On Saturday, December 30, 2023, the Minas Gerais State Government enacted Decree No. 48,747/2023, which establishes regulations for the mandatory provision of collaterals to the operation of dams under the Minas Gerais State Dam Safety Policy (PESB/MG – Law MG 23,291/2019).
The following are the primary elements of this Executive Order.
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Applicability: Applicable to all dams covered by PESB/MG, i.e. mining dams, industrial dams, or dams for the accumulation of water or liquids in connection to mining or industrial processes, which have at least one of the following features:
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To whom shall the collateral be presented?
The collateral shall be presented to the environmental agency within the Minas Gerais State Government responsible for the environmental licensing of the corresponding dam.
What must be submitted to the environmental agency?
Depending on the operational status of the dam and of its corresponding environmental licensing, the entrepreneur responsible for the dam shall submit:
• A proposal of which collateral will be provided, with a schedule for its implementation; or
• Confirmation that the collateral has been implemented.
When?
Dams without Preliminary License (LP) or Installation License (LI) on December 29, 2023: Collateral proposal must be submitted during LP or LI phases. Confirmation that the collateral has been implemented must be submitted in order to obtain the LO;
Dams with LP or LI granted before December 29, 2023, and no Operating License (LO): Collateral proposal must be submitted by March 29, 2024. Confirmation that the collateral has been implemented must be submitted in order to obtain the LO;
Dams with LO granted before December 29, 2023: Collateral proposal and schedule must be submitted by March 29, 2023. Confirmation that the collateral has been implemented must be submitted no later than December 29, 2026 (no less than 50% shall be implemented in 2024 and 25% in the following two years).
Which kinds of collaterals shall be accepted by the environmental agency?
The Decree provides that only some kinds of collaterals shall be accepted, namely:
Each of such collaterals must follow specific criteria provided by the Decree, including:
1) CDB: The CDB must be issued exclusively by the Minas Gerais State Bank of Development (“BDMG”). Although the maturity date is not set in advance, it should be indicated as "until the entrepreneur’s obligations are fulfilled".
2) Bank guarantee: The financial institution needs to hold a local rating that is equal to or higher than that of the Federal Government. Additionally, it must agree to waive the provisions outlined in sections 827, 835, and 838 of the Civil Code.
3) Guarantee insurance: The financial institution is required to hold a local rating equal to or surpassing that of the Federal Government. It should also have generated insurance premium revenues of over six billion reais in the fiscal year prior to the insurance application, specifically in the damage and liability segment. Furthermore, the institution must be willing to waive section 763 of the Civil Code and section 12 of Federal Decree 73/1966.
How much should the collateral cover?
The amount of the collateral will be calculated considering: (i) the size of the dam’s reservoir, including the area occupied by tailings or waste and water, measured in square meters; (ii) the designation and purpose of the dam, as defined in Decree 48,140/2021; and (iii) the estimated cost of dam de-characterization projects per unit area.
The formula for calculating the value is given below:
What happens if the collateral is not approved by the environmental agency?
Section 14 of the Decree provides that if the bond is rejected, the environmental licensing process must be dismissed. It is important to highlight, however, that the Decree did not outline a specific procedure for challenging the decision that rejects the collateral proposed.
As a rule, when such dismissals occur, they impose a significant burden on the entrepreneur, who will have to restart the entire environmental licensing process, including the LP, LI, and LO phases.
What happens if the entrepreneur does not submit the collateral proposal and/or does not implement it?
In this scenario, any non-compliance with the obligations set in the Decree will lead to the denial of the intended environmental license, given its current licensing phase.
For dams that already have a granted license, are operational, deactivated, or undergoing de-characterization, the failure to submit the collateral proposal, the implementation schedule, or the non-implementation will result in the immediate suspension of the environmental licenses for the respective project or structure, without prejudice to other sanctions in accordance with State Law no 23,291/2019 and Decree no 47,383/2018.
Will the entrepreneur withdraw the collaterals at some point?
Yes. If the collateral is not executed, the entrepreneur may request that it be withdrawn, provided that the following requirements are met:
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The dam’s de-characterization is certified by the State Environment Foundation (FEAM); and
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The socio-environmental recovery of the area affected by the dam is certified by the relevant agency or entity of the State Environment and Water Resources System (SISEMA).
The Decree came into force on the date of its publication, December 30, 2023.
Feel free to reach out to Cescon Barrieu’s Mining and Environmental Law team for additional details and clarification on the matter.
