By Anthony Boadle and Alonso Soto
BRASILIA, Nov 9 (Reuters) - Mining companies often complain endless red tape makes it hard to do business in Brazil but prosecutors and environmentalists say burst dams at an iron ore mine that triggered massive flooding last week point to gaping lapses in regulation.
The floodwaters and mudflow killed at least two people and another 25 are still listed as missing in a disaster that came two years after a study requested by a prosecutor warned the dams in the mineral-rich state of Minas Gerais could collapse.
"It was evident this dam was risky," Carlos Eduardo Pinto, a state prosecutor who probes the mining industry, told Reuters, referring to the first dam that gave way, leading to the rupture of another.
Pinto is investigating whether a tailings pond, a reservoir for water with mine waste held by the dam, was too full.
The dams burst on Thursday at a mine operated by Samarco, a joint venture between BHP Billiton Ltd BHP.AX
BLT.L , the world's largest mining company, and Vale SA VALE5.SA , the biggest iron ore miner. urn:newsml:reuters.com:*:nL1N1330E3
In 2013, when Samarco was seeking renewal of its operating license, Pinto commissioned a study that found a design flaw in the tailings pond. It warned that an embankment could give way if it became saturated by water.
The Instituto Pristino, an environmental group staffed by researchers from the Federal University of Minas Gerais, recommended the company conduct a dam-break study and draw up a contingency plan in case it burst.
But the state licensing agency ignored the recommendations and renewed the mine's license a week after it was published, in October 2013.
The state environment office in charge of the licensing agency said in an email the report recommended only industry standards. It did not say whether it asked the company to enforce those standards before renewing the license, though it did say an independent audit of the dam in July this year concluded the structure was stable.
Prosecutors are investigating whether increased production at the mine might have affected the volume in the reservoir. Vale has said the Samarco mine increased output last year by 37 percent with the addition of a new iron ore pellet plant.
Pinto said the company opted to accommodate the growth by raising the dam wall instead of building a new one, which would have been more costly, and was still working on it when the dam burst.
Samarco confirmed it was conducting expansion work on the dam but said it could not yet determine a cause for the rupture. A company executive said at a news conference over the weekend that Samarco had never seen the 2013 report.
On Sunday, Minas Gerais Governor Fernando Pimentel sought to dispel any flaw in the licensing process. "I don't think this accident happened due to any mistakes in the environmental licensing," he said.
REGULATION
As governor of a state that is home to hundreds of mines accounting for about 5 percent of the local economy, Pimentel is an advocate for speedier licensing. Since taking office in January, he has worked on a bill, now in the state legislature, that seeks to expedite major mining projects.
Though an aide to the governor said the state may have to rethink the fast-track approval, it is part of a drive for less regulation of an industry that is one of Brazil's biggest and a leading source of export revenue. Industry advocates say excessive regulation causes delays and cost-overruns.
A $14 billion Minas-Rio iron ore mine under development in Minas Gerais by Anglo American PLC AAL.L is the biggest-ever foreign investment in Brazil and costs more than tripled during the seven years it took to get required licenses. urn:newsml:reuters.com:*:nL2N0RV2DG
But regulators and environmentalists warn against expediting the processes, especially considering a history of dam ruptures at other tailing ponds in recent years and inadequate government responses to them.
Experts say dam catastrophes, and the costs associated with cleaning them up, are growing worldwide because regulations and safety practices have not kept up with modern technologies that enable mega-projects on a scale previously not possible.
Brazil, a mining industry locus, has had numerous and repeated disasters, especially in the so-called "iron quadrangle" in which the Samarco mine operates.
In 2001, when an iron ore tailing dam in Nova Lima burst and five people were killed, Minas Gerais only had four geologists and four mine engineers to coordinate a response that included inspecting hundreds of active mines and an unknown number of deactivated facilities.
Even so, the state in 2007 decentralized licensing to nine regional offices,
Last year, another tailings dam burst in the town of Itabirito, killing three workers. In response, Pinto, the state prosecutor, set up a task force and identified more than 200 dams that needed safety improvements.
The accident last week has already sparked angry calls by federal lawmakers to include tougher safety and environmental controls in a mining code proposal stuck in Congress for years. Tellingly, the proposal, drafted at the height of a recent commodities boom, focused on royalties and raising government revenues, making no mention of environmental safeguards.
"This accident will bring consequences," said Senator Delcidio Amaral, an influential politician in the ruling Workers' Party, suggesting it could accelerate a vote on the proposal and push to include stricter federal rules.
Klemens Laschesfki, a professor of geoscience at the Federal University of Minas Gerais, said the focus on economic growth over regulatory rigor led to consequences that "should surprise no one."
At Samarco, he added, "The risks were known to all, from the company to the politicians. The government approved it and just hoped nothing would happen."