Is an overhaul of Brazil's mining framework, royalties on its way?

- Wednesday, October 19, 2016

Is an overhaul of Brazil's mining framework, royalties on its way?

Brazil's acting mining and energy minister Paulo Pedrosa has advocated making changes to the country's proposed mining framework.

The federal government, according to Pedrosa, is in favor of amending what he describes as the institutional part of the draft framework in order to help stimulate economic development, official news service Agência Brasil reported.

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Pedrosa cited a new bill that opens Brazil's pre-salt oil and gas fields to private operators. The bill, which passed a lower house vote on October 6 and was due to undergo several amendments before being sent to President Michel Temer for final approval, is designed to help spur exploration and production activity in the country's hydrocarbons sector.

The bill ends the obligation of state-run oil and gas company Petrobras to hold a minimum 30% operating stake in pre-salt fields.

"It was evident that the 30% clause was something blocking the oil industry's development, as it wasn't good for Petrobras and constituted a burden on the country," Pedrosa was quoted as saying at the 24th World Mining Congress, being held this week in Rio de Janeiro.

The mining ministry's head of geology, mining and mineral transformation, Vicente Lobo, said that Brazil's mineral GDP is below what is achievable. According to Lobo, mineral GDP can grow by about 50% but a "reliable" environment for investment is needed.

He added that the ministry is considering transforming the country's mineral research department DNPM into an independent mining regulatory body, Agência Brasil said.


Another measure under consideration is a review of Brazil's mining royalties, known as the CFEM tax. Mining taxation is a sensitive issue, Lobo said, but added it was a good time to review it, in conjunction with mining firms, to devise an "interesting" new model.

"In fact mining is driven by the private sector," Lobo said. "The government must act to create channels for private initiatives to move the sector. We have to work increasingly in a less interventionist manner, creating a relationship with the industry, rebuilding the sector's credibility and rebuilding mining with energy, competence, credibility and vigor," Lobo said.


Pedrosa added that the ministry plans to split the code into different areas on account of its complexity. The current framework is nearly half a century old, but the proposal to update it has failed to win industry support.