Brazilian President Dilma Rousseff will have support in Congress to raise taxes on mining companies even as she struggles to win backing from her allies on other key measures, said Antonio Anastasia, governor of Minas Gerais state.
Rousseff had to negotiate a last-minute deal with her majority coalition in the lower house before a May 16 deadline to ratify a decree overhauling the nation’s ports. She also struggled to build support among allies to divvy up royalties from recently discovered oil finds, leaving it to the nation’s Supreme Court to resolve the impasse.
Anastasia, in an interview, said there’s no reason for changes to the mining code to generate that kind of political friction. Mining takes place in almost all of Brazil’s 26 states while oil production is concentrated in a handful of areas. It’s also in companies’ interest to clear up quickly the regulatory uncertainty, he said.
“Mining royalties are very low, almost ridiculously low compared to oil,” Anastasia, of the opposition Social Democracy Party, or PSDB, said in New York last week. “Raising rates from 2 percent to 4 percent as is being discussed won’t fuel anyone’s greed.”
The government charges special participation taxes of as much as 40 percent on oil projects.
Brazil, the world’s second-largest iron-ore exporter, has been debating since at least 2008 revisions that include higher royalties on mining projects. The delay is hanging over companies such as Vale SA and threaten to delay investments needed to ramp up economic growth, Anastasia said.
“It’s a long-running soap opera,” he said, referring to the delays which he says have “paralyzed” investments in his state, the country’s biggest producer of iron-ore.
Banco Santander SA (SAN), in a report last week, said the debate on ports exposed a rift in Rousseff’s base and foreshadows a more exhausting debate over the mining code. To accomplish its goal of opening ports to private investment, the government had to back down from provisions that would have wrested control of existing ports from local authorities.
Anastasia traveled to New York as part of a delegation of Brazilian officials that included Jacques Wagner, governor of Bahia state in the country’s northeast. The two met with investors to draw attention to business opportunities in their states, which bucked a national downturn in growth and investment last year.
Gross domestic product in Minas Gerais, the country’s second-biggest state by population and manufacturing capacity, expanded 2 percent last year, more than double the national rate of 0.9 percent. In Bahia, GDP climbed 3.1 percent.
In Bahia, where Kimberly-Clark Corp. (KMB) and Anhui Jianghuai Automobile Group Co.’s JAC Motors have announced investments in the past two years, there’s a pipeline of projects through at least 2016, said Wagner.
“I confess I haven’t noticed a drop in investment at all,” said Wagner, a former labor minister for Rousseff’s predecessor and mentor, Luiz Inacio Lula da Silva. “What I do more than anything else is meet with companies that want to invest in my state.”
Like Anastasia, Wagner says the biggest drag on Brazil’s economic growth is a lack of quality infrastructure, especially in poorer provinces outside the more-developed southeast.
To overcome a transportation bottleneck and attract manufacturing, he hired McKinsey & Co. Inc. to ready the ground for an auction to build a bridge spanning Todos os Santos bay between Salvador and the undeveloped island of Itaparica.
The 12-kilometer (7.5-mile) bridge, with an estimated price tag of 5 billion reais ($2.5 billion), would be Brazil’s second largest, nearly matching one built by the 1964-1985 dictatorship that connects Rio de Janeiro with sister city Niteroi.
“I want to build mine just a little bit shorter so nobody gets jealous,” said Wagner, who was born in Rio and moved to Bahia as an engineering student fleeing the generals then in power. “It’s a postcard that any international construction company would love to show.”
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