After more than 20 years without any material change in the Brazilian mineral industry’s legal framework, President Michel Temer launched the Brazilian Mineral Industry Revitalization Program on July 25, 2017, with the purpose of modernizing certain rules long deemed outdated. The Program was composed of 3 provisional measures (the “Provisional Measures”) that together aimed to update, strengthen competitiveness and boost expansion of investments in the Brazilian mineral sector.
A broader reform in the mining regulation has been under discussion since 2011, when Bill No. 37/2011 (the “Bill”) was submitted to the National Congress and subsequently subjected to a complete turnaround. The Provisional Measures have selected a few important points addressed and debated within the Bill, however, the Provisional Measures have not sought to change the method for granting mining titles concessions, which was a highly controversial topic that inspired heated discussions.
Provisional Measure No. 789/2017 (“PM 789”) changes the method of calculation of the Financial Compensation for Exploration of Mineral Resources (“CFEM”), a fee levied on mineral resources. The current regime establishes a fixed rate of 3% on the net income from sales of the mineral product. Under the new regime, the CFEM rate would range from 0.2% to 4% calculated on the gross income from sales of the mineral product.
Most minerals, including gold, will remain at the prior fixed rate of 2%. However, iron ore will be subject to the relevant increase. The specific rate, which will be determined based on the international price of the product, will correspond to 4% when the price is equal to or higher than US$100 per ton.
Also, PM 789 is concerned with establishing more effective supervisory mechanisms for the declaration and collection of CFEM, providing for penalties in the case of default, and even criminal liability in the event of the filing of untruthful statements or information required by the inspection entity.
Provisional Measure No. 790/2017 (“PM 790”) modifies the rules and procedures for research and development at mining sites. While no change was made in the type of regime for granting exploration rights, certain modifications in the term, renewal requirements and milestones to be reached, were made.
The licensing regime, which is a simplified regime adopted from the exploitation of minerals commonly used in civil construction, no longer requires an installation license issued by the municipality in which the mining site is located, nor the express authorization of the owner of the real estate property.
By the same token, the term of the exploration authorization that ranged from 1 to 3 years, has now been raised to 2 to 4 years, with the possibility of only a single extension.
The areas that become available for exploration or exploitation purposes will be offered via electronic auction, which supersedes the older mechanism of “firstcome, first-served”. It may potentially eliminate queues and disputes arising from the right of priority to areas.
While PM 790 changes certain aspects of the Brazilian Mining Code, it does not materially reform the industry in the way that has been desired by commentators over the last few years.
Finally, Provisional Measure No. 791/2017 (“PM 791”) extinguishes the National Department of Mineral Production (“DNPM”) by transforming it into a regulatory agency, the so called National Mining Agency (“NMA”). The intention is to provide political independence to the agency and less influence from the Executive Branch, resulting in a greater legal certainty for the industry.
However, the main change that was first proposed by the Bill which proposed one single regulatory authority that oversees the exploration and exploitation of mineral rights under the NMA’s authority, was not considered in PM 791.
Instead, PM 791 maintains the current segregation of powers, in which the granting of exploration authorization falls under the NMA’s authority, while the exploitation concession falls under the authority of the Ministry of Mines and Energy (“MME”). The commercialization of the mineral product resulting from the exploitation phase, the most important part of the mining activity therefore remains subject to the MME’s authority, which is part of the Executive Branch.
Under the laws of Brazil, a Provisional Measure is valid for 60 days, renewable for one equal period. By the end of such term, the Provisional Measure must be voted on by the National Congress and converted into law, otherwise it loses its effectiveness.
After submission to the National Congress, PM 789 was submitted for the presidential final sanction on November 28, 2017, by means of Conversion Law No. 38/2017 (“CL 38”) and was passed on December 19, 2017. After the sanction, the legal modifications will become effective and Law No. 7,990/1989 and Law No. 8,001/1990 - which set forth the compensation regime for the mining sector (mining royalties) - will be amended accordingly.
PM 791 was promptly voted on by the Senate, which approved the final wording of CL 38 with exception to the provision of Article 32 and has subsequently been sanctioned by the President at the end of 2017.
PM 790, in turn, was not voted on by the Senate within the necessary deadline, which resulted in loss of its effectiveness. This means that the amendments proposed by this provisional measure will no longer produce effects. The Mixed Representative Commission of the National Congress shall issue instructions guiding the interpretation of the actions taken during the brief three-month period during which PM 790 was in effect.
The Brazilian Mineral Industry Revitalization Program launched by President Michel Temer suffered too many setbacks and hurdles on its path for approval by the National Congress. As a result, small aspects of the industry can be deemed transformed. However, not only were the changes to the rules of mining exploration and exploitation lacking in innovation, but also the fact that PM 790 had lost its effectiveness before it became law was disappointing.