Oil Royalties for Rio Appear Secure

By Samuel Elliott Novacich, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The tension surrounding distribution of an estimated R$7.9 billion in annual oil revenues appears to have abated after a meeting on Thursday, June 30th, between governors from oil producing states of the southeast, and governors from the north and northeast. The non-oil producing states have rescinded many former demands in favor of an agreement that will distribute oil wealth throughout the nation, while reserving a greater percentage for states involved in extraction and refinement.

Off-shore oil royalties appear secure for the oil producing states of Brazil's southeast, Rio de Janeiro, Brazil, News

Off-shore oil royalties appear secure for the oil producing states of Brazil's southeast, photo by Arquivo/ABr.

Key participants in the meeting included governors from Rio de Janeiro and Espírito Santo, Sérgio Cabral (PMDB) and Renato Casagrande (PSB), respectively, São Paulo’s State Secretary of Finance Andrea Calabi, and governors from Pernambuco, Eduardo Campos (PSB) and Sergipe, Marcelo Déda (PT).  This was not the first meeting to discuss the issue; the governors had also met last month at the Palácio da Alvorada upon invitation from President Dilma Rousseff, yielding few results.

Campos and Déda played an important role in negotiations early on, and were behind a letter to the federal government signed by the governors of sixteen north and northeast states listing ten “pre-requisite” demands before agreeing to any revenue distribution plan.

Recognizing a lack of support and political leverage in attaining these demands, north and northeast governors have conceded to a redistribution plan that will allocate a greater portion of royalties to production states of the southeast.

“We’ve retreated and agreed that there will be different treatment for producer states,” said Campos. Governor Déda also lamented the decision, conceding, “We wanted the equal and immediate sharing [of oil revenues]. We knew this isn’t possible.”

In addition to guaranteeing favorable treatment to oil producing states, the agreement designates pre-salt revenues towards the areas of education, health, and the environment, an idea recently proposed by Wellington Dias (PT), Senator and former Governor of the State of Piauí.

Sérgio Cabral (PMDB) with President Rousseff, before the October elections in 2010, Rio de Janeiro, Brazil, News

Sérgio Cabral (PMDB) with President Rousseff, before the October elections in 2010, photo by Roberto Stuckert Filho/PR.

Though exact figures have not been determined, states and municipalities not involved in oil production will still receive royalties. The agreement also gives an immediate monetary advance on pre-salt royalties to non-producing states, to be supplied by a proposed federal fund of existing oil and alternative energy revenues.

An earlier plan, vetoed by former President Luiz Inácio Lula da Silva, would have distributed 52.5 percent of total oil royalties to all of Brazil’s 26 states and Federal District, allocated a full 40 percent of revenues to the federal government, and reserved only 7.5 percent for oil producing states.

The law was extremely unpopular in the southeast of the country, where in early March 2010 the so-called Ibsen Amendment brought 150,000 people marching in protest through the streets of Rio de Janeiro.

The exact distribution of billions of reais in royalties has yet to be decided, though Rio de Janeiro has consistently lobbied for a majority of oil revenue wealth for their role in extraction and refinement, beyond the argument that the money is needed for hosting the 2016 Olympic Games.

5 Responses to "Oil Royalties for Rio Appear Secure"

  1. michael royster  July 6, 2011 at 11:01 AM

    The plan agreed upon by the governors effectively lets existing contracts remain as is, with future contracts to be covered by the Lula proposal. The problem is that future production is a long way down the road, and the north and northeast states want cash now. The plan provides that the federal government will begin to advance something now, but according to today’s news, the federal treasury has already nixed that part of it. So the deal may not be done after all.

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