The fight for oil money may grow among Brazilian States

RIO DE JANEIRO, BRAZIL – Brazil is not Nigeria, where the generation of oil wealth gives rise to an intricate web of federal conflicts that oppose ethnic groups and regions of the country.

But as Brazilian production increases, with the exploration of the pre-salt fields, the tendency is for disputes over the distribution of resources among the Federation’s entities to grow, with increasing risk to institutional stability.

The forecast is from professor Beni Trojbicz from the Federal University of Jequitinhonha and Mucuri Valleys (UFVJM) and the Federal University of ABC (UFABC), organizer of a remarkable book with case studies focusing on oil-producing federative countries.

Recently published by Elsevier in the United Kingdom, “Oil Wealth and Federal Conflict in American Petrofederations” is based on Trojbicz’s post-doctoral research at Fundação Getulio Vargas (FGV/EAESP) and analyzes the relationship between oil revenues and the potential for federal disputes in Argentina, Brazil, Canada, the USA, Mexico, and Venezuela.

The six countries in the Americas represent a cutout in the larger group of 12 oil producers that adopted federalism and were already studied by Trojbicz, including Nigeria, Malaysia, Russia, Australia, India, and Pakistan. Some of the largest producers, such as Saudi Arabia and Iran, are unitary states and were therefore not the subject of the research.

In the book, the country chapters are written by local authors, based on the theoretical model developed by Trojbicz. They unpack elements that influence the relationship between oil and federalism and affect the potential for conflict.

Three main factors distinguish federal oil exploration systems: the choice between centralizing or decentralizing oil revenues; the relevance of the sector to each country; and federal redistribution policies.

“In general, the conflict occurs between three major actors: the Union, the producing provinces or states, and the non-producing ones,” says the researcher.

The disputes can be classified as vertical, i.e., between the Union and subnational entities. The most frequent, Trojbicz points out, or horizontal, between the Federation units, as occurs in Brazil. “Here, the Union decided not to intervene and absented itself from this dispute,” he says.

The dispute between producing states and non-producing states in Brazil, recalls the professor, would have been the subject of a political agreement between former President Luiz Inácio Lula da Silva and the former governor of Rio de Janeiro, Sergio Cabral, and ended up in court in the Federal Supreme Court (STF).

The court has postponed the analysis of the request to adopt new criteria for the distribution of resources, benefiting Rio de Janeiro, Espírito Santo, and São Paulo, which does not mean that the game is stopped.

“The shelving of the case indicates something; it is a victory for the producing states. Not an absence of action,” he says, predicting that the increase in production tends to pressure for change in the status quo.

Trojbicz points out that, with the pre-salt discovery, Brazil already exceeds the production of 3 million barrels per day and is in the category of countries where the oil sector is “important”, alongside Mexico, Russia, and Malaysia.

In the category above, the “dominant” are Venezuela and Nigeria. In the third category is Canada, where the sector is “relevant” and, in the fourth, there are five countries where it is “small”, compared to the rest of the economy, such as Argentina, Australia, the United States, India, and Pakistan.

The Brazilian production, he says, is on a par with Venezuela’s at its peak in 2005. “In Brazil, the weight of the oil sector is growing a lot, and the expectation is that the federative dispute will increase, with more concern about how these resources are being used.

The literature reports a consistent history that these resources tend to generate instability.”

Brazil would also have a peculiarity that makes the situation more delicate. “The producing jurisdictions are rich and populous. It is an exception since, in the other countries, they are sparsely populated and poor jurisdictions (at least before the advent of oil wealth, as in Alberta, Canada).

This characteristic causes oil wealth to increase regional inequality, which is problematic,” says the professor.

Trojbicz recognizes that the federative dispute around oil revenues in Brazil is complex because there is an additional element introduced by the 1988 Constitution.

It is the collection of ICMS tax on fuels at the destination and not at the origin, which harmed especially Rio de Janeiro, the largest producing state, in relation to the other units of the Federation.

With information from Valor

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