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Brazil’s Congress to Vote on Oil Royalties Bill

Rio de Janeiro oil platform

Oil-producing Rio de Janeiro could see fewer royalties. (Image: Ministério do Planejamento)

November 02, 2012

On November 6, Brazil’s Congress will vote on a contentious petroleum royalties bill that aims to shift funds from oil-producing states to other areas of the country. The legislation must pass before the National Petroleum Agency begins issuing new contracts for oil drilling rights. In September, Energy Minister Edison Lobão announced the first sets of concessions in five years will take place in 2013. The auctions include onshore and offshore blocks, as well as the first set of contracts in the pre-salt region. But the bill faces an uphill battle in Brasilia, where leaders from wealthy oil-producing regions oppose the legislation and those from non-producing areas favor it.

In October 2011, the Senate passed the bill changing royalties distribution, now to be considered in the House. For existing oil concessions and future contracting outside of the pre-salt area, the bill increases royalty distribution for non-producing areas. Those states and municipalities would see a sizeable jump from 8.75 percent to 40 percent. Meanwhile, oil-producing states’ royalties would decrease from over 26 percent to 20 percent, and producing municipalities’ royalties from 26 percent to 17 percent. The federal government would receive 20 percent—a 10 point drop.

The bill also establishes the division of funds under a 2010 production-sharing law for the pre-salt deposits and so-called “strategic” areas. (The 2010 law gives the president power to determine these strategic areas, considered important to “national development” and “characterized by low-risk exploration and high potential for oil production.”) Companies extracting oil under this arrangement will receive a portion of petroleum while untapped reserves belong to the state. For this regime, the federal government would receive one-fifth of royalties, producing states and municipalities would receive 22 and 5 percent respectively, and non-producing states and municipalities would receive 51 percent.

But President Dilma Rousseff’s congressional leader, Arlindo Chinaglia, wants to change the bill, proposing that 100 percent of pre-salt funds go to education, which would raise $7.8 billion in 2013 alone. His revised bill would not include any changes to royalty distribution for existing concessions.

Governments in oil-producing states—particularly Rio de Janeiro and Espirito Santo—that benefit from oil royalties, vehemently oppose changing funding distribution. Espirito Santo’s governor threatened to bring the law before the Supreme Court should it pass. Last year, a protest against the royalties bill drew 150,000 people in Rio. Furthermore, a Rio congressman disrupted royalty discussions on the floor of Congress last November to demonstrate against the bill. Rio Governor Sergio Cabral said the bill could compromise the upcoming World Cup and Olympics, as well as pension payments. The president of Rio’s Order of Attorneys went as far as saying the bill was an “act of violence” against the state.

Rousseff, too, has expressed opposition to changing existing royalties distribution. But leaders outside of producing regions support the Senate’s version of the bill, and governors from every state except Rio and Espirito Santo plan to appeal to the president not to veto the bill’s royalty changes. “Brazil is a country of continental proportions, where regional differences exist and happen due to the large concentration of wealth in a few states. As representatives from states in less-developed regions, we have a legitimate concern with decentralizing wealth in this country,” said Goias Senator Lúcia Vânia.

Learn more about energy issues in the hemisphere from the Energy Action Group.

In other hemispheric legislative news:

  • On October 31, Argentina’s lower house of Congress passed a law lowering the legal voting age from 18 to 16. The bill passed the Senate in early October. With the bill’s passage, around 1.5 million Argentines between 16 and 18 years old will be able to vote.
  • In Colombia, Congress will begin debating a bill next week to make illegal mining a criminal offense with harsher punishments. “Today, the only thing we can do against illegal mining is to punish [offenders] for causing serious environmental damage,” President Juan Manuel Santos said. Illegal mining helps fund guerrillas and other criminal groups, and a 2010 study found that 86 percent of gold mined in Colombia in 2010 came from illicit mining. 
  • Guatemala’s Congress passed an anti-corruption law on Tuesday a decade after it was introduced. The law introduces punishments for corruption-related crimes, such as influence peddling and kickbacks, to the country’s penal code.