Bringing The Battery Value Chain To Brazil: A Transformational Little Piece Of Legislation

Financing Challenges in Brazil

Financing new capex intensive projects in Brazil has long been a complex undertaking. Domestic interest rates have historically been substantially higher than those available in international debt markets. Today, Brazilian corporations face average bank loan rates exceeding 20% per year, driven by a policy rate (Selic) hovering around 15% and additional bank markups. By comparison, new corporate loans in Europe are priced between 3%–4%, and in the United States between 6%–7%.

This high-interest environment is more than a drag on investment. For sectors that must integrate into global supply chains, such financing costs can render projects altogether unbankable.

Pre-Export Financing: A Limited Solution

Brazilian exporters have traditionally relied on so-called pre-export financing (pre-pagamento de exportação) to access international debt markets. This mechanism allows exporters to get foreign loans and service them free of withholding tax.

However, the structure has a critical limitation: it is only available to businesses directly engaged in exports. Companies that form part of an export-oriented supply chain but operate domestically are excluded. This created a preference bias for miners to sell their ore abroad rather than refine it domestically, discouraging investment in local refineries and battery materials production.

If Brazil is to develop an onshore battery value chain, this financing gap must be addressed. The sector is increasingly characterised by disaggregation: separate entities handle mining, refining, precursor production, component manufacturing, and ultimately battery cell and pack assembly. Vertical integration is rare. Without financing solutions for each stage, Brazil risks losing opportunities to anchor critical parts of the chain domestically.

A Discreet but Transformational Piece of Legislation

In November 2025, the Brazilian Federal Ministry of Mines and Energy issued "Portaria Normativa MME nº 120", a discreet but transformational ordinance. It introduced eligibility for financing through so-called "Incentivised Bonds" for projects producing materials essential to battery manufacturing, including:

• Battery-grade lithium carbonate, lithium hydroxide, cobalt sulphate, and nickel sulphate
• Battery-grade copper foils
• Magnet-grade rare earth oxides, chlorides, metals, and alloys

Where projects include an upstream mining component, that component can also be financed through "Incentivised Bonds", subject to a cap of 49% of the total financing proceeds, aimed at ensuring the focus remains on value-added processing.

What Makes Incentivised Bonds Attractive?

The defining feature of Incentivised Bonds is their exemption from withholding tax on interest payments. For project developers, this alone can make a decisive difference in the economics of a financing package. Importantly, the bonds can be issued in major foreign currencies such as US dollars or euros, and they can be governed by foreign law — New York or English law being the most common choices. This flexibility means that international investors can participate under familiar legal frameworks, reducing friction and increasing confidence in the instruments.

Another advantage is structural simplicity. While Brazilian law imposes certain eligibility requirements to ensure that the financing is genuinely directed at qualifying projects, these requirements do not dictate the issuance structure itself. In practice, this allows sponsors to adopt almost any formats, from Rule 144A/Regulation S offerings to more or less streamlined private placements — for example, it should be possible to do a private placement with a club of lenders of unlisted notes, on the basis of documentation very similar to that of a regular project finance loan agreement and minimal additional administrative costs.

There are, however, limits to the benefits. The withholding tax exemption applies only to interest payments. Commissions and fees associated with the financing — such as placement, arrangement, or commitment fees — remain subject to tax. This stands in contrast to Brazil's pre‑export financing regime, where the exemption extends to such commissions and fees.

Implications for Brazil's Battery Value Chain

This ordinance directly enhances the bankability of projects refining critical minerals and processing rare earth elements. By unlocking access to cheaper foreign debt, it incentivises domestic refining and processing, potentially redirecting materials toward Brazil's own battery industry rather than export markets.

The measure is a significant step forward in developing an onshore battery value chain, from mining through to precursor production. Yet, there is room for improvement. For example, the Brazilian government should consider extending eligibility for the use of "Incentivised Bonds" further downstream to include production of active material precursors and battery components. Less likely as it would require legislative change, it would also be helpful if the withholding tax exemption to commissions and fees was extended to cover commissions and fees, aligning "Incentivised Bonds" with pre-export financing.

Conclusion

Portaria Normativa MME no. 120 may not have made headlines, but its implications are far‑reaching. By opening the door to "Incentivised Bonds" for projects in the battery materials space, Brazil has taken a meaningful step toward bridging a financing gap that was hindering domestic investment. For sponsors and investors, the ordinance offers a practical route to access international debt markets on competitive terms, making projects that once seemed unbankable suddenly viable.

The measure also signals a broader policy intent: to anchor more of the battery value chain within Brazil rather than allowing critical minerals to flow abroad for processing. If successful, it could reshape investment patterns, encourage the development of local refining and precursor production, and position Brazil as a relevant player in the global battery value chain. This "little piece of legislation" could prove transformational.