Brazil’s Lula Contemplates Over Increasing Mining Royalties If Elected

Brazil’s presidential election favorite Lula is mulling over increasing some mining royalties if elected, in a move that will likely impact mining majors operating in the country such as iron ore company Vale SA among others. A proposal has been made ready by mining specialists working for Lula’s Workers’ Party (PT). According to the proposal, the government would charge an increased royalty rate – known as a “special stake” – on minerals of particularly high value, whether due to geological characteristics or market demand. Still, the idea has not yet been officially adopted by the Lula campaign.

The campaign is waiting for how Lula would make a decision on the proposal and whether he would accept it.

Brazil’s Congress discussed a similar royalty plan during the Rousseff administration between 2011 and 2016, but it received strong pushback from industry and was shelved.

The proposal underlines one of the main ideological faultlines of Brazil’s presidential campaign.

Lula, who was Brazil’s president from 2003 to 2011, has frequently argued that the state should play a bigger role in the economy. Many of his proposals, such as new taxes on dividend and interest payments, have not been received warmly by the market.

On the other hand, current president and Lula’s main presidential rival Bolsonaro has leaned heavily pro-market policies, even as a recent welfare splurge has dented his credentials.

Lula holds a double-digit lead in most polls, but that gap has narrowed as both candidates gear up for the first round vote on Oct. 2.

Brazil’s mining sector is worried that the special royalty could hurt mining investment in the Latin American nation, while boosting rivals such as Canada and Australia.

Brazil is a material exporter of several minerals, including copper, gold and nickel, but iron ore is its largest export by far.

Among the projects that could be affected should Lula win and impose the special royalty rate are a series of Vale-operated iron ore complexes in the Carajas region of northern Brazil.

The ore produced there is exceptionally pure and generally fetches a premium on the international market.

Brazil has maintained a differentiated royalty regime on oil since 1997, with higher rates charged in some highly prolific production areas. The South American nation is now the world’s ninth-largest oil producer and its offshore acreage is some of the most sought after in the industry.

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