SALAR DE ATACAMA, Chile (Reuters) - Chile's Indigenous communities in the lithium-rich Atacama Desert are in talks with two of the nation's biggest miners to gain more influence over plans to increase extraction of the battery metal, according to the companies and community sources.

The negotiations with Chile's state-run Codelco, the world's biggest copper producer, and Chilean lithium producer SQM, come as the companies are close to finalizing a partnership that will mark the state's entry into production of the metal that is crucial for electric vehicle batteries.

The talks to craft a so-called "governance" plan began in March and are expected to conclude by year-end, Reuters learned exclusively. They follow a dialogue begun last year in which the companies explained the joint venture, and community representatives laid out their concerns.

Both sides say their goal is to create a model that will give Indigenous Atacama groups, also known as Lickanantay, an active role in the new venture in a salt flat that sweeps across one of the planet's driest places, where people have lived for thousands of years.

"We have invited them to work together on a governance model that effectively recognizes and considers the perspectives and visions of the Lickanantay communities ... in the decision-making processes of the new company," Codelco and SQM said in a joint statement to Reuters. 

The companies described the potential system as "unprecedented" in Chile, adding that it would comply with international treaties on Indigenous rights.

In visits by Reuters to five Indigenous towns in the Andean foothills above the salt flats, community leaders emphasized the need to hold SQM and Codelco accountable to their environmental pledges, particularly to limit water use.

"The idea ... is that it's not just the company deciding what to do in our territory," said Sergio Cubillos, community leader of Peine, which overlooks the vast Atacama basin that provides a quarter of the world's lithium supply.

Giving Indigenous groups a seat at the table could potentially crimp profits if it were to lead to costlier environmental standards.

At the same time, an agreement could appeal to global buyers that are increasingly focused on ethical mining to meet shareholder demands, and help avert protests.

The mining sector views as a cautionary tale protests in Panama in 2023 that led the government to shut down the First Quantum Minerals ( FQVLF ) copper mine.

"The companies have realized that interrupting production obviously has a damaging effect," said Yermin Basques, leader of the Toconao community. 

One option for a new framework would be regular dialogue with company decision-makers, such as board members, Basques said.

"This would let us participate in the discussion on how the technological extraction process will work, how we will safeguard the water supply, how we will develop extraction with less environmental impact," he said.

Getting a board seat is not the goal, he noted, as the communities do not seek a voice in business decisions.

Dialogue with Codelco and SQM had at times been tense, Basques added, but the two sides were now working together, in part because the firms recognized the need for community support after protests snarled SQM logistics last year.

"We have specific knowledge of our territory, of our water. And we have the power to close the salt flat if needed."

CLOCK TICKING

Codelco and SQM told Reuters that talks would continue this year, building on dozens of meetings last year with Atacama groups.

Their joint venture, in which Codelco will have 50% plus one share of control over SQM's Atacama operations, is slated to go into effect in the second half of the year, pending regulatory approvals.

An advisor for the Atacama Indigenous Council (CPA), which comprises 18 communities, told Reuters that the council was reviewing early-stage proposals for the governance model, including one put forth by Codelco and SQM, but declined to provide details.

The companies declined to provide their proposal to Reuters, citing the ongoing process.

The advisor said council representatives will meet with Codelco and SQM every couple of weeks for the next two or three months as they hammer out a final proposal. 

Each community will then discuss the plan internally, before representatives agree on a definitive version with Codelco and SQM, expected in the second half of the year, the advisor said.

Codelco and SQM plan to raise lithium output by as much as 33% through 2060. The goal is part of a tectonic change in Chile's lithium sector after leftist President Gabriel Boric announced plans in 2023 to shift to a state-led model, spearheaded by Codelco, and committed to prioritizing Indigenous rights. 

Some community leaders say they feel a sense of urgency to reach an agreement with Codelco and SQM while Boric is still in office through March of next year, concerned that a successor could shake up the country's lithium strategy and veer away from Boric's pro-Indigenous stance.

Some lawmakers, from a range of parties, have criticized the Codelco-SQM deal, concerned over whether the agreement was in Chile's best interest. Most presidential hopefuls from opposition parties have yet to outline their stance on lithium mining. By law, Boric cannot run for a second consecutive term.

"We have to hurry up, because we don't know what could happen next year," said Basques, the Toconao leader.

Veteran conservative politician Evelyn Matthei, who currently leads early presidential polls, said in a statement from her office to Reuters that she supports mining development, wants to boost Chile's lithium production, and aims to benefit all people including Indigenous communities.

Chile's Mining Ministry declined to comment on the Codelco-SQM venture.

NEW MODEL

Chile has the world's largest proven reserves of lithium, U.S. Geological Survey data show, and is the second-largest producer behind Australia.

While some Indigenous groups in Canada and Australia have taken a bigger role in environmental management, such practices are rare in Latin America, experts say. 

SQM shareholders, as well as customers focused on environmental, social and governance (ESG) risks, such as European automakers, are likely to view an Indigenous agreement as positive for SQM, said Seth Goldstein, an analyst at Morningstar Research Services.

"Dialogue allows SQM an easier path to keep its operations going," he said.

SQM already runs Indigenous outreach programs, including working groups, complaint channels, joint environmental monitoring and cooperation agreements. In some communities, the company has installed solar panels, provided dental care and offered agricultural training.

SQM's efforts follow best practices for community relations, according to a 2023 audit by the Initiative for Responsible Mining Assurance (IRMA), an evaluation process favored by EV manufacturers to ensure supply chain transparency.    

Still, the audit found that SQM still had work ahead to overcome years of distrust. 

Winder Flores, who grew up in the town of Talabre and now helps his aging mother make cheese and wool crafts in Tambillo near the edge of the Atacama salt flat, is conscious of what's at stake.

"We want the miners to guarantee that there will be no pollution, that our water supply will not run out," he said, as his herd of goats and llamas roamed in one of the rare grassy areas of the desert, nourished by a freshwater spring.

"We're not against the country's development, but we do want to be part of it, and not be left with nothing."

(Reporting by Daina Beth Solomon; Editing by Adam Jourdan, Veronica Brown and Claudia Parsons)