SECURITY OF TENURE IN BRAZIL
| Jurisdiction | Derecho Internacional |
(Apr 2005)
SECURITY OF TENURE IN BRAZIL
Pinheiro Neto Advogados
Braz§lia, Brazil
Carlos Vilhena Filho is a partner at the law firm of Pinheiro Neto Advogados, in Brasilia, Brazil, where he coordinates the firm's mining law practice.
In recent years he has given legal advice to clients setting up exploration and mining projects in Brazil. His practice has included advising mining companies during the acquisition of companies and properties, and providing counseling and advice on laws related to access to land, issues with communities and indigenous populations, transportation, processing, sales, tax, environment, power, contracts, corporate and litigation matters.
He has recently been appointed as the number one practitioner in Brazil for mining legal expertise, according to the third edition of The International Who's Who of Mining Lawyers published by Who's Who Legal.
Mr Vilhena is the coordinator of the Legal Committee of the Brazilian Mining Institute (Ibram). He holds an LLM degree in Natural Resources Law from the Centre for Energy, Petroleum, and Mineral Law and Policy at the University of Dundee, Scotland.
I. INTRODUCTION
Many researches on mining investment decision criteria 1 NOTA indicate security of tenure as one of the key elements. Given, therefore, this fact, as well as the uncertainties and long-term nature of mineral projects, security of tenure should be carefully considered.
A good definition of security of tenure is by John P. Williams: 2
"Security of Tenure means that mineral right holders have:
(i) a sufficient term within which to carry out exploration and/or mining operations;
(ii) the virtually automatic right to mine what has been discovered, subject to compliance with applicable regulations; and
(iii) clear and objective obligations in order to maintain his rights in effect, subject to clear and objective cancellation criteria and procedures."
As part of the exercise to determine whether certain legislation offers security of tenure, apart form the point above one should at minimum consider the following matters: (i) the role of the State; (ii) the legal nature of the mineral rights; (iii) granting authority; (iv) access to mineral rights; (v) length and renewal; (vi) continuity of tenure; (vii) maintenance requirements; and (viii) cancellation procedures.
II. ROLE OF THE STATE
The concept of minerals being owned by the state is generally accepted throughout the world. Without addressing academic and historical debates regarding the permanent sovereignty over natural resources, 3 it actually seems to make more sense - from an investor's perspective - to have to deal with one single owner (i.e. the federal government) than with a number of them (provinces, federalised states or private owners).
The issue here is what role plays the state as the owner of the minerals. In Brazil, the state has played the role of lessor-regulator as opposed to owner-operator. 4 In other words, the government provides the set of rules for companies to explore for and exploit its own mineral resources and, in turn, grants property rights of extracted substances to such companies. In recent years, the government has attempted to act as the regulator and facilitator of mineral activities, so as to attract investments, generate revenues and develop the mineral sector's capacity of contributing to the country's economic and social development.
The Federal Constitution is clear in establishing that the direct participation of the state in economic activities shall only be permitted in case of national security or relevant collective interest. Further it defines the role of the state as lessor-regulator, so as to inspect and encourage economic activities by the private sector. This characteristic was reaffirmed by the privatisation of CVRD, which used to be the state-owned mining company.
There are no regulations imposing mandatory joint ventures, mandatory contracting or participation, or preferential competition.
The law does impose the requirement that the holders of mineral rights must be either Brazilian nationals or legal entities incorporated in Brazil. Nonetheless, the capital of such legal entities can be wholly owned by foreign individuals or legal entities. 5
III. LEGAL NATURE OF MINERAL RIGHTS
The strength of the mineral rights and its legal nature and the clearness with which these issues are treated by law are important factors affecting security of tenure.
Brazilian law is clear in this respect. The Federal Constitution establishes that the mineral resources can be explored and exploited under authorisation and concessions from the Federal Government. Hence, the legal nature of the titles nature is of administrative law.
The legal regimes are established under a federal Mining Code, with status of law. The system under the mining code regarding a mineral title is what we call conditional act. As long as the claimant or titleholder complies with certain requirements, the state has none (or very little) discretion. The state is compelled to grant the title or recognise a right.
The mining concession under the Brazilian legal system is a quasi-real property and regarded as a fixed asset of its holder.
Further, the law is very clear in asserting:
(i) that the rights are exclusive. A mineral title - either for exploration or for exploitation - grants its holder exclusive rights over the area the title refers to. No other titles can be granted with respect to the same area, unless the previous mineral right is cancelled; 6
(ii) the rights of the mineral titleholder in relation to the rights of the surface owner. The Federal Constitution grants mineral activities the status of an activity of national interest, therefore subjecting other activities and surface ownership. The Mining Code regulates in detail the compensations due to the surface owner, as well as the legal measures and procedures to enforce the mineral titleholder's right;
(iii) payment of compensation by the state in case of expropriation;
(iv) the mineral rights are assignable. The assignee must comply with certain requirements, such as making proof of technical and financial capacity; and
(v) mining rights can be mortgaged and pledged.
IV GRANTING AUTHORITY
The political entity with the authority to grant mineral rights, regulate and inspect the activities in Brazil is the Federal Government. The main actors are the Ministry of Mines and Energy, which has a role of formulating the policy and granting the mining concessions, and the Department of Mines, the entity in charge of implementing the policy, granting exploration licences and inspecting the activities.
In general, there are no overlapping authorities with respect to mineral regulations vis-&gravecmb;a-vis state or municipal jurisdiction. The limits of authority are clearly delineated. Hence, there are no conflicts as regards the granting of mineral rights. 7
An exception regards environmental licensing. Both the state (provincial) and federal governments may have a say at the time of environmental licensing for a mineral project. The general rule is that projects are environmentally licensed by the states, but very often the federal agency for the environment wants to participate. There may be the case where a clear conflict of authorities comes out in the sense that two different authorities (one at the federal level and one at the state level) consider themselves as competent to review all the environmental aspects of the project, propose requirements and standards, and issue the environmental licences. Even though such a situation is not very common, the simple possibility of such an event taking place affects the security of tenure, since the titleholder may be required to halt the project until the controversy between the two environmental agencies is settled, or submit the project for licensing before two different entities, which may impose different conditions, request different actions and establish different terms and deadlines. This is a field that Brazil needs to work on, in order to better delineate authority, create national consistency and avoid uncertainties to players of the mining business.
As another exception to the general rule for authority to grant mineral rights, mining titles over construction materials may also involve local government and the Mines Department. In such cases, the interested party must obtain a licence from the Municipal Authority and have it registered by the National Department of Mines. However, even though the titleholder will have to deal with two different authorities at different levels, the system seems to work fine as long as such two-level procedure is duly complied with by the holder of the mining title.
Apart from the two issues identified above, a general assessment of security of tenure vis-&gravecmb;a-vis the granting authority in Brazil is positive. Most of the duties of the Minister of Mines and Energy have been delegated to a deputy-minister for mines. The Department of Mines has been given administrative and financial autonomy, what has helped to improve the system. Further work need to be done in capacitating, creating infrastructure and training the staff of the Mines Department. Currently, there are programmes aiming at these goals. Nonetheless, the most critical issue involves the conflict of authorities responsible for the environmental licensing of a mining project, which needs to be addressed in earnest.
V. ACCESS TO MINERAL RIGHTS
Access to mineral rights is needed if private investment is to be attracted. The Brazilian law is clear and objective when dealing with such access.
The system favours a "first come, first served" method for claims for exploration. The Mining Code establishes objective criteria for claiming, maintaining the licence and...
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