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By Andrew Willis, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – A result of the ongoing battle over oil royalties paid in Brazil, is an increased attention to royalties paid in the mining and hydroelectricity energy sector. Meanwhile, the long-running dispute over oil royalties took a further twist on December 17th when a supreme court judge blocked an upcoming congressional vote intended to override a presidential veto.

Vale machinery, Mining Royalties, Brazil News
Vale machinery in the Ponta da Madeira terminal in São Luís, Brazil, photo by Agencia Vale.

Brazilian oil royalties – about ten percent of company revenue – are expected to total roughly R$14.3 billion (US$6.8 billion) this year, with a further R$3.6 billion coming in the form of ‘special participation rates’ for large fields.

The dispute over Brazil’s oil royalties has pitted so-called ‘producer’ versus ‘non-producer’ states, with the former – Rio de Janeiro, Espírito Santo and São Paulo – keen to hold on to their disproportionate slice of the money paid by oil companies operating in the country.

Now the squabble has drawn attention to other industries, with hydroelectric firms expected to pay R$2.2 billion in royalties this year. At present, 45 percent of this goes to state governments where the energy is produced, with a further 45 percent going to municipalities within those states. This leaves just ten percent for federal agencies.

Mining royalties are expected to generate R$1.9 billion this year, with 23 percent going to state governments where extraction takes place, 65 percent for municipalities within those states and twelve percent for the federal government.

Brazil Itaipu Dam, Energy Royalties, Brazil News
Brazil’s Itaipu Dam, one of the world’s largest, photo by Luigi Zarrillo/Wikimedia Creative Commons License.

“There are several justifications for this,” Antenor Lopes, a researcher with the government’s Ipea think-tank, told The Rio Times. “In the case of hydroelectric plants, all states and municipalities that are affected – i.e. those who lose land areas due to the flooding caused by the reservoirs – receive financial compensation.”

“In this case, the justification would be that the ‘damage’ occurs locally and therefore should be compensated only for those who suffer from it. Mining follows a similar logic.”

While lower than their oil equivalents, hydroelectric and mining royalties have grown roughly 65 percent since 2007. According to government analyses, they could potentially double further in size if plans to construct eleven hydroelectric plants and to increase mining rates are carried out.

Current efforts to reform Brazil’s mining code also include proposals to create a powerful new independent regulator for the sector, endowed with powers to auction mining concessions and set minimum investment levels for companies.

Minas Gerais and Pará are the states that collect the most mining royalties, with iron ore accounting for roughly eighty percent of payments. Brazilian miner Vale, the world’s largest iron ore producer, recently started paying the government R$1.4 billion in back-dated royalties, part of a decade-old dispute between the two sides.

In the most recent twist in the oil royalties battle, on Monday, December 17th supreme court judge Luiz Fux granted an injunction to Rio State legislators, blocking an upcoming congressional vote to override the recent veto by President Dilma Rousseff. The president had vetoed Article 3 of the new bill, blocking re-distribution of oil royalties from existing oil concessions.

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6 COMMENTS

  1. A short report from Brazil: The relevance of energy issues to the recent protests | Energy Vulnerability and Urban Transitions

    […] Brazil is an emergent energy superpower – in production and consumption terms alike – which is likely to hold a pivotal role in the world’s future energy flows. The country has the largest electricity sector in South America, and it is the third largest energy consumer in the Western Hemisphere, just behind the United States and Canada. According to the US Energy Information Administration, Brazil’s total primary energy consumption has increased almost by a third in the last decade (39 percent of this figure originates from oil and other liquids including ethanol, followed by hydroelectricity at 29 per cent). It is worth noting that most of the oil is produced in the already-wealthy southeastern states of Rio de Janeiro and Espírito Santo. Plans to distribute oil royalties more equally between all 26 Brazilian states have been highly contentious, and have generated numerous public protests and heated debates. […]

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