Brazil pressure on miner Vale stirs political storm

Thu Mar 24, 2011 5:28pm GMT

* Opposition slams government for meddling in Vale
* Could harm Rousseff's market-friendly image
* Gov't says Vale not helping develop economy

By Raymond Colitt and Brian Ellsworth

BRASILIA/RIO DE JANEIRO, March 24 (Reuters) - Brazil's government is facing a political backlash over its apparent efforts to force out the head of mining giant Vale, a case that renews concerns over state meddling in private companies.

Opposition leaders on Thursday demanded Finance Minister Guido Mantega explain reports he asked a shareholder of Vale, the world's largest iron ore miner, to help seek a replacement for CEO Roger Agnelli.

The incident could tarnish President Dilma Rousseff's mostly market-friendly image earned during her first three months in office through strict fiscal discipline and defense of central bank autonomy.

"She believes in a big, strong government and has issues with Agnelli. I have no doubt this pressure is coming directly from Dilma," said Jose Luciano Dias, a Brasilia-based political analyst.

According to government sources, Mantega had approached Brazilian bank Bradesco, a key Vale shareholder, to request help replacing Agnelli with another CEO.

Vale, the government and Bradesco officially declined to comment. Vale's top executives will tender their resignations if Agnelli leaves, according to a company source who spoke on condition of anonymity.

Relations between the government and Vale have been tense for years as politicians complained Vale was not doing enough to create jobs by investing in steel production and was not sufficiently involved in the country's economic development.

Rousseff's predecessor Luiz Inacio Lula da Silva, who championed the revival of Brazil's shipbuilding industry, was also upset with Agnelli because he bought foreign-made vessels.

TENSIONS RISE

Agnelli, 51, a former banker, has further aggravated government officials in recent weeks with his tough stance over a mining royalties debt the government says could reach $2.4 billion.

He may benefit in the short term from having politicians rush to his defense, analysts say, but in the long-run government pressure on Vale will remain because state pension funds are major shareholders.

Most investors believe Vale's strong iron ore project pipeline and low operating costs make it attractive despite the political risks.

They have hailed Agnelli for turning the firm into a global mining giant and the world's top iron ore producer, but the country's top political leaders never forgave him for laying off workers and cutting investments in the wake of the 2008 financial crisis.

Opposition leaders say Mantega's move foreshadows a government takeover of the former state-run firm, which was privatized in 1997.

"This creates the risk of devaluing Brazil's largest private company, we can't allow it to become a government slush fund," said Senator Cyro Miranda, who filed the petition to hear Mantega. "Even government legislators are worried and want to know what is going on."

The government cannot directly push Agnelli out of office, but it indirectly holds a majority stake in the company's controlling shareholder Valepar via state pension funds and the state development bank BNDES.

The company's board of directors can decide whether or not to change the CEO. Analysts say the government would need the support of one of the two other main shareholders of the company, Bradesco or Japanese trading house Mitsui. (sourced:Reuters)

Brazil wants Vale to pay $2.4 bln royalties-report

Wed Mar 9, 2011 2:41pm GMT

* Company does not agree with debt value, Folha says
* Dispute could reignite tensions between CEO and gov't

SAO PAULO, March 9 (Reuters) - Vale, the world's largest iron ore producer, could be forced to pay up to 3.9 billion reais ($2.4 billion) in back royalties to the Brazilian government, the newspaper Folha de S. Paulo said on Wednesday.

The Mines and Energy Ministry's mining oversight unit claims there are loopholes in the way royalties are calculated and that Vale has paid too little for extracting iron ore from Minas Gerais and Para states, Folha said. It did not say how it obtained the information.

Vale (VALE.N: Quote) (VALE5.SA: Quote) does not agree with the ministry's assessment and says any back royalties would total not more than half of the ministry estimate, Folha said, citing an official who declined to be quoted by name.

No one at Vale's office in Rio de Janeiro was available to comment.

The dispute over royalties has sparked worries among Vale officials that the company's license to explore for the mineral in Carajas, the world's biggest iron ore mine, could be revoked, Folha reported.

Vale Chief Executive Roger Agnelli and Mines and Energy Minister Edison Lobao have discussed the issue in recent days and might meet in Brasilia for talks, Folha added.

The royalties dispute could reignite tensions between Agnelli and the government. According to the accounts of people familiar with the situation, some political leaders sought to push Agnelli out of the CEO job during the administration of former President Luiz Inacio Lula da Silva.

Some of those officials claimed at the time that Vale ought to invest more in industries such as steelmaking and infrastructure, a move that could put Vale at the center of a conflict of interest with its biggest clients -- steelmakers.

President Dilma Rousseff's administration and Congress are considering changes to the mining law, including higher royalty payments and tougher oversight.

Vale is a former state-run company that was privatized in the 1990s, though the government still retains control of the firm's voting shares through the state development bank and state-linked pension funds. ($1 = 1.645 real) (Writing by Guillermo Parra-Bernal and Inae Riveras; editing by John Wallace, sourced Thomson Reuters)