Oil Royalties Dispute Escalates in Brazil

Brazil’s Congress has overturned a veto imposed by the country’s president, Dilma Rousseff, on parts of an oil royalties bill, escalating a dispute only 16 months before Brazil is due to host the soccer World Cup.

The move prompted Rio de Janeiro, one of three major oil-producing states in Brazil, to protest by suspending all of its non-obligatory payments other than salaries to public employees and transfers to municipalities until Brazil’s Supreme Court can rule on the dispute.

The proposed new law aims to give the country’s non oil-producing states a fairer share of Brazil’s oil revenues, but reduces royalties received from existing production contracts. Rio de Janeiro estimates that it will lose between real (BRL) 3.1bn to BRL4bn (US$2bn) and the state’s governor, Sergio Cabral, claims that it could trigger a financial collapse.

Rio’s state government said that it had suspended a BRL82m payment due this week and a total of BRL470m would be withheld for this month. However, the announcement has had little immediate effect on Brazilian bonds, whose prices have held steady.

The new royalties legislation has soured relations between Brazil’s states and become one of the most divisive issues of Rousseff’s two-year-old presidency. It impacts mainly on Rio and Espirito Santo, with the two states accounting between them for about 80% of Brazil’s total oil production.


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