Brazil: Heineken’s brewery in Brazil’s north-east subject of land dispute

The rights to spring water supplying an important Heineken plant in Brazil’s north-east are the subject of a legal dispute, in a case being closely watched by foreign investors in Latin America’s largest country, the Financial Times reported on August 31.

A local businessman, Maurício Brito Marcelino da Silva, is fighting a court battle with the government for the rights to mineral resources at the plant site in Alagoinhas, Bahia state, including the spring being used by Heineken.

“They [Heineken] will have to stop the factory or, if they want to continue using the water, they’ll have to sit down with Mauricio,” said a lawyer for the businessman on the court decision.

Heineken said it was not a party to the case and the dispute would not affect its operations in Alagoinhas.

Heineken bought the Bahia plant early last year as part of its $700 mln acquisition of the Brazilian operations of Japan’s Kirin, a deal that was seen as a vote of confidence in Brazil as it struggled to emerge from recession.

The deal made Heineken the second-biggest brewer in the country, which is the world’s third-largest beer market. Kirin had a 17 per cent market share, larger than all but AB Inbev’s local subsidiary Ambev.

Kirin had owned the Bahia plant since it acquired local brewer Schincariol for $3.9 bln in 2011. The Japanese company decided to sell out of Brazil after performance was hit by the country’s economic downturn.

Lawyers said the 20-year-old dispute between Mr da Silva and the government over the spring was an example of the kind of legal tangle that can await investors in Brazil.

Mr da Silva requested the rights to explore a 2000-hectare area for phosphate near the town of Alagoinhas in 1996. But the National Department of Mineral Production (DNPM), allowed him rights to just three-quarters of the total area, saying the remainder was in an urban zone.

When Schincariol won rights to build the brewery and bottling plant in 1997 on the part of the land not controlled by Mr da Silva, he sued the DNPM.

The government has argued that the urban zone was necessary to protect the town from the pollution associated with mineral exploitation and defended the construction of the drinks plant as being in the public interest, creating jobs and bringing in investment.

After a long legal battle, Mr da Silva claimed that an appeals court in 2015 awarded him the rights over the spring, saying it was outside the urban zone.

But the government’s attorney-general in a report in late July rejected his interpretation of the decision, arguing that the fact the spring was outside the urban zone still did not give him rights over its use. These belonged to Heineken’s drinks plant, given that the factory was in the public interest.

Mr da Silva is now trying to have his interpretation of the decision enforced by the courts.

“The door is open,” Mr da Silva said, of his willingness to negotiate with Heineken if the brewer approaches him.

But Heineken said it was not party to the case and possessed all the licences and authorisation necessary for its activities. It said it did not envisage the case affecting its operations.

“Heineken Brazil informs that its plant in the city of Alagoinhas has been in operation more than 20 years in conformity with all of the current legislation, generating jobs and income for the Bahian population,” the brewer said.

Heineken in July said its Brazilian unit was expanding faster than expected, with the former lossmaking Kirin operation now “reporting positive numbers”, albeit lower than the rest of the international group.

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