Bloomberg/Rio de Janeiro
Vale SA’s too-big-to-regulate advantages may be coming to an end in Brazil.
In the 10 years before Brazil suffered two of the world’s worst mining disasters, the federal regulators who oversee the industry – and particularly Vale, one of Brazil’s biggest employers – received only 10% of the money budgeted to go to them.
They had only 14 people to monitor almost 800 mines nationwide, and they worked under a system in which on-site safety inspections of tailings dams, built to contain the sometimes toxic, often dangerous, waste produced in mining, were most often done by contractors paid for by the mining companies themselves. That’s part of a process approved under a 2010 law.
“It is a system that was designed to fail,” said Alexandre Vidigal de Oliveira, a former federal judge who took over the country’s Mines and Energy Ministry just a week before the deadly dam failure in Brumadinho. Now, he says, he’s pushing to dramatically change the picture.
“We had two disasters in a row, so the first question is what can be done to avoid a third?” Oliveira said in a wide-ranging interview at the agency’s Brasilia headquarters. “The system that we have today may have had some merits at some point, but it’s useless now.”
Over 300 people are believed to have died in the January incident near Brumadinho, making it the country’s deadliest. Just three years earlier, Brazil suffered its worst environmental disaster ever when another tailings dam collapsed in the same state, Minas Gerais, killing 19 and choking groundwater and rivers over hundreds of miles.
In the wake of those failures, Oliveira has asked legal authorities to probe a possible cover-up of Vale’s safety procedures. If convicted under Brazil’s anti-corruption law, the maximum penalty could be around $6.6bn (25bn reais) based on estimates of preliminary 2018 data.
In contrast, the mining code sets an $800 limit for fines, Oliveira said, noting that turning to the anti-corruption laws opens the way to “empower the auditing.” The bottom line, says Oliveira, whose office wall includes a small wooden sign with the words “federal judge” emblazoned on it, is to “make an example” of anyone responsible.
Vale, meanwhile, said in a statement that it “vehemently denies any speculation about supposed influence to block advances in the area of dam security. Vale reaffirms that it respects and abides by the recommendations of the competent bodies and rigorously follows the law.”
More systemic changes may not come easily, despite the disasters.
At issue is whether Vale, the world’s largest producer of iron ore, has become so dominant in a country struggling to regain its economic balance that legislators will be hard- pressed to attack the existing system. The company that employs about 60,000 workers, is responsible for millions of dollars in iron ore exports, and is an economic force for hundreds of communities across Brazil.
Finding the political will to invest in advanced surveillance measures targeting mining companies has historically been difficult in Brazil. Before becoming a private company, Vale was in essence the institutional arm of the country’s mineral extraction ambitions. Later, as it began trading publicly, the company became the primary steward of Brazil’s immense mineral wealth.
While Vale is legally unable to fund political campaigns, the revenue it provides and the countless direct and indirect jobs the company controls throughout Brazil means the company often plays the role of chief benefactor.
“Without mining, Minas Gerais would be deserted,” said Antônio Noronha Bicalho, the mayor of Sao Gonçalo do Rio Abaixo, a community with 11,000 residents that sits near Vale’s recently closed Brucutu mine. “Life in our town changed completely after the mine opened about 13 years ago. We had better schools, better health care, more jobs.”
Now, with the Brucutu mine closed under a judicial decision following the Brumadinho disaster, Bicalho said he doesn’t know what will happen to the town.
For Oliveira, the bottom line is safety. A federal judge experienced in corporate compliance laws, Oliveira has no ties to Vale, as opposed to former mining secretaries. He’s pushing a several-step effort to boost the ministry’s ability to oversee mining.
He’s already secured a promise from the government that they won’t fall victim to budget freezes moving forward, he said in the interview. And he’s planning to propose a way to improve the collection of mining royalties that partially fund the ministry.
“We are working alongside the tax agency to see how to improve collection,” he said. “There are loopholes, and the companies have a lot of discretion in revealing how much they own in royalties. We need to figure out how to be smarter on that.”
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