(2015.11) Muddy Business: How Corporate and State Failures Led to the Environmental Disaster in Mariana, Brazil

Daniel Cardoso | 20th November 2015

The “tsunami of mud” released due to the breach in two dams at an iron ore mine in Mariana, Brazil was not an accident, but the tragic consequence of years of aggressive extractivism, “China Fever”, and flawed public policies.

The recent collapse of two dams at an iron ore mine in Mariana, Brazil, on November 5th, has caused one of the worst environmental disasters in the country’s history. This is the conclusion of president Dilma Rousseff, who compared the damage to the 2010 oil spill by BP in the Gulf of Mexico. The full scale of the environmental tragedy is still unclear, but scientists from several institutions suggest that the large amount of mud released (the equivalent of 25,000 Olympic swimming pools) has irreversibly damaged the region’s ecosystem. This catastrophic damage includes the Doce River, which is the habitat for many species, supplies water to several communities and it is extensively used for fishing activities. Besides the environmental impact, the mud unleashed by the dams killed four people, left 22 other missing, and destroyed an entire historic village.

Samarco, a joint venture between Vale (Brazil’s largest mining company) and BHP (an Anglo-Australian multinational mining company), operates the iron-ore mine where the two dams were located. The iron ore extracted by Samarco is used to produce pellets (hard spheres) that help improve the performance of steel plants. The company has substantially increased its production in recent years. In 2014, Samarco concluded a large expansion of its infrastructure so that production could reach 30 million tons of iron ore per year. As a result, production grew by 15% in 2014 and 25% in the first nine months of the current year when compared to the previous year.22526418164_7d9ea23fab_z(Mariana, Brasil – Photo credit: Senado Federal, Brasil | Flickr )

This massive increase of production in recent years has been mentioned as one of the reasons for the burst. The two dams were used to keep the waste of the mine but, since there were no major reinforcements of the two dams, it is likely that the infrastructure was just not enough to hold it all. According to Carlos Eduardo Ferreira Pinto, the environmental prosecutor for the Minas Gerais state: “What happened was a mistake in the operation and negligence in the monitoring”. In 2013, Pinto conducted an assessment of the quality of Samarco’s infrastructures and concluded that they presented risks of destabilization and erosion. His recommendation, therefore, was against the renewal of the company’s license (a suggestion that was dismissed by state regulators). For Marcio Zonta, the representative of the NGO, “Movement of Mining Victims”, the fact that companies are the ones responsible for monitoring the safety standards of their infrastructures represents a conflict of interests since companies have to choose between production expansion and safety measures. According to Zonta, given the pressure to generate revenues, companies tend to prioritize the former over the latter.

To understand Samarco’s conduct it is necessary to take into consideration the role that extractivism has played in Brazil’s economy during the last fifteen years. Extractivism is defined by Alberto Acosta, Ecuadorian economist and politician, as “those activities which remove large quantities of natural resources that are not processed (or processed only to a limited degree), especially for export”. The economic relevance of Brazil’s mining companies has increased due to China’s demand for commodities, ever since the beginning of the 21st century. Urbanization and industrialization in China amplified the need for steel, requiring more imports of iron ore. Between 2001 and 2014, Brazil’s exports of iron ore to China registered nearly a 2500% growth. During this period, Samarco became Brazil’s 10th largest exporter, China absorbing 15% of all the company’s production. For Vale, one of Samarco’s owners, China is even more crucial. According to the company, in 2012, 49% of all its exports went to China. In order to meet Chinese demand, the company has continuously expanded its production, especially in Carajás, the world’s second largest iron ore mine, located at the heart of the Amazon forest. Since 2010, the company is Brazil’s largest exporter.

Carajas_Mine(Carajás Mine – Photo credit: NASA Earth Observatory)

Instead of taming these companies’ hubris, Brazil’s government has been either complacent or supportive of this conduct. Brazil’s exports of commodities to China (iron ore, but also oil and soybeans) have contributed to trade surpluses that were essential to fund the country’s budget. For this reason, Brazilian authorities have consistently supported the efforts of the companies involved in extractivist activities. Vale, Petrobrás (oil), EBX (oil, mining, and logistics) and others were identified by the government as “national champions”, that is to say, specific firms judged able to compete with the largest multinationals in global markets. BNDES, the country’s national development bank, was pivotal in this strategy: either by providing these companies with subsidized credit or by investing directly in them. For example, in 2008, BNDES agreed on a $3.11 billion loan to Vale so that the company could improve and modernize its infrastructure in Brazil. This was, according to BNDES’ president, the largest line of credit given by the institution to a sole company in Brazil’s history. The policy of supporting these companies sought to seize the opportunities raised by China’s demand for commodities as much as possible. However, this “China fever” contributed to create a culture in which the search for profit in international trade has become an absolute goal at the expense of cautious conduct – which could have prevented disasters like the recent one in Mariana.

Samarco, and by extension Vale, is not the first of these “national champions” to fall in disgrace.  In 2011, EBX filed for bankruptcy. Low levels of oil extraction, the 2008 economic crisis, and lower demand from China strongly hit the company and led to its downturn. As Vale, EBX had also benefited from state support. For example, for the construction of the Açu superport, the goal of which was to create a hub for the exports of oil and iron ore to China, BNDES gave LLX (a subsidiary of EBX) a $554 million loan and became one of its shareholders when buying $63 million-worth of its stocks in 2009.

All these cases can be understood as Brazil’s hangover after fifteen years of commodities extravaganza, which were further fueled by a strong “China fever”. Unfortunately, the country has come to realize that consequences of this period are more tragic than one could ever expect. The tragedy in Mariana came two weeks after a major wildfire devastated some of the last Amazonian forest left in the northern state of Maranhão, including that within the territory of an uncontacted tribe.

Dealing with the negative aspects of extractivism is not a major challenge only for Brazil, but also for other states. Indonesia, for example, has been grappling with major fires for several months. These are thought to be the result of timber and farming companies’ actions. In order to clear the land so that monocultures of pulpwood, timber, and palm oil can be planted, companies start fires. However, this year, these have gotten out of control, leading to a major environmental disaster. In three weeks the fires have released more CO2 than the annual emissions of Germany.

Aggressive and irresponsible extractivism must be condemned and it is up to policymakers, businessmen and civil society alike to find and implement measures that effectively curb corporation greed, improve public policies, and protect populations and the environment so that tragedies like the one in Mariana do not happen again. In the short-term, better governance of Brazil’s mineral sector is undoubtedly a priority. This include stronger public oversight, better planning, and more investment in both human resources and know-how. Nevertheless, in the long-term, the biggest challenge is how to reduce the influence of extractivism in Brazil’s economy. This will require renewed public and private efforts to invest in economic sectors that can promote sustainable results throughout society and not only business endeavors. The recent investments in green economy are a promising sign, but more will have to be made so that Brazil’s economy can go beyond its over-reliance on extractivism.