Brazil oil law revamp to avoid royalty change

Brazil’s overhaul of oil laws will not change the distribution of revenues among states, a cabinet minister said on Thursday, a change of position that could ease passage of the measures in Congress.

President Luiz Inacio Lula da Silva wants to revamp laws on how oil companies can tap massive undersea reserves to boost the state’s role in developing the massive offshore reserves and channel windfall profits toward health and education.

His original proposal included centralizing oil royalties in the hands of the central government. That drew sharp criticism from leaders of producer states such as Rio de Janeiro that stand to lose billions of dollars each year.

Planning Minister Paulo Bernardo, part of a commission discussing the possible change, said the new proposal would leave aside the royalty issue to focus on changing the concession system to a production-sharing model.

“The discussion of the royalties will be independent of the exploration regime,” Bernardo told reporters on the sidelines of a pension fund meeting.

“We’re going to leave that aside and approach it at another moment, it’s not the focus.”

Lula is slated to present the proposal to Congress next week though disagreements among cabinet members may stall the effort, which has already been underway for a year.

The current legislation requires specific percentages of oil revenues be given directly to states and municipalities near the production.

Brazil pumps most of its oil off the coast of the wealthy Rio de Janeiro state, which takes the lion’s share of revenue.

A large percentage of revenue from future production from the largely unexplored Santos Basin that includes the giant Tupi field would go to the industrial hub state of Sao Paulo if the current system were left in place.

Bernardo also said the government is studying changes to a plan for the state to boost its stake in the partially privatized Petrobras by offering new fields in exchange for newly printed shares.

This plan was first drawn at a time of high prices in which the oil fields in question were worth more, he said.

“That idea was almost defined when oil prices fell abruptly,” he said. “That means we now have assets with a lower value to offer for capitalization. For more details on the plan to capitalize Petrobras click on.