator Colbún halted development of its US$1.4bn pumped storage and hydro project Paposo, after the Antofagasta regional office of review agency SEA ejected it from the system early. The office said some information was missing, in turn sparking questions about why a solution was not found by officials to keep the project advancing in the system while the gaps were filled. This led to the exit of the office’s director and a pledge from SEA’s HQ to work to harmonize evaluation criteria nationally.

To find out more, BNamericas conducted an email interview with Sergio Quesney, partner at Chilean law firm Palma.

BNamericas: In the area of investment and projects in Chile, what could be the implications of the suspension of Colbún’s Paposo pumped storage project?

Quesney: It confirms that, in Chile, the current and oversized administrative bureaucracy of the State hinders and prevents the development of infrastructure critical to the country’s progress. 

In this specific case, we also see that a project was rejected based on a lack of information, which could have been perfectly addressed at another stage of development. The message conveyed is that investment in large projects is unwelcome. This is unfortunate, as we need these projects that attract investment, create jobs, provide services, pay taxes, and lay the necessary infrastructure for the development of other areas. Energy, water, agriculture, mining and services in general require that these types of projects advance and materialize.

BNamericas: Was this type of situation foreseen?  

Quesney: Yes, it was expected. The messages from the authorities have been heading in this direction in recent years. 

Today, our investor clients, who strive to do things by the book – nor we, their lawyers, on hand to prepare reasonable legal and administrative strategies – can dismiss the possibility of this type of situation, even for minor projects with no environmental or social impact. 

The uncertainty about the legal scope of certain regulations, combined with the lack of criteria from some authorities, has led to the perception that almost any project could be halted, even in advanced construction stages. We have already seen how permits granted have later been declared null, putting those who have started work in a difficult position. 

This was the case with the Fundamenta building in [Santiago district] Ñuñoa, and now with Las Condes district, which was ordered to pay significant compensation to a real estate company for applying criteria contrary to the law. We are closely watching what happens in [districts] Estación Central and Recoleta regarding several completed buildings that have not yet been received.

BNamericas: In the private sector, is there consensus on the bills in congress on reform of sectoral permits and review system SEIA’s reform? That is, does the business community view them positively? What else is needed?

Quesney: The view of the business community is varied. There are many areas and businesses, some with opposing interests. For example, mining and agriculture constantly clash over water issues. 

What is agreed upon is that fewer rules, stages and procedures are needed, and that these should be clearer and more technical, meaning less room for interpretation by the authorities. We need to incorporate technical and objective criteria and eliminate, as much as possible, administrative discretion. And in cases where administrative discretion occurs, there should at least be the possibility of filing an appeal to a higher authority.

BNamericas: What is the current situation regarding the processing of these bills?  

Quesney: There is a push to streamline procedures and deadlines, and to limit the number of sectoral and other permits for certain types of activities. There is also a desire to create mechanisms that allow appeals to a higher authority in the event of an adverse decision, rather than relying solely on the appeal for reconsideration. The truth is that the number of stages, permits, and procedures – some of which are prerequisites for starting others – create bottlenecks and make the processing of some infrastructure projects take several years. It is difficult to embark on a project and secure financing when your timeline for receiving an affirmative response from the authorities could be 8-10 years. And that’s before construction even begins.

BNamericas: Do you believe it is feasible for these projects to be enacted during President Gabriel Boric’s administration, which ends in early 2026?  

Quesney: I do not believe there is the political will from this administration, both from the executive and from key officials placed in various state offices.

BNamericas: Do you have any other comments regarding the situation of Colbún’s pumped storage project? 

Quesney: Chile needs diverse sources of electricity generation, and here the administrative authority halted one of them on the grounds of a lack of information and bibliography for monitoring certain fauna and that information about a couple of indigenous communities was omitted. The project was not given the opportunity to appeal to a higher authority, as the procedure does not provide for it, which should be corrected from a procedural standpoint.

The privilege of certain small groups has been prioritized, and by giving them excessive power, they can act, in certain cases, as genuine agents of extortion, overriding the common good of a region and the country as a whole. It is evident that every project has an impact on a zone or community, but that cannot mean we stop doing things. Should we stop building reservoirs, power plants, or canals because they affect a certain group of individuals? 

What must prevail is the common good, and of course, in cases where a project unduly impacts certain individuals, those affected must be duly compensated. 

However, currently, we are following a logic of halting projects at the slightest procedural or administrative excuse, within an unmanageable regulatory framework, preventing development for over 19mn inhabitants due to the impact on a few or even due to formal issues that can be remedied in parallel with the project's progress. 

In relation to this particular case, let’s remember that Chile cannot depend solely on hydroelectric energy (the country has just come out of a 12-year drought), nor can we rely on external countries (we could be exposed to another gas cut), nor resort to polluting sources. In summary, the energy matrix must be diverse, efficient, and clean. For strategic and national security reasons, Chile cannot depend on foreign sources for all its energy needs. 

This project had four key elements: it diversified the energy matrix; it would be developed in a province and in a very economically depressed area, crucial for decentralization; it generated energy without external dependence; and it was a source of clean generation. This project was suspended due to a lack of macro and long-term vision from certain authorities.