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In Brazil's eminent presidential runoff elections, voters will choose who will lead the world's seventh largest economy in the next four years.
Televised debates between center-right PSDB candidate Aécio Neves and incumbent Dilma Rousseff have been heated, but the Latin American powerhouse's mining industry stands at the crossroads as both have had little to say about the sector.
Controversy has surrounded President Rousseff of the ruling workers' party (PT) when it comes to mining, due to the imbroglio over the country's proposed new mining code - which ended up being postponed for 2015. Rousseff was heavily criticized and accused of paralyzing the country's mining sector.
On the other hand, Neves is one of the biggest critics of the delays to approving the new mining code. But he affirmed several times that the new code must be changed before moving forward.
BNamericas spoke to James Lockhart-Smith, head of Latin America at global risk advisory firm Maplecroft, about the outlook for the local mining sector and what to expect from the next president.
BNamericas: Brazil's new mining framework, one of Rousseff's flagship policies aimed at modernizing the current 47-year-old code, has failed to win support in the industry and is still awaiting a lower house vote. Why it has been so hard to implement the new code?
Lockhart-Smith: One factor is dogged opposition to the bill from trade unions and NGOs, who have opposed the measure on a range of societal and environmental grounds. Pressure from these actors played a role in 2013 in preventing the government from forcing the bill through congress in 90 days, as originally planned, and has since then acted as a deterrent.
A second factor is simply the broader political context. When the government finally set the process in motion in 2013, it was rapidly overtaken by events, namely the widespread protests in June of that year which effectively set Rousseff's agenda for the remainder of her term in office. She responded to the unrest by promising political reform as well as changes to the hypothecation of oil and gas revenues to favor health and education spending. Plans to reform the mining code - along with other potential changes such as tax reform - were effectively sacrificed.
Thirdly is a more pragmatic economic factor: the financial incentives for the government have weakened. One key element of the new reform is to increase mining royalties. However, the government has had a very bad experience in the oil and gas sector, particularly after the disastrous tender of the first 'pre-salt' offshore field last year, and is likely to have learnt from that. Falling commodity prices also mean that revenues are not what they were previously.
So in the run-up to a crucial presidential election, why expend precious political capital among legislators discussing the issue? And also in advance of the election, why risk triggering the opposition of trade unions with an important role in the government's core support base?
BNamericas: Neves has said several times that the new code must be changed before approval. Is it possible to guess what changes the market needs?
Lockhart-Smith: Neves' inconsistency in both criticizing the repeated delays and affirming the need for further changes is simply the prerogative of being Brazil's main opposition candidate.
The new mining code has some positive aspects: for example, the introduction of 'use-it-or-lose-it' requirements would have the potential to increase the net exploitation of resources across the industry. However, it is also likely that should Neves win, the industry will press for wholesale reconsideration of several components to the reform which could have a negative impact on their interests.
For example, there will be concern about increased local content demands creeping into the reformed bidding process; the increase in royalties as well as a shift in royalties calculation from net revenue to gross revenue; and the need for companies to compete for opportunities not just on the basis of local content but also on their willingness to share a production percentage with the state.
To sum up, if Rousseff wins we can probably expect the mining code to be passed in a form recognizably linked to the current draft bill in 2015-2016. If Neves wins, I think that it would largely be a case of 'back to square one.'