A lobbying battle is under way in Brazil over a potential hike in mining royalties later this year.
Last September, the Brazilian mining and energy minister Edison Lobão said royalties for all kinds of ores would rise.
On top of that, new regulations would be imposed on the mining industry, he said, with a limit on the number of years allowed for mine exploitation, possibly 35 years, and other controls over concessions.
“There´s a lot of speculation about what the new mining code will specify. Very few people had access to the review. What everybody believes, whether royalties [are raised or not], is that fiscal surveillance [on projects] must increase,” said Ricardo Marcatto, corporate relations director at Fioito, a consultancy firm specialising in mining royalties.
The federal government is considering the issue, but no decision is likely to be announced until after the results are out for this October’s municipal elections.
The Brazilian mining association, IBRAM, is lobbying hard against any rise in royalties.
“We are against increases of any kind in the tax burden. Brazil already has a very high tax rate. Paying more means losing out in competitiveness,” IBRAM director Rinaldo Mancin said.
If the hike in royalties came with a sweetener, such as exemption from other taxes, then the industry would be prepared to negotiate, Mancin conceded.
“Vale was just the first. Many companies face the same problem with CFEM payments,” a tax consultant said.
Vale has been negotiating a sum related to the CFEM payments with Brazil’s National Mineral Production Department (DNPM). The government is claiming Vale owes a total payment of up to 7.88 billion reais ($4.37 billion), but the company is disputing this figure.
It has made provisions of 225 million reais for the CFEM payment.
Currently, iron ore carries no export tax. Brandão argues that by an export tax on iron ore would spur producers to invest in steelmaking inside the country.
However, despite the talk of higher taxes, Brazil remains open to foreign investment, with no restrictions on foreign involvement in the country, insiders point out.