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Brazil approves royalties bill to allow new oil bidding

BY GERALD JEFFRIS and JEFF FICK

BRASILIA -- Brazil' s lower house has given final approval to a bill revising the distribution of oil-sector royalties and pave the way for a long-delayed resumption of bidding for the country' s offshore-oil-exploration areas as early as next year.

The house rejected a version of the bill directing more resources to oil-producing states in favor of text crafted in the country' s senate offering more revenue to nonproducing states.

Under the senate version, royalties will be distributed to states and municipalities according to criteria of the country' s FPE and FPM tax revenue distribution funds. Another portion of the royalty revenue will be directed to a social fund administered by the federal government.

Lawmakers said the legislation was expected to direct more than 20 billion Brazilian reais ($9.9 billion) in royalty revenue toward needed public sector spending and investment within the next decade.

The approval of the bill Tuesday was the remaining element from a broad oil sector reform package needed to open further exploration of the country' s recently discovered and massive "pre-salt" oil reserves.

With the approval of the senate version, the legislation will be sent directly to President Dilma Rousseff for signature into law, and allow the government to plan for sale of some key offshore oil concession contracts as early as April. Brazil last held a bidding round for oil concessions in December 2008.

Following the approval, however, representatives from some large-scale oil-producing states such as Rio de Janeiro and Espirito Santo, maintained standing threats to contest the legislation in court, alleging it could reduce their revenue by directing royalties from existing oil exploration contracts to nonproducing states.

"This bill represents the confiscation of resources guaranteed under the constitution," said Rio de Janeiro lawmaker Jandira Feghali, adding that if the question isn' t resolved "it will be taken to the supreme court."

Under Brazilian rules, President Rousseff has authority to carry out line-item vetoes on legislation passed in the country' s congress. However, government congressional allies said after the vote that the president doesn' t plan to veto any of the bill' s provisions.

Political analysts, meanwhile, said possible court challengers were unlikely to hold up new bidding rounds, as they would probably apply to royalties from existing concession contracts and not to new oil areas.

Dow Jones Newswires

11/07/2012

 

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