09.12.11 Menas Associates
Ruckus over royalties, again
An 'official' protest act was organised on 10th November by the governor of the
state of Rio de Janeiro, Sérgio Cabral , against a bill already passed by the Senate and pending in Congress that will
redistribute a large share of the royalties formerly due only to the
hydrocarbon
producing states.
The 27 states of Brazil as a whole stand to gain. The state of Rio de Janeiro
will lose. Some 150,000 people rallied in downtown Rio to put pressure on the
government. President Dilma Rousseff said as a candidate that, if elected, she would veto the reallocation of
royalties if Congress granted them to the non-producing states. In Congress,
however,
the mood is heavily in favour of redistribution.
Governor Cabral may perhaps be excused for his manipulation of public opinion,
since the stakes are very high indeed. Through to 2020 the state of Rio stands
to
lose R$125 billion. Instead of having the ICMS tax collected at the point of
origin of oil and gas production (mostly in the Campos basin, within the waters
of
Rio), the bill would levy the tax at the destination (elsewhere in Brazil).
The impact of the new legislation would be even more catastrophic for the 12
municipalities of the state in whose offshore waters hydrocarbons are produced:
up
to 74.5 per cent of their municipal revenues come from royalties.
While most oil and gas production in Brazil comes from Rio, São Paulo, and
Espírito Santo states, in whose territorial waters the Campos, Santos, and
Espírito
Santo basins lie, at least six northern and northeastern states may join their
ranks: Amapá, Ceará, Maranhão, Pará, Piauí, and Rio Grande do Norte. Others,
like
Alagoas, Amazonas, and Sergipe, show similar potential. The issue is therefore
one of overriding national interest. Rousseff intervened in mid-November to
postpone the Chamber of Deputies vote on the royalties issue to 2012. Thus,
oil-producing states like Rio will continue to enjoy their privileged access to
royalties
for a while. Rousseff prefers to let tempers cool as the issue risks splitting
the ruling coalition, which she cannot afford. For the government, other issues
take precedence and must be voted on before the end of this year. Bills on the
World Soccer Cup (Lei Geral da Copa), the federal budget, and DRU (the
reallocation of budgetary appropriations) are up first.
For more news and expert analysis about Brazil, please see Brazil Focus.
© 2011 Menas Associates