Brazil's Congress passes bill to redistribute oil royalties

Published November 07, 2012


Brazil's Congress has passed a bill that would reduce the proportion of royalties that accrue to the state and municipal governments of oil-producing states, while distributing more of those revenues to other states.

The Senate had already passed the legislation and the lower house followed suit Tuesday with a vote of 286-124.

The bill mainly affects the southeastern states of Rio de Janeiro and Espirito Santo because 80 percent of the country's proved reserves come from fields located in marine basins off their coasts.

Under the current regulatory framework, those states receive the vast majority of the royalty revenue from those fields.

Oil-producing states and municipalities could lose nearly $4 billion annually in royalties from existing and future oil fields as of 2013 if President Dilma Rousseff signs the new distribution arrangement into law, according to press reports.

The lower house rejected a government-backed amendment to the bill that would have allocated part of the oil royalties to an education fund.

Espirito Santo Gov. Renato Casagrande said prior to the vote that the oil-producing states plan to challenge the legislation on constitutional grounds.

Rio de Janeiro authorities, for their part, have organized mass marches in recent years against the planned changes to the distribution arrangement, saying they would put a major dent in the state's budget.

The bill also would raise royalties on future oil output in the recently discovered pre-salt region, so-named because it is located far below the ocean floor under a shifting layer of salt up to two kilometers (1.2-miles) thick.

Distributed across roughly 160,000 sq. kilometers (62,000 sq. miles), that region is projected to hold tens of billions of barrels of light oil and could potentially transform the South American country into a major exporter of crude and derivatives. EFE