Brazil & Southern Cone - February 2013 (ISSN 1741-4431)

On 7 February a Brazilian government source told Reuters that Brazil’s mining giant, Vale, was still awaiting an official response from the Argentine government to its request for additional fiscal incentives in order to go ahead with its planned US$6bn potassium mine project in the Argentine province of Mendoza.

Argentina’s President Cristina Fernández said the Río Colorado mining project was of “strategic importance” when it was first announced in July last year. Vale estimates that the Río Colorado mine has 430m tonnes (t) of potassium and could produce some 4.35m t a year. With production scheduled to begin by 2014, Argentina could become the fifth largest potash producer in the world overnight. (Potash is potassium derivative widely used in fertilizers).

In December 2012 Vale announced that it was revising its investment plans for 2013, given a “shift in the international markets towards lower prices for some minerals. Vale’s net profits fell 66.2% year-on-year in 2012. In January Vale notified the Argentine government that it was indefinitely suspending the Río Colorado project while evaluated the “variations in the economic fundamentals” in Argentina.

In particular, Vale expressed concerns about higher production costs in Argentina on the back of high inflation (according to local economists, Argentina’s ‘true inflation’ is running at around 25%); and of the comparatively high value of the peso, which is artificially propped up by the central bank.

According to Reuters, Vale asked Argentina for value added tax (VAT) exemptions and for some leeway in the country’s exchange rate controls as pre-conditions for re-starting the project. Reuters was unable to get confirmation on this from Vale, but an unnamed source in Brazilian government confirmed this, adding that Vale would wait until 28 February for a response.

Vale’s operations in Argentina are of interest to the Brazilian government led by President Dilma Rousseff as Brazil currently imports 90% of all the fertilizers used in the county and is keen on sourcing cheap potash from its main partner in the Southern Common Market (Mercosur).

The government source told Reuters that Vale had already invested more than it initially foresaw in the project, with US$1.8bn spent on the initial physical infrastructure and so is not prepared to go over budget. The 28 February deadline could be extended on the assumption that President Rousseff might discuss the matter with President Fernández at their next bilateral meeting, which had been scheduled for early March in Argentina, but was cancelled following the death on 5 March of Venezuela’s President Hugo Chávez (1999-2013).

Teachers’ strike leaves 7m students without class

Teachers in Argentina began a 48-hour strike on 25 February, delaying the start of the academic year for an estimated 7m students, the majority in the heavily populated province of Buenos Aires. Teachers grouped under the following unions are on strike in demand of a 30% wage increase and a increase in federal government education expenditure to 8% of GDP, from an estimated 6.5% currently: Confederación de Trabajadores de la Educación de la República Argentina, Unión de Docentes Argentinos, la Asociación de Magisterio de Enseñanza Técnica, la Confederación de Educadores Argentinos and Sindicato de Docentes Privados.

The government led by President Cristina Fernández has offered a 22% increase - in line with private inflation estimates – which would put teachers’ basic salaries at A$3,248/month (US$681). Teachers are also demanding better career paths and working conditions as well as improved facilities for schools.