The market has been closely following the discussions between the private and public ends of the mining sector in Brazil with regards to the proposed changes by the government for the country's mining legal frame.
By Affonso Aurino Barros da Cunha
The market has been closely following the discussions between the private and public ends of the mining sector in Brazil with regards to the proposed changes by the government for the country's mining legal frame. Many believe these changes will finally be submitted to the National Congress during the first half of 2013.
It is a unanimous understanding that the Brazilian Mining Code is outdated and the country needs a clear and coordinated policy that brings security to the private players, so as to enable the inflow of more investments in the sector. Even though a draft text has not been formally disclosed yet, information released by the government indicates the path it wishes to follow. The changes would comprise three umbrella themes:
- The revision of the collection system of the royalties paid by mining companies, known as CFEM, probably with the increase of rates;
- The implementation of a different system for the concession of mining tenements (leases), similar to public auctions, as well as the modernization of the Mining Code and the creation of the National Council of Mineral Policy (CNPM); and
- The transformation of the DNPM (the government body linked to the Ministry of Mines and Energy that supervises mining activities in Brazil) into a regulatory agency.
Each one of such subjects shall be addressed by a specific Law Project, but shall be taken into consideration as a whole by the Congress, once the government wishes to submit them all at the same time. And, this is at least one of the reasons for the delay in the process. While the three Law Projects are being analyzed by staff members of several Ministries, the Law Project on the DNPM is also causing the federal authorities some difficulties.
Currently, the DNPM has its performance impaired by the lack of personnel, as well as the lack of financial and administrative autonomy. While the government's plan to transform it into a regulatory agency seems ambitious in a positive way, it has proven to be more expensive than first calculated. Just to begin, such transformation would entail the increase of the salaries of DNPM's employees, so they match the remuneration of other regulatory agencies' staff. This along with the modernization of all DNPM's structure exceed the federal budget for the project.
In any case, the planned transformation would mean an essential step for the modernization of the Brazilian mining sector, bringing transparency and decreasing the level of bureaucracy. In the new regulatory agency (to be called National Mining Agency or ANM), its president shall have more autonomy from the federal government, decisions shall be taken by collegiate boards of directors, and terms of office shall have pre-determined expiration dates. Its performance shall be completed by the activities of CNPM, which shall be composed of representatives from several Ministries to conceive and coordinate the implementation of a national mining policy.
Obviously, in practical terms these changes will mean nothing if the ANM is not fully equipped to face the tasks to be incumbent upon it, and Brazil's federal government ought to find a way to finance it. After all, the market expects that the country's mining industry shall receive around US$68 billion until 2015. The sector is far too important not to undergo this modernization and the government is certainly aware of it.
Affonso Aurino Barros da Cunha is a partner with the Brazilian law firm Siqueira Castro Advogados. He specializes in mining law, mergers and acquisitions, and foreign investment. For more information visit: www.siqueiracastro.com.br.