Brazil to demand participation in, and more taxes and royalties from, mining companies

Brazil to demand participation in, and more taxes and royalties from, mining companies

Reuters

10 January 2010

SAO PAULO, Brazil - The Brazilian government wants participation in the output of mining companies in addition to greater royalties and taxes, Mines and Energy Minister Edison Lobao told a local newspaper.

Demand from China for oil and metals in recent years has prompted governments in mineral-rich countries to secure a greater stake in natural resource exports. Venezuela, Ecuador and Bolivia are cases in point.

In a raft of bills that the Brazilian government is drafting to reform existing mining laws, companies would also have to pay a new tax at the start of production, Lobao told O Estado de S. Paulo daily published on Saturday.

"The tariff (at the start of production) is being considered. The company will pay an initial tariff to begin output and it will then begin paying a share of output once it is producing," Lobao said. "The government share in production would be apart from the royalties."

Lobao said the government will also raise the royalty that mining companies now pay on their output but he added that the total increase in royalties and taxes would not overburden the sector.

The government has been drafting the new mining law for about a year and Lobao has argued that the royalty of roughly 2 percent that mining companies in Brazil currently pay is too low.

"There are some countries that charge 8 to 10 percent but ... they don't charge certain taxes. So, we want to establish a certain balance," he added.

Brazil has been attempting to push through Congress a reform of its oil laws, in which the government would also take a share of production in new subsalt oil discoveries and raise its stake in the state-run oil company Petrobras.

The raft of bills for the oil sector have been stalled in Congress as lawmakers are on recess. Additionally, 2010 is an election year, which will make the passage of any oil or mining reforms difficult until 2011.

The regulatory uncertainty has suspended investments in both sectors until companies know what changes in the operating costs are coming. Brazil's Vale is one of the world's three largest iron ore producers and there are other multinational mining companies operating in Brazil.

As with the oil reform laws, the mining reforms would likely only apply to new concession contracts and not existing ones.

(Reporting by Reese Ewing, editing by Vicki Allen)