New Oil Revenue Distribution Plan Proposed

By Samuel Elliott Novacich, Contributing Reporter

RIO DE JANEIRO, BRAZIL – As the debate over distribution of oil revenues continues between state authorities and the federal government, north and northeastern states have requested a deadline to resolve the issue be set for July 13th. Workers’ Party (PT) Senator and former Governor of the State of Piauí, Wellington Dias, has proposed a plan that he claims will satisfy the country, especially those not producing petroleum and positioned to receive large percentages of oil revenue, while at the same time calming oil producing states of the southeast, who fear a possible forced concession of enormous sums derived from oil revenue.

The former plan, vetoed by former President Luiz Inácio Lula da Silva, would have distributed 52.5 percent of total oil royalties to all of Brazil’s 26 states and Federal District, allocated a full 40 percent of revenues to the federal government, and reserved only 7.5 percent for oil producing states.

The law was extremely unpopular in the southeast of the country, where in early March 2010, the so-called Ibsen Amendment brought 150,000 people marching in protest through the streets of Rio de Janeiro. The plans were especially unpopular in the face of hosting the 2014 World Cup finals and the 2016 Olympic Games in Rio, requiring immense investments.

Dias’ new plan shifts the percentages around yet again, awarding 26.5 percent of royalties to petroleum producing states of the southeast, though with the caveat of a ceiling on revenue collection. This is to not exceed just over a quarter of royalties collected by the states during the sixty months following approval of the law (predicted by the senator to be approximately R$9 billion).

Of the remainder, 40 percent would be allocated to the federal government, while 60 percent would be distributed to non-producing states. Dias’ plan also includes guidelines for spending, directing 40 percent towards education, 30 percent towards health, and 30 percent towards infrastructure.

Flexing their states’ political muscles, Governors Eduardo Campos (PSB) of Pernambuco and Marcelo Déda (PT) of Sergipe, together with the governors of sixteen states in total throughout the north and northeast, have issued a letter to the federal government listing ten “pre-requisite” demands of the states before agreeing to resolve debate on revenue distribution.

The demands span from interstate tax reform to education. Last Wednesday (June 15th), Campos and Déda were invited to discuss the issue with Governors Sérgio Cabral (PMDB) of Rio de Janeiro and Renato Casagrande (PSB) of Espírito Santo, the country’s major pre-salt oil producers.

“We are trying to reach an agreement,” says Governor Déda, “The fiscal horizon is worrying to the states. Our dilemma is maintaining investments.”

Talks took place as the push in Congress to override former President Lula’s veto gains strength, impeding redistribution of petroleum royalties, and maintaining revenue wealth for producer states of the southeast. José Sarney (PMDB-AP), Senate president, had this to say regarding the matter: “We have to find a way in which the riches of pre-salt may be distributed throughout the whole country.”

The stakes are high for all states of the union, who under new legislation stand to either lose or receive huge sums of revenue. One thing remains certain: with billions of reais at play, it will be nearly impossible to agree upon legislation that pleases everyone.