By Rafaela Barros
RIO DE JANEIRO (Reuters) – Brazilian presidential frontrunner Luiz Inacio Lula da Silva is considering raising royalties on certain mining projects if elected, which could affect iron ore giant Vale SA (NYSE) and other multinationals, a campaign adviser told Reuters.
Under the proposal, drafted by mining specialists working for Lula’s Workers’ Party (PT), the government would impose an increased royalty rate – known as a “special quota” – on particularly high-value minerals, whether due to geological features or market demand, according to a party geologist and documents I have seen. Reuters.
The idea, which has not been officially embraced by Lula’s campaign, was described to Reuters by Claudio Schliar, a geologist and member of the Labor Committee responsible for mineral and energy affairs.
It was not clear how Lula would decide on the proposal and whether he would accept it.
This ownership plan was discussed by the Brazilian Congress during the government of leftist President Dilma Rousseff from 2011 to 2016, but it received strong opposition from the industry and was suspended.
The proposal highlights one of the major ideological fault lines in the Brazilian presidential campaign.
Lula, the former union leader who ruled Brazil from 2003 until 2011, has long said the state should play a more powerful role in the economy. Many of his proposals, such as new taxes on dividends and interest payments, were quietly received by the market.
Right-wing incumbent Jair Bolsonaro has relied heavily on Economy Minister Paulo Guedes, who is seen as a pro-market, even as recent welfare bragging has dented his credentials.
Lula leads by more than 10% in most polls, but that gap narrows as the two candidates prepare for the first round on October 2.
Several specialists and market participants said the private franchise could hurt mining investments in Brazil while boosting competitors including Canada and Australia.
“Establishing private ownership of mining will scare away investors and make our competitors happy, especially Australians,” said Reinaldo Mancin, Head of Institutional Relations at the Brazilian Mining Institute (ABRAM).
Brazil is a physical source of many minerals, including gold and nickel, but iron ore is its largest export by far.
Among the projects that could be affected if Lula wins and imposes a special royalty rate is a series of iron ore complexes operated by Vale in the Carajas region of northern Brazil.
The raw produced there is exceptionally pure and generally commands a premium in the international market.
The Rio de Janeiro-based company declined to comment.
Skliar, a geologist affiliated with PT, noted that Brazil has maintained a differentiated concession regime on oil since 1997, with higher rates being imposed in some of the more productive regions. The South American country is now the ninth largest oil producer in the world, and its offshore area is one of the most sought after in the industry.
“There are some mineral deposits with exceptional properties and the international market wants a lot,” Skliar said. “Since minerals belong to the state, the state should benefit.”