Don’t bank on World Bank standards alone

In 1988, when the new Brazilian constitution closed the door on foreign investment in mining, many Canadian and other foreign miners closed their offices in the country. However, the federal government became concerned that Brazil’s own business community had not picked up on mining opportunities as much as it had hoped; it therefore passed an amendment to the constitution, in 1995, which opened the country to foreign miners once again.

In the decade since, we have seen a resurgence in mining in Brazil, buoyed by regulatory improvements and high commodity prices. But at the same time that the Brazilian government seeks to strengthen its mining industry, it wants to ensure that unregulated activity does not threaten the natural environment. For this reason, Article 225 of the Brazilian constitution clearly states that mining companies are required to remediate environmental damage.

Recent years have seen additional developments in environmental regulation of mining, and foreign miners interested in operating in the country need to be aware of these regulations.

As in much of the world, the licensing system in Brazil relies largely on the process known as environmental impact analysis (EIA). The research, testing, data presentation and analysis needed for an EIA can be daunting, and can add years to the time leading up to startup. Many miners might well ask: Can the EIA prepared for obtaining financing on international markets, including the World Bank (a “bankable” EIA), be used for obtaining Brazilian regulatory approval?

The answer seems to be “partly.” But understanding what is involved requires a knowledge of the regulatory process used. As can be seen from the accompanying diagram, the first stage is generally a prefeasibility assessment, and a positive assessment will trigger an application for a “prior licence.”

An EIA submission is required of mining companies in order to obtain a prior licence, before the project can proceed to full feasibility evaluation. The purpose of this step is to identify any fatal flaws in the project, or problems that cannot be mitigated.

The EIA needed for a prior licence is based on the project design used at the prefeasibility level, which, unlike the requirements of a bankable EIA, generally is not based on a thorough evaluation of the location and technology alternatives.

The EIA needed for a prior licence tends to be a generic document, and rarely includes a full seasonal cycle of site-specific baseline environmental data. Nor, in most cases, does it need to consider a detailed “no project” alternative, as is required under international finance standards, such as those used by the World Bank.

Under the Brazilian licensing process, the next major environmental study required is the “environmental management plan,” the Brazilian abbreviation for which is PCA.

The PCA is required in order to apply for the implementation licence. It deals mostly with the project design and related environmental impact mitigation, which may include steps to be taken on emission controls, effluent and waste management systems, and plans for monitoring, emergency response, contingency and decommissioning. PCAs do not usually address the environmental impact of alternative technologies and alternative sites.

Experience has found that the same EIA document cannot satisfy the needs of the Brazilian authorities and international financial institutions at the same time, in part because of the scheduling relationship between the two documents and the engineering phases of project development.

However, a “bankable” EIA can usually be prepared from the Brazilian EIA and PCA components, by filling in gaps in some areas, such as the evaluation of impact for project alternatives, including, for example, a consistent “no-project” alternative.

Through applying conditions of approval used in the prior licence EIA and the requirements of the PCA, Brazilian regulators could require concurrent environmental and economic evaluations of alternatives, during the final feasibility phase of the project. But historically they have not required these.

Golder Associates recommends that mining companies merge the work programs involved in preparing the Brazilian regulatory documents and those for financial purposes, and produce separate documents at separate times, which meet the specific needs of each submission.

— The author works at Golder Associates Brasil, in the Belo Horizonte office. He may be reached by e-mail at echapadeiro@golder.com.br