Will Temer’s Decree Boost Brazil’s Mining Industry?
Brazilian President Michel Temer on June 12 signed a decree overhauling the country’s half-century-old mining code, effectively bypassing Congress after it failed to approve similar changes last year. The new rules direct a share of royalties to municipalities that do not have mines but are affected by the transport or presence of industrial facilities related to mining. It also allows mining licenses to be used as guarantees for loans, generating credit lines and drawing investment to the sector, among other changes. To what extent will the changes benefit Brazil’s economy and its mining sector? What stakeholders stand to gain or lose the most, and what is missing from the code that should be there? What kept Brazil’s Congress from making changes to the mining code?
Jana Nelson, former Brazil desk officer at U.S. Department of State: “The decree that modernizes the 50-year old mining code is a welcome move by the Temer government. It implements stricter environmental controls and allocates a higher percentage of compensation royalties to municipalities that are affected by mining activity, even though they are not producers. Brazil’s coalition-based political system requires a lot of earmarks and trade-offs between numerous parties in order to pass legislation through Congress. The Temer administration has little political capital to spend and even less money to earmark, meaning congressional action on administration priorities, such as the mining code, is not possible. That is why Temer had to approve the reforms by decree. Those who stand to lose most are the producing municipalities, which will be allocated less royalties. After the with the United States, El Universal reported.
However, Banxico noted in a statement that the United States’ new tariffs on steel and aluminum would have a “limited” and “short-lived” impact on inflation. Still, “some of the upside risks to inflation identified by the central bank have started to materialize,’’ the statement said. The spike in international energy prices, alongside the weaker currency, may cause inflation to fall at slower rates than previously expected. Inflation was 4.5 percent in May, and Banxico’s target is 3 percent, The Wall Street Journal reported.
Leonardo Pereira Lamego, environment and mining lawyer at Azevedo Sette Advogados: “Except for the recent increase in CFEM rates, it is expected that the ongoing update of mining law and the new National Mining Agency (NMA) will encourage the sector by establishing clearer rules, reducing speculation and expediting procedures. It is also expected to encourage technical-based decision-making and more legal certainty. The decree also requires the exploration reports to follow internationally accepted standards for statements of findings, which may foster foreign investments. The economy, society and the mining sector will benefit from the regulations, given the importance of mining to Brazil. The decree incorporated important environmental obligations related to mine decommissioning, tailings dam safety, remediation of the degraded areas and tailings reuse and exploitation. The new decree empowers NMA to declare the expiration or revoke titles due to reiterated noncompliance, mine abandonment and failure to comply with procedures and deadlines. It establishes competitive procedures so that interested parties may apply for the areas related to mining rights that were revoked and/or areas that became available. Speculators and title holders that do not intend to actually perform mineral activities may lose their titles. The municipalities negatively affected by mining activities shall receive a part of CFEM resources, whereas the union, mining municipalities and respective states will have their CFEM allocations reduced. Some were not included in the mining code regulation because there is a legal limit to the creation of rights and obligations by decree. Also, the decree does not regulate landowners’ right to participate in the results of mining. The approval of a new code should be a priority. However, the elections, political turbulence in the last years and the unfolding of anticorruption operations have affected Congress’ priorities.”
Latin America Advisor, June 2018, Page 1,3 and 4.