Announcement Made at Ceremony in the Palácio do Planalto, Brasília With this measure, the government expects to increase investments in the sector.

Fábio Amato and Priscilla Mendes from G1, in Brasília

On Tuesday, June 18, the federal government is announcing the new regulatory framework for mining, a set of rules and measures that, according to the government, should facilitate investments aimed at the exploitation of mineral resources in the country.

This is another package from the Planalto Palace to boost domestic investment and stimulate the Brazilian economy to counter the effects of the international crisis. Since last year, the government has announced plans for various sectors, including highways, railways, ports, and airports.

In addition to modernizing the rules for the mineral sector, the new framework also foresees changes in the collection of the Financial Compensation for the Exploitation of Mineral Resources (CFEM), which should double government revenue from the tax that last year alone brought in R$ 1.8 billion to public coffers.

Concession

In a presentation to businessmen and journalists at the Palácio do Planalto, the Minister of Mines and Energy, Edison Lobão, detailed the new regulatory framework. Among the changes is the introduction of bidding for the concession of mining rights.

"The aim of the measure is to allow more competition," said Lobão. According to him, the concession will be for a period of 40 years, renewable successively for periods of 20 years, and will apply to both research and exploration. Currently, interested parties request authorization to research an area and, upon finding the mineral, request the ministry's right to explore it indefinitely.

The minister also stated that for the exploitation of mineral water and minerals related to civil construction, such as clay, bidding will not be necessary.

The new regulatory framework establishes, however, the obligation for the concession holder to make minimum investments in the area under concession, under the risk of having the renewal of the mining right denied by the government. This investment will depend on the area and type of mineral being exploited.

The bidding rounds will be defined by the National Mineral Policy Council (CNPM), an organization created by the new framework and which will advise the Presidency in defining public policies for the sector. The CNPM will therefore determine the areas that will be auctioned.

But the new framework also foresees the holding of public calls that will serve for companies to demonstrate interest in exploring an area not considered within the CNPM's planning.

Tax Calculation

Lobão also announced changes in the calculation of the Financial Compensation for the Exploitation of Mineral Resources (CFEM), paid by agents for the right to exploit a mine. The rate, which currently ranges from 0% to 3% depending on the type of mineral exploited, will now have a new ceiling: 4%.

Another change is that the rate, which currently applies to the companies' net revenue, will now apply to the gross revenue after taxes are paid, which will lead to an increase in revenue.

"This [change in the CFEM calculation base] will significantly increase the revenue of states and municipalities. It will probably double the revenue," said President Dilma Rousseff during the ceremony where the new regulatory framework was presented. Last year CFEM collected R$ 1.8 billion.

The new framework, however, did not change the revenue-sharing model via CFEM. The largest portion (65%) will remain with the municipalities where the exploitation is carried out. Another 23% will go to the states, and 12% to the Union.

The government, however, abandoned the idea of instituting the so-called special participation fee in the mining sector. Currently valid in oil exploration, the special participation guarantees extra revenue for the government from extremely profitable wells.

Definition of New Rates

Lobão said the government will forward the new framework for discussion in Congress in the form of a bill, with a request for urgent processing. This represents a retreat by the government after the difficulty in approving the new regulatory framework for the port sector last month.

Only after it is approved and transformed into law will the new CFEM rates for each type of mineral explored in the country be defined. The minister, however, hinted that the tendency is to double the rate for iron ore, which accounts for at least 75% of everything currently extracted in the country, from 2% to 4%.

Another rate that may double, according to him, is that for gold, currently at 1%. Lobão stated that these new percentages will be defined by presidential decree.

According to the minister, the country currently has about 8,000 mines, of which about 7,000 are being exploited and another 1,000 are idle. Current legislation already provides for the government to reclaim inactive mines, but Lobão admitted that this requirement is not being enforced. However, he stated that the government will become "more stringent."

Source: G1 Article

Partners at Sion Advogados, like much of the mining sector, are closely monitoring the matter in Brasília.