Rio Battles Over Brazil’s Oil

The debate over Brazil’s oil riches is heating up.

The lower house of Brazil’s Congress voted last week to split the portion of the country’s royalties from oil revenues that go to Brazil’s states equally among the states. The vote is part of a broad overhaul of the nation’s oil laws being undertaken due to huge offshore oil discoveries that occurred over the past three years. This vote came as an outrageous blow to the state government of Rio de Janeiro, Brazil’s biggest oil-producing region.

If the bill becomes law, Rio and other oil-producing states will only earn a fraction of the royalties they once expected. Rio’s annual oil revenue would fall to about $134 million from about $4.3 billion, state officials said.

Sérgio Cabral, Rio’s governor, is not giving up without a fight. Cabral called the vote in Congress a “lynching” and contended that it was unconstitutional. He said promised public works projects for the 2014 soccer World Cup and the 2016 Olympics in Rio could be endangered by a sudden drop in revenues, although the federal government has pledged to back Rio’s Olympic effort.

Gov. Cabral organized a large march through Rio’s streets on Wednesday afternoon to protest the move by Congress. Tens of thousands of people, many of them state employees who had been given the day off, showed up despite the heavy rains, with many arriving on buses from all over the state.

“No one has the right to take away that which nature has put within the limits of Rio de Janeiro,” Carlos Lupi, Rio’s labor minister, said in a speech at the march and rally.

The government is seeking to alter the Brazil’s oil laws to centralize control over future oil revenues in the federal government’s hands. The new region is estimated to hold more than five billion barrels of crude oil and could transform Brazil into a global oil power.

Although the bulk of the oil will not be drilled for least four years, President da Silva and his allies in Congress are pushing to get a series of four oil-related laws passed before Congress goes into recess in June or July.

The bills would attempt to make the Brazilian national oil company, Petrobras, the operator of all future oil discoveries from the new region, known as the presalt region. They would also include the capitalization of Petrobras, a stock issuance expected to be valued at more than $50 billion.

With what could be hundreds of billions of dollars at stake over decades, the proposed bills have become extremely contentious in Congress, where opposition politicians are seeking to stall a full vote on the bills until after the presidential election in October.

The proposals on oil reform and the issuance of stock in Petrobras came under a cloud last week when two members of Congress from states that do not produce oil, Ibsen Pinheiro and Humberto Souto, proposed the idea of equally distributing the portion of royalties from oil revenues that go to states and municipalities. This would include both past and future oil developments. The lower house approved the proposal 369-72.

The federal government receives about 40 percent of the nation’s oil royalties, and most of the rest currently goes to the oil-producing states.

Analysts said they expected that Mr. da Silva would eventually veto any bill that included a radical redistribution of royalties. However, faced with the presidential election in the fall, in which he is trying to transfer his huge popularity to his chosen successor, Dilma Rousseff, his chief of staff, the president has been treading softly on the proposed redistribution.

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Tags: brazil, de Silva, oil, petrobras, rio de janeiro, Sérgio Cabral