Rio Governor 'Confident' Rousseff to Veto Part of Brazil Oil Royalties Bill

Rio de Janeiro Governor Sergio Cabral said Thursday he is confident a new bill which redistributes royalties paid by oil companies will be partially vetoed by President Dilma Rousseff because of the dire financial consequences it would have for the host of the 2016 Olympic Games.

Brazil's congress earlier this week passed the oil royalties bill, which would take away some revenue from oil producing states--such as Rio, whose offshore oil fields are one of the biggest sources of Brazilian oil--and distribute more of it to non-producing states. Passage of oil royalty rules was needed to ensure new rounds of oil-exploration block auctions, which had been suspended since 2008.

The bill would affect not only royalties from new production, but existing production as well.

"Dilma has the ability to veto the part of the bill which deals with contracts already signed and approve the part that regards new auctions," Mr. Cabral said. Mr. Cabral said he is in constant talks with the president and "I'm confident that President Dilma will veto the bill that regards existing contracts."

Following the congressional passage of the bill late Tuesday, representatives from large-scale oil-producing states such as Rio de Janeiro and Espirito Santo repeated their threats to contest the bill in court.

Ms. Rousseff on Thursday declined to comment on the bill, telling reporters in Brasilia that she had yet to study the bill.

Mr. Cabral said Wednesday during a visit to Brasilia that the change in royalty distribution would take away billions of dollars from the state government, putting at risk the 2016 Olympic Games as well as the city's role as the host of several games in the 2014 World Cup, including the final match, according to Estado de S Paulo newspaper.

"This makes the Cup, the Olympics, and the payment of pensioners, retirees and the state debt inviable," Mr. Cabral was quoted as saying by the paper. According to the newspaper, Mr. Cabral said the state would lose 4 billion Brazilian reais ($2 billion) in 2013 alone if the bill is signed into law.

According to the state's secretary of development, losses for state and municipal governments under the new bill would total BRL77 billion between 2013 and 2020.

Copyright (c) 2012 Dow Jones & Company, Inc.


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