With the June 17th televised announcement by President Dilma Rousseff and Energy Minister Edison Lobão, the 4-year process of overhauling Brazil’s 46-year-old mining law is nearing completion. The proposed updates must now be reviewed by the Brazilian Congress before they go into effect. The process also gives President Rousseff the final say in what the royalty rates for each metal will be.
“With this new mining framework,” said President Rousseff in her announcement, “we are creating the conditions under which the research, exploration and commercialization of mineral resources will be transformed into a more efficient, more profitable and more competitive activity.” Lobão added that the existing code “does not meet the requirements of the present, [in the face of] the clear economic and technological changes in recent years in Brazil and the world.”
The Creation of a National Mineral Policy Council
The new mining law establishes a National Mineral Policy Council that will advise the President regarding policies relating to the minerals sector. The mining law also replaces the current National Mineral Production Department with a new National Mining Agency. The responsibility of the new agency includes the regulation and inspection of the minerals sector.
Auctions to Replace “First Come, First Served”
The federal government owns all subsurface mineral rights. Under the current mining law, mining concessions to the owners of the surface property are granted on a first come, first served basis. Additionally, holders of the concessions are not obligated to mine the property.
Under the proposed mining law, mineral rights will be granted through auctions. Licenses will be valid for only 40 years and can be renewed for 20-year terms. This new approach could cause license holders to lose their license if they do not develop the property.
Opponents of the auction system argue that the first come, first served system has proven to be the most efficient process in many parts of the world, primarily because of the need for speed in the early stages of exploration.
Royalty Rate Increases
One of the major concerns about the proposed overhaul is that it may double the royalty rates for minerals such as iron ore. The current royalty structure provides for 0.2% to 3% of net revenues. The proposed structure establishes a new rate of 0.5% to 4% of gross sales after taxes. President Rousseff has the power to set the amount of the rates.
In the President’s announcement, she restated her expectation that “this advance will be marked by more competitiveness for business and a greater return for the whole society.”