By Lucy Jordan and Leo Byrne, Contributing Reporters

RIO DE JANEIRO, BRAZIL – After some five hours of impassioned speeches and spirited debate, Brazil’s Congress early Thursday morning voted to overturn President Dilma Rousseff’s line-item vetoes of a new oil royalties bill, under which Rio de Janeiro state and other oil-producing states will lose billions in revenue.

Oil Royalties, Rio de Janeiro, Brazil News
During a session to vote on President Rousseff’s veto, deputies held placards that read “No to the Veto, Royalties for All” photo by Fábio Rodrigues Pozzebom/ABr.

In protest, Rio, which says its loss of R$3.1 billion will imperil preparations for the 2016 Olympics, ordered all state payments other than servers’ salaries suspended.

It was the first time congress had overturned a presidential veto since 2005, during Lula’s first term, and represented a rare display of non-partisanship, as deputies and senators came together across party lines to challenge the producing states’ bloc.

Rio, Espírito Santo and São Paulo have said they will challenge the decision to redistribute profits from existing oil contracts in the Supreme Court, setting the stage for what is likely to be a length legal battle over the constitutionality of breaking existing contracts.

In November Congress passed a new royalties bill to more evenly spread royalties paid for oil production from both future contracts – and existing contracts – between Brazil’s 27 states. President Rousseff passed the bill, but vetoed parts of the bill that would break existing contracts.

Congress’ decision to overthrow the veto might also be problematic for the country’s already entangled oil and gas sector. Further political delays will no doubt renew uncertainty for foreign oil companies looking to bid on new the pre-salt concessions, whilst also opening up the door to political backlash on future mining concessions.

Given that the alteration of existing contracts presents a substantial legal hurdle, the main producing states’ next step will be to take the bill before Brazil’s Supreme Court.

“What happened last night will simply initiate a huge battle in the Supreme Court, and in the end I have no doubt, this decision by the Congress today will be correctly overturned,” Roberto Schaefer energy planning expert at the Federal University of Rio de Janeiro told The Rio Times.

Under the new law producing states would see their share of the revenues drop from forty to twenty percent by 2019, although congress did not alter the president Rouseff’s provision that ten percent of the royalties should go towards education projects.

Read more (in Portuguese).

* The Rio Times Daily Updates feature is offered to help keep you up-to-date with important news as it happens.

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