New bill on oil royalties distribution causes controversy in Brazil

11:23, March 19, 2010      

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The Brazilian House of Representatives approved a controversial new bill recently which proposes changes in the distribution of oil royalties from underwater oil fields.

The so-called Ibsen bill, proposed by Representative Ibsen Pinheiro, opposes a government proposal tabled last year.

The bill is now waiting to be discussed in the Congress. President Luiz Inacio Lula da Silva said Thursday that the matter was going to be solved by the Congress, and he wouldn't interfere.

"I did my part. I proposed a bill which was the result of an agreement. The ball is now in the congress' court," he said.

Under the current regulation, a large part of the Brazilian oil royalties is granted to the state from which the oil was extracted, after some compensation is paid to the nation.

Last year, the Brazilian government proposed new rules on distribution of the oil royalties, which would reduce the share of royalties granted to the producer states and grant more royalties to an education fund which has yet to be created. The share granted to other states would also be increased.

The measure would affect only the areas which had not gone through a public bidding process. The royalties' distribution in the areas which are already in production or have undergone a bidding process would not be changed.

However, Representative Pinheiro presented a different bill, under which the oil royalties are to be divided equally among all Brazilian states.

The bill, which was approved by a landslide on March 10, includes the areas which have already undergone biddings. This implies a massive loss of royalties collection for the producer states.

The states of Rio de Janeiro and Espirito Santo, which accounts for about 90 percent of Brazil's oil production, would be the most affected by the Ibsen bill. In Rio's case, the losses would reach five billion reais (2.8 billion U.S. dollars) a year, which would have a significant impact on the state's economy.

On Wednesday afternoon, about 150,000 people gathered in Rio de Janeiro to protest against the Ibsen bill. Politicians of both Rio and Espirito Santo states joined forces to protest what they consider great injustice against their states.

The Ibsen bill will now be voted on by the Senate. But given the uproar the bill has already caused, some government officials believe it will be modified and returned to the House of Representatives to be voted on again.

If the bill is approved, it will have to be ratified by President Lula, who has the power to veto it. Lula denied on Thursday that he had already decided to veto the Ibsen bill, but admitted that he will have to study the bill carefully and check whether the contents differ from the proposal he sent to the Congress last year, which foresaw more royalties to the producer states.

Additionally, some legal experts believe the Ibsen bill may be blocked by the Federal Supreme Court because it goes against Article 20 of the Brazilian Constitution, which foresees compensations to the producer states.

It is not known when exactly the Senate will vote on the Ibsen bill. There are reports that the bill will only be voted on after the presidential elections, in October.

The two main presidential candidates have already expressed their opinions on the matter. Sao Paulo's Governor Jose Serra, the opposition's most likely candidate, said though the entire country should benefit from the revenues of oil exploration, that could not be done by ruining the producer states.

Chief of Staff Dilma Rousseff, the ruling party's pre-candidate, said the government's position is that all states should receive the oil money, but the producer states must receive extra compensation.

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