Brazil Plans to Bar Foreign Firms From Mining

A constitutional provision approved by Brazil’s congress will nationalize all mining in the country, and foreign companies will have five years to put their mineral holdings under Brazilian control.

The measure, adopted Thursday by a vote of 343 to 126, states that “exploration and mining of mineral resources and deposits may be carried out only by Brazilians or national companies” with government authorization. The clause also maintains an existing ban on foreign exploitation of hydro-electric resources.

Congress has been drafting a new constitution for more than a year. At the end of the drafting process, there will be a final opportunity for amendments, but most measures now being adopted by the full congress are expected to stand.

On Tuesday, the congress adopted a clause defining “national companies” as those in which permanent Brazilian residents hold controlling interest. Congressional leaders agreed Thursday that a transitional clause in the constitution will give foreign mining companies five years to nationalize their Brazilian subsidiaries.

To retain any mining interests in Brazil, a foreign mining company presumably will be required to work through Brazilian-controlled affiliate companies.

According to the National Council of Scientific and Technological Development, foreign-controlled companies account for 86% of Brazilian mining for bauxite, 80% for gold, 65% for silver, 63% for tungsten, 58% for nickel, 44% for titanium and 34% for iron.

Thursday’s vote was preceded by a heated debate and followed by cheers from congressmen. Some sang the national anthem and chanted, “Brazil, Brazil, Brazil.”

Other congressmen criticized the constitutional provision as “xenophobic” and detrimental to Brazil’s development.

“Mining requires capital that Brazilian businessmen do not have,” Rep. Guilherme Afif Domingos of the Liberal Party said. Foreign capital provided 74% of all 1986 investment in Brazilian mining.

Congress also voted Thursday for a constitutional clause banning oil exploration by foreign companies under risk contracts. Four foreign companies, including Texaco and Shell of the United States, currently are looking for Brazilian oil under risk contracts with Petrobras, the government-controlled oil company.

Petrobras has a longstanding monopoly on petroleum production in Brazil, but foreign companies are permitted to distribute gasoline and other petroleum products. The congress rejected an amendment that would have barred foreign-owned distribution operations.