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«A New Regulatory Framework for Mining and Minerals: Why?»

280px-Juruti20

… the existence of regulatory agencies in the Brazilian  administrative structure is itself a very controversial issue. After more than 10 years of  institutional experience, the regulatory system has changed and improved but it is still a  very complex problem to balance autonomy and political control. —Rodrigo Abijaodi Lopes de Vasconcellos

Source: Le Monde Diplomatique |  Brasilianas

I think it is fair to say that the current Brazilian federal government, more so than even its predecessor, the Lula regime, is engaged in a systematic overhaul of regulatory agencies intended to cut red tape while at the same time increasing enforcement powers.

Recent newsflow along these lines includes the electricity sector — ANEEL — the telecoms sector — ANATEL — and the petroleum sector — ANP.

I have been too lazy to do the math, but I have the impression that it would show more federal agencies using expanded and expedited powers to levy more sanctions.

The present article is from the lefty Diplo in Portuguese, but is worth a read nevertheless.

A new regulatory framework for mining and minerals: Why?

by Julianna Malerba and Bruno Milanez
Partial translation: C. Brayton

In the process of  creating new mechanisms to ensure the growth rate of mineral exploration, the federal government, citing the generation of revenues that can be used to reduce poverty and social inequality, is in fact fomenting a policy of expropriation against the interests of social movements in mining territories, a policy that is often authoritarian and violent  .

In 2000, the northern state of Pará was producing some R$ 4 billion in minerals. By December  2011, this figure had grown to R$ 25 billion. In the last decade, countless areas of mineral extraction sprang up in Amazônia. In  Carajás, the growth in iron and manganese was accompanied by the opening of new copper and nickel mines. This permitted Vale, which produced not a single gram of copper in 2000, to triple national production of the mineral. In Juruti, Alcoa began mining bauxite, the raw material of aluminum, contributing to production already underway at its mines in Paragominas and Oriximiná.

This boom in mineral extraction is directly connected to the promotion of extractive industries, which are highly energy-intensive. Albrás, for example, which recently expanded the installed capacity of its plant in Barcarena, consumes the same quantity of electrical energy as the cities of  Belém and Manaus combined, and  1.5% of electricity consumption in  Brasil as a whole.

This scenario explains why the accelerated expansion of mining in the Amazon is so closely tied to the planned installation of 20 new large and midsize hydroelectric generators by 2030 in the region. In 2011, when Vale joined the Belo Monto hydro project, it was obvious that the new frontiers of energy exploration and mining are progressing hand in hand in the same territory, and not by accident.

Because a fair proportion of the minerals extracted are bound for foreign markets, the expansion of the Carajás railway and the port facilities of San Luis count as part of this mineral boom — a process that also drives the planting of several thousand hectares of eucalyptus, which are used to produce vegetable carbon to feed the pig iron industries of Pará and Maranhão.

The Global Context

The market for natural resources is undergoing changes at the moment.  The last 20 years have brought about an inversion of the falling prices that marked the XXth century. In 2010, the price index of non-energy commodities exceeded the same index in 2000. This performance is explained, on one hand, by the elevated rate of consumption by nations of the global North together with the emergency of a new middle class, particularly in Asia. On the other hand, the mining and minerals sector came face to face with the depletion of its richest fields, raisig the cost of prospecting and exploration.

Very little is said, however, about the relation observed between higher prices and greater volatility. Energy resources apart, the degree of  volatility is the highest since 1900. If iron ore reached USD$ 129 a ton in 2010, as it did, that price should fall to US$ 73 in 2020. This variability has a direct impact on territories specializing in mineral extraction. Different regions of Brazil have encountered this effect during the crisis of 2008. As Vale was announcing the layoff of 1,300 workers and sending 5,500 on holiday, the pig iron industries of  Carajás were laying of 3,000 workers.

Regardless of the risks, the mineral sector, with its attention focused on short-term gain, have been intensifying their activities in Brazilian. In 2000, the industry represented 1.6% of Brazilian GDP. Ten years later, the figure is 4.1%. Likewise, the share of mining products in exports jumped from 7.1%  in 2006 to 17.3% in 2011. Indications are that this scenario will tend to deepen as a result of the the National Mining Program, a proposal by the federal Mining and Energy ministry to invest R$ 350 billion by 2030, with the most investment destined for the the Amazon.

The New Regulatory Framework for Mining

While extractive industries have expanded their role in Brazilian GDP, another important change involves reforming the role of the State in this sector. Following the successive waves of neoliberal policies that devastated Latin America, progressive governments have reworked their development strategies in an effort to reduce poverty, increase access to social rights and to reposition the region on the world stage.

Brazil has also reinforced its role as a force for capitalist development with substantial  investments in certain economic sectors, which receive financing, subsidies and infrastructure. At the same time, the government is working on new regulatory frameworks that will guarantee greater state control over excess production in these sectors, which can be used to invest in greater equality and the reproduction of this growth strategy.

In this context, the Ministry of Mining and Energy has been working on an amended constitutional framework for the mining industry. Though not yet released for public discussion, statements and documents indicate that the MME plans a reform based on three pieces of legislation. The first would create the means to expedite the granting of mining concessions, making it easier to install new mines and punishing companies with mining rights who fail to develop the areas under their control.

This first part of the plan will also propose the creation of Areas of Significant Mineral Interest — ARIM — where special conditions would be imposed to guarantee the extraction of minerals considered strategic by the MME.

The second  piece of legislation will deal with institutional matters, including the transformation of the current National Department of Mineral Production — DNPM — into a regulatory agency, as well as the creation of a National Council of Mineral Policy — CNPM — in an attempt to emulate the structure of the energy sector.

The final piece of legislation would alter the formula for the calculation of mineral royalties, increasing the sum transferred to the State.

In addition to these three bills, Congress is also debating the regulation of mining in indigenous reserves.

I will translate more as time permits.

The proposals published to date suggest that the federal executive is the source of a new context in which the State plays a larger role in conducting development policy by means of maintenance and increased activity in intensive usage of natural resources, guaranteeing it a larger role and greater control over the economic results obtained.

At the same time, this strategy raises certain contradictions at the heart of Brazil’s  current economic development policy. Perhaps the most significant of these is the fact that greater State control over natural resources has not succeeded in counterbalancing the power of exclusive patrimonial inheritance in the control of natural resources and the unequal distribution of the results.

This means that the State, by creating mechanisms that ensure the growth rate of mineral exploration, in the name of generating resources for povery reduction programs, is encouraging a process of expropriation against social groups in the territories, a process that is often authoritarian and violent.

The history of Brazil and the mining industry in South America both demostrate that the priority afforded to mining activity, often in the name of a so-called public interest, has been far from being based on democratic processes, and has been put into practice in such a way as to deprive local communities of their socioeconomic survival. The installation of bauxite mines by Mineração Rio do Norte and iron mines by Vale led to the loss of areas once dedicated to agriculture and the collection of forest products in  Oriximiná, home to the  quilombolas of Trombetas and the residents of Lago Sapucuá. Residents of Lago Juruti Velho and the Xikrin de Carajás Indians have suffered similar losses with the installations of these mines.

The result is what some authors call “the Latin American paradox”: In the name of overcoming poverty, governments induce extractionist activities whose social and environmental costs include exclusion and inequality.

Another element of the paradox is that this logic is incapable of dismantling Brazil’s role as a primary exporter to the global market. This strategy of insertion into the global economy generates a series of problems, such as the development of non-diversified economic structures; a tendency toward the deterioration of terms in long-term swaps on commodities prices, a loss of biodiversity, and significant social and environmental impacts including the undermining of current production strategies. 

Despite the objections of critics who reject the subordinated status of Latin American economies in the global context, and despite the commmittment, reaffirmed by the new mining code, to the verticalization and addition of valor to the sector, the economic reality is that such a strategy is not viable. On one hand, the national tax structure stimulates exports of raw materials, as in the case of the Kandir Law, which exempts such products from paying ICMS. On the other hand, taking into consideration that the idle capacity of Chinese steel production in  2011 was 150 million tons — or 3 times the installed capacity of Brazil — there exists only a very narrow opening for the verticalization of iron ore, Brazil’s principal asset.

Riscos e alternativas

At the moment, there are worrisome signs that the new regulatory framework represents little progress toward resolving the problems just identified. This concern in corroborated by the fact that the new regulatory framework is not being publicly debated with civil society. Even though MME minister Edison Lobão has said he is maintaining close dialogue with mining cmpanies, when the document titled “Debating the new regulatory framework for mining” — signed by such organizations as CNBB, CUT, CSP-Conlutas, Ibase and Fase — was forwarded to the mining ministry and the presidency, none of these demonstrated a willingness to debate the issue publicly. To design a new regulatory order based solely on consultations with industry players is a sign that the democratic context for such a discussion is a fragile one, despite its vital strategic importance. 

On the other side of the issue, the questions raised by our analysis have inspired us to make use of instruments of social struggle and the organization of new political forces. In Latin America, intellectuals and social movements have been working on a transition to a post-extractive model for the sector and are defending a gradual transition. This strategy internalizes the social and environmental cost of extraction-based businesses and the reduction of dependency on exports, with production tied more closely to national and regional markets. The definition of free exploration areas is tied to themes such as biodiversity and the continuation of local socio-productive processes; and above all, we call for an open public debate on the social ends to be served by the mining industry .

Brazil is experiencing a period of deregulation and a flexible reading of its environmental rules, as well as pressure by conservative groups to preserve historic rights. Changes to the Forest Code and Decree. 303 of the AGU, which seeks to impose restrictions on the constitutional rights of indigenous peoples, are the most notorious cases of these, but not, unfortunately, the only ones. In this context, the construction of a new framework for the mining industry should provide the opportunity for a full discussion of issues ranging from expropriation of wildnerness to the unequal protection afforded to environmental risks to which certain historically vulnerable social groups are subjected.  This means, for example, that given the expansion of mining activity in the direction of the Amazon, the new regulatory structure should reaffirm and strengthen the collective and territorial rights  – not all of them put into practice – conceded by laws protecting indigenous peoples and traditional populations. 

The process of reviewing the framework for the mining industry may also serve as a valuable opportuity to develop concepts that redefine income from extractive activities. Resources stemming from mining activity and captured by the State should no longer be seen as compensation for negative impacts — which should, in fairness, be internalized as part of the cost structure of the mining operation itself and reflect the company’s own corrective measures. Given the finite nature of mining activities, which exhaust a preexisting resource, proceeds from such operations should be applied to the construction of a post-extractive economy, without, however, being imposed as the only possible strategy for realizing this transition, which creates the risk of an  intensifrication of mineral extraction in the name of producing an end game.

Thus, the debate over the new regulatory framework for mining  should provide an opportunity for the construction of a public, democratic debate on the course of national economic development. To this end, dialogue, transparency and participation are urgently needed as part of the current debate over mining regulation.

Julianna Malerba e Bruno Milanez

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