OVERVIEW OF MINING REGULATION IN BRAZIL – STATE MONOPOLIES

An interesting matter on mineral exploitation in Brazil refers to the activities that are disposed as Union monopoly. They are, as set by the article 177 of the Brazilian Constitution:

“Article 177. The following are the monopoly of the Union:

I – prospecting and exploitation of deposits of petroleum and natural gas and of other fluid hydrocarbons;

II – refining of domestic or foreign petroleum;

II – import and export of the products and basic by-products resulting from the activities set forth in the preceding items;

IV – ocean transportation of crude petroleum of domestic origin or of basic petroleum by-products produced in the country, as well as pipeline transportation of crude petroleum, its by-products and natural gas of any origin;

V – prospecting, mining, enrichment, reprocessing, industrialization, and trading of  nuclear mineral ores and minerals and their by-products, with the exception of radioisotopes whose production, sale, and use may be authorized under a permission, in accordance with letters b and c of item XXII of the head paragraph of article 21 of this Federal Constitution.”

Those provisions plus the widely spread information of Petrobras' dominance over petrol exploitation, for example, may cause the impression that there is no space for private action on this field (even though nowadays Petrobras has a mixed public private capital structure). This is not true.

What is important to highlight here is that the retains the monopoly over the ACTIVITY, but not the EXECUTION of it. This new regulation was introduced to the Brazilian Constitution back in 1995, by the Constitutional Amendment n, 9, which provides the possibility of delegation of the execution of those activities.
The first paragraph of the same article 177 now says:

“Paragraph 1. The Union may contract with state-owned or with private enterprises for the execution of the activities provided for in items I through IV of this article, with due regard for the conditions set forth by law.”

Subsequently, paragraphs 2 to 4 will determine law provisions to the cases of competence delegation when the situations are suited on incises I to V of article 177.

To make things clearer, a last comment must be made to remember what was already explained when article 176 was brought to discussion: if the activities are to be conducted in the boundary zone, in addition to the fact that the company will have be constituted under Brazilian law and have its head-office and management on the territory to be able to contract with the Union (independently of the origin of its capital), the law will provide specific conditions for the concession.

Turns out the law specified that any exploitation running within the boundary zone (any place at least 150km far from the Brazilian territorial limits, inwards. The sea has different regulations) must be conducted by companies with, at least, 51% of Brazilian Capital, 2/3 (two thirds) or Brazilian employees and with Brazilian Directors. Plus, the directive control of the board must be retained by Brazilian citizens.

This is the real monopoly. So, keep out of the boundary zone and you will be OK.