200,000 Protest in Rio for Oil Royalties

By Ben Tavener, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – An estimated 200,000 people have taken to the streets of Rio in a mass protest demanding Brazilian President Dilma Rousseff veto a bill which would change how oil royalties are shared throughout the country. The bill is designed to take revenue away from the oil-producing states of Rio, São Paulo and Espírito Santo and redistributing it in part to non-producing states.

Rio government officials argue the state would lose R$77.3 billion (US$37.2 billion) by 2020, and R$2 billion (US$1 billion) in 2013 alone, if the bill passes.

President Rousseff has until November 30th to decide whether she will ratify the bill as it stands, approved by both the Senators last year and the Deputies last week, or veto it partially or in full.

If the new bill is passed, oil producing states’ royalties will be cut from the 26.25 percent to twenty percent for states. However for municipalities, it would be cut to fifteen percent in 2013, and to four percent by 2020, according to O Globo newspaper and of 92 municipalities in Rio state, 87 currently receive the royalties.

The federal government paid royalties of R$12.99 billion in 2011, up 31 percent on 2010. Rio state received the biggest slice – R$2.46 billion – up from R$2.03 billion. Producing states argue they are entitled to the royalties as they foot the bill – both financially and ecologically – for offshore oil exploration.

One of the biggest bones of contention is that the bill would allow the government to rewrite already-signed contracts. Rio governor Sérgio Cabral told crowds this would set “an extremely dangerous precedent.” He said he is confident the president would veto the bill, but that Rio would appeal if not.

The “Veta, Dilma!” (Veto it, Dilma!) protest also saw Rio mayor Eduardo Paes and some famous faces, including actress Fernanda Montenegro, rallying crowds. Singer Fernanda Abreu said Rio had allowed Brazil to “overcome decades of economic stagnation” and given the country “greater capacity to attract public and private investments.”

Many state workers were given the opportunity to join the rally instead of going to work, and free transportation brought in others from around the state to boost numbers. 

Organizers argue that public services would be hard hit, particularly education, and in a further attempt to pile pressure on the president, Cabral said the bill would compromise not only the venues for the 2014 World Cup, but the 2016 Olympics as well.

Also at stake according to state representatives are the major infrastructure projects associated with the events, such as the extension of Rio’s metro system and extra police officers.

FIFA Secretary General Jérôme Valcke, who was in Rio inspecting the Maracanã stadium, did not appear phased by the threat, retorting that the city had “no option but to be ready” for the World Cup.

American expatriate Jim Kappeler, who works in the Rio oil industry, questions whether the estimated losses represent a realistic outlook of what can be expected from pre-salt reserves in the coming years, the extraction of which is experiencing understandable delays due to the complex nature of the infrastructure required.

“The royalties issue should be something resolved internally by the government; it is certainly not something that worries [multinational] oil companies. The focus should now be on getting foreign companies back in Brazil to invest capital and technical knowledge and prioritize getting pre-salt working.”

Mr. Kappeler says this will be harder now after U.S. oil giant Chevron was so publicly chastised in 2011.