Mines over matter: Are Brazil’s mining regulations up to scratch?

Mines over matter: Are Brazil’s mining regulations up to scratch?

LACCA speaks to Brazilian in-house lawyers to find out whether last year’s new mining regulations really have increased transparency and improved Brazil’s mining sector and takes a look at what changes can be expected under the country’s new administration.

The word “environmental” has been too frequently followed by the word “disaster” in recent years in Brazil. The Mariana dam disaster, dubbed Brazil’s “worst ever environmental crisis” back in 2015, claimed the lives of 19 people after a tailings dam failure caused catastrophic flooding. Over three years later, lightning struck twice for the Minas Gerais region when the Brumadinho dam disaster claimed even more lives – bodies are still being recovered but it is estimated that up to 200 people have been killed from yet another failure. And the threat continues for Brazil’s mining sector: the civil defence authority warned last week that the Barão de Cocais community in Minas Gerais is in serious risk of another dam disaster from the Sul Superior dam that “could rupture any day.”   

For local lawyers in Brazil, these cases demonstrate the need for tighter regulations and oversight to ensure the sector operates in a safe and sustainable way, while also ensuring it remains attractive to investors. Brazil’s government has been taking steps to meet this challenge: just last week, the country’s mining and energy minister, Bento Albuquerque, pledged that all Brazilian dams would be monitored by the end of the year, and all tailings dams would be decommissioned by 2021, but the pressure is still on to do more.

New rules

A major effort to improve the regulation of the mining sector was established with the introduction of a new mining code that came into effect last December, but five months on from its enactment, many in the legal community cannot agree on whether or not the new rules will have the intended impact.

The new regulations sought to modernise the old mining framework and clarify some of the biggest loopholes and doubts that investors and mining companies faced in the past while doing business in the country. Cutting red tape and improving the efficiency of the sector seems to be the driver of many of the changes: companies can now continue with exploration works after the expiration of exploration permits, which is expected to help companies transition between the exploration stage and the construction and mining stages more smoothly. They also include the possibility of allowing public tenders for concession bids to be made through electronic auctions, which shows a commitment to moving with technological advances. While most lawyers agree the changes are a positive step, there is still a long way to go before the sector becomes truly attractive and efficient according to Igor Parente, legal counsel at Shell Brasil. “There are some good measures, but there’s a lot of room for improvement – there’s still a real need for measures to reduce bureaucracy, which still makes mining operations very slow, ” he says.  

Other changes were more focused on safety and environmental concerns, and forces companies to take greater responsibility for the environmental impact of their mining projects. The regulations now incentivise companies to use tailings and mining waste, with the overall aim of reducing the use of large dams, like the ones at Brumadinho and Mariana. “The regulations include a remediation obligation for mining companies in areas that have been contaminated,” Parente adds.

Given Brazil’s government is keen to ensure its mining sector remains open to development and attractive to investors, the new regulations also align Brazilian resource and reserve reporting standards with international ones, which is expected to help local mining companies obtain international financing more easily, which banks and other lenders are set to favour. “The new regulations harmonise the Brazilian principles and definition of resources and reserves with internationally accepted practices,” says Veirano Advogados partner Pedro Garcia.

Time for a new regulator

At the same time as the new mining regulations came into effect, a new mining regulator, the National Mining Agency (ANM), was established to replace the old National Department of Mineral Production (DNPM). The aim of the new agency is to promote greater management of Brazil’s mineral resources and to impose more up-to-date regulations and inspections of mining activities. The mining industry isn’t the first governmental-headed departments to take on an “agency model”, and as Azevedo Sette partner Leonardo Lamego explains, following in the footsteps of the telecoms, oil and gas, electricity and civil aviation sectors is expected to have a positive impact on mining work. “In general, this “agency model” is considered as more beneficial and efficient compared to the former model because agencies are created to be independent, politically neutral, and focused on specific technical expertise and more transparency as its directors and senior management must be hired on the basis of meritocracy, expertise and experience in the field,” he says.

The ANM’s responsibilities are much broader than those of the DNPM. Besides having the power to establish criteria and requirements for mining area bidding procedures – which was previously not granted by the DNPM but only by the Energy and Mining Ministry – the agency now also has to hold public consultations prior to the issuance of any relevant regulation in the mining sector. This measure was also aimed at improving transparency in the sector. “I believe the new agency will help develop the industry – it is now entitled, for example, to mediate, conciliate and handle disputes between mining agents, which is a legal innovation compared to the former powers of the former DNPM,” says Mattos Filho partner Giovani Loss, who adds that this may reduce the judicialisation of mining conflicts that fall under the agency’s scope. Other measures to increase transparency have also been welcomed by lawyers. Most notably, executives at the ANM now have fixed terms in office to help reduce political influence and give greater independence to it as a regulator.

Others suggest that while the measures to increase transparency are a step in the right direction, the new powers of the ANM remain limited as these new measures will take time, which could slow down the consultation process of mining works. “ANM sessions are now public and proposed regulatory changes now have to go through public consultations, so procedures are much more transparent, but for these changes to make a significant impact on the industry, it will take time for the ANM to actually implement the changes,” says Pinheiro Neto partner Adriano Drummond C Trindade.

Most lawyers agree, however, that the biggest hurdle impeding the ANM is the lack of adequate funding. “The federal government needs to provide the mining agency with the necessary funding, autonomy and structure for it to perform its activities in a regular and effective manner,” says Gianfranco Cinelli, legal director for Latin America at Yara International. Others voice concerns over the ANM just being the former DNPM with a different name. “To avoid the trap of the ANM ending up being the former DNMP with a change of name, it needs to be endowed with sufficient budgetary funds to implement the new administrative framework, though it is not clear yet whether such funds will be provided, which is the main cause for concern in the mining sector at the moment,” says Pinheiro Neto’s Trindade.

Another hurdle that cannot be ignored is the stagnation that has come from fear created by both the widespread corruption investigations sweeping the region and from environmental disasters, like the Brumadinho dam disaster in January, that has left companies in limbo over environmental licensing processes. “Currently, there is no political body willing to issue licences related to mining projects due to the fear of being held liable for future incidents,” says Odilon Borges, general counsel at port terminal operator Porto Sudeste. “Minister Benjamin Zymler of the Union Court of Auditors recently stated that Brazil lives in the “administrative law of fear” and I believe he was right because governments are so hesitant to issue decisions and allow investment to take place as they are afraid of being held personally responsible.”

To combat this fear of liability, the government will need to act, and changes are certainly expected on dam safety policy and related issues, as a result of the recent disasters faced by Vale’s dams. “It is expected that upcoming laws and regulations will impose more restrictions and further precautionary measures to avoid risks, with many bills related to these matters currently under congressional analysis,” says Azevedo’s Leonardo Lamego. Striking the right balance, however, between precautionary measures and allowing a liberal market might be hard to find. “Safety remains as the top value, but sustainable development is also important,” says Veirano’s Garcia. “I appreciate the urgency and sensitivity of the issue of tailings damns being discussed at present, in light of the disasters that have taken place, but any new rules should not have an unnecessarily negative effect on other operations in Brazil.”

What can in-house teams do?

The aftermath of Brazil’s latest dam disaster leaves the industry sombre but not beaten, and legal teams at mining companies have their role to play in the sector’s changing climate. Keeping a watchful eye for new regulations is paramount, as Cinelli explains: “Promoting meaningful discussions about possible changes with the regulator, with mining associations and with society in general is key,” he says. In-house counsel can also participate in the public hearings launched by the ANM, which discuss any new rules and can contribute to regulatory impact assessments that the agency may organise in order to stay as up to date as possible on new developments.

In practical terms, speaking with authorities can help companies clarify any grey areas and ensure their compliance procedures are aligned with current rules. “Legal departments need to approach the authorities to show the viability of their projects – without the prior “okay” from them, no Brazilian project is able to become a reality,” says Borges. Internally, working with qualified consultants who can perform periodic audits is also recommended by Azevedo’s Lamego for companies trying to stay afloat of all compliance risk. “These audits allow you to verify compliance, access liabilities, prevent and mitigate risk as well as plans and execute adequate legal actions as a result of the findings,” he says.

Mining disasters like Brumadinho have brought the reputation of the whole mining sector into question. Most – if not all – mining companies now face a risk to their “social licences” – that is, their reputation with the public, especially with the immediate communities their projects affect – as the sector faces fierce scrutiny from all directions. Understanding the pressures companies are under is necessary for legal teams to support their companies in the best way possible. “GCs should bear in mind that mining companies tend to be under increasing pressure from communities, environmental agencies and public prosecutors to ensure that environmental and security standards are high – sometimes even higher than what is required by legislation,” says Pinheiro Neto’s Trindade.