URANIUM - EXPLORATION AND DEVELOPMENT: BRAZILIAN CHAPTER

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 11C
URANIUM - EXPLORATION AND DEVELOPMENT: BRAZILIAN CHAPTER
Pedro Aguiar de Freitas
Veirano Advogados
Rio de Janeiro

Pedro Aguiar de Freitas is a senior partner at Veirano Advogados. Pedro came back to Veirano in 2009 after more than 20 years, returning to the firm where he started his career. Before joining Veirano Pedro occupied the position of General Counsel and Secretary to the Board of Directors of Companhia Vale do Rio Doce - VALE, one of the largest business conglomerates in Latin America, for 6 years. Pedro also held the positions of General Counsel of Brasil Telecom S.A., General Counsel of Organizações Odebrecht and Senior Counsel at the International Finance Corporation - IFC. He started his career with Veirano (which was then the Rio de Janeiro office of Baker & McKenzie), having also practiced in Chicago at the B&M headquarters. Pedro is a board member of several organizations, including the Mining Committee of the International Bar Association - IBA, where he currently serves as a Secretary, the Latin American Forum of the International Bar Association, Fundação Getúlio Vargas, and the Office of the President of Brazil's Council of Economic and Social Development. Pedro practices in the corporate, arbitration, natural resources, mining and project financing areas and his corporate and in-house experience are extremely valuable to the firm and our clients.

I. Introduction

In view of the great potential of the uranium market in Brazil, most of the major players worldwide are eager for changes in the current legislation and new opportunities for private parties to participate in the exploration and exploitation of uranium in the country. According to official sources¹ - and bearing in mind that only 25% of the nuclear ore potential of the Brazilian territory has been properly explored, Brazil has the 6th larger uranium reserve in the world (see Chart No. 1 for the location of the main deposits). Notwithstanding such impressive potential, the Brazilian uranium market is still excessively sluggish due to an outdated monopoly held by the Federal Union over the exploration and exploitation of nuclear ores in the country.

In a comparative perspective of the Brazilian scenario with other jurisdictions -- and even with other industries in Brazil, this article intends to provide the reader with: an overview of the current regulations over the exploration and exploitation of uranium in Brazil; an analysis of how such restrictions could be possibly released (including some comments on the likely results of such changes, based on the oil & gas and general mining experiences in the country); and a description of recent initiatives adopted by the Brazilian government towards the participation of private entities in the exploration and exploitation of uranium in the Brazilian territory.

Uranium in Brazil (source - INB)

II. Current Legal and Regulatory Environment

As mentioned, the Brazilian Federal Union holds monopoly rights over the exploration, exploitation, improvement and trading of nuclear ores in the country, including uranium. Such monopoly regime was initially set forth by Law No. 4,118/62, dated August 27, 1962, which created the National Commission of Nuclear Energy (Comissão Nacional de Energia Nuclear - "CNEN") as the administrative authority in charge of implementing -- and inspecting -- the national policies over nuclear initiatives in Brazil. At such time, the Federal Constitution in force (issued in 1946) used to authorize the Federal Union to establish monopolies over certain activities by means of special laws to such effect.

The Brazilian Mining Code was issued five years after the enactment of Law No. 4,118/62, including specific provisions on nuclear ores (Decree-Law No. 227, dated February 28, 1967² ). According to Article 90 of the Mining Code (and respective Articles 92 and 93 of its Regulations), companies operating in the country which would be exploiting non-nuclear ores (such as gold, iron ore, titanium etc.) and at a certain point would identify the presence of attached nuclear ores, including uranium, would be subject to the strict control of the CNEN. In case the value of the nuclear ores would exceed the value of the non-nuclear ores, the mining site would need to be incorporated into the monopoly of the Federal Union. If, on the other hand, the value of the nuclear ores would be lower than the value of the non-nuclear ores, the operating company would have to deliver the nuclear ores to the CNEN. Similar rules have been provided in subsequent pieces of legislation, as further discussed below.

A few years later, the CNEN was authorized (by means of Law No. 5,740/71) to incorporate a separate legal entity for the exploration and exploitation of nuclear ores in Brazil. This entity was designated as Companhia Brasileira de Tecnologia - CBTN, whose designation was later changed to NUCLEBRÁS. Subsequently, NUCLEBRÁS was replaced by Indústrias Nucleares do Brasil - INB, which is in fact the entity still in charge of the nuclear ore exploration and exploitation in Brazil. Further details on the possibilities of INB to contract third-parties to assist it in the performance of its obligations are dealt with in Section IV of this article.

The current monopoly over nuclear ores was finally consolidated in Article 177 of the Federal Constitution of 1988 (still in force), whose original wording used to provide that the Federal Union holds the monopoly over the "V - the exploration, exploitation,

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improvement, reprocessing, industrialization and trading of nuclear ores and minerals, and by-products".³ This wording has already been revised, as explained below.

Paragraph 1 of the...