Brazil's oil future hinges on bill to share wealth
Brazil's states and cities have been quarreling for years over how to distribute the expected multi-trillion-dollar windfall from one of the world's biggest recent oil finds. Former President Luiz Inacio Lula da Silva called the so-called "subsalt" fields, discovered in 2007, "a gift from God" that could make Brazil a rich country.
President Dilma Rousseff's government is now trying to defuse the arguments by offering a cut of its own take in future royalties from the fields. Officials are confident Congress will approve the government proposal in coming days or weeks.
"We're at ease. The interested sides are hard at work ... and by the looks of it, they're forging a quite significant majority," Gilberto Carvalho, general-secretary of the president's office, told reporters.
At stake is Brazil's plan to become one of the world's largest suppliers of oil outside of OPEC and to ensure revenue to finance improvements in infrastructure, health programs and education, which are crucial to entering the ranks of developed nations.
The final outcome will have major implications for state oil company Petrobras, and possibly for multinational energy companies such as Italy's and Norway's Norsk Hydro, who have expressed interest in helping Brazil develop the fields.
So far Brazil is pumping only a small fraction of the subsalt fields and requires tens of billions of dollars to develop the remaining reserves.An agreement on distributing oil revenues is needed for the government to go ahead with a planned auction next year for the rights to develop the vast oil fields.
The so-called subsalt region is believed to hold more than 50 billion barrels of oil buried under a thick layer of salt. At current prices that would be about $4 trillion in revenue.
Failure to reach agreement on the bill would spark a drawn-out legal battle, potentially stalling fresh investments for several years. Without a compromise, Congress would almost certainly overrule last year's veto by Lula of a law that would have distributed more revenue to non-producer states.
The three largest oil producing states – Rio de Janeiro, Sao Paulo and Espirito Santo – are keen to uphold the veto. Sergio Cabral, governor of Rio de Janeiro, said he would go all the way to the Supreme Court to ensure his state's oil income. Losing it would generate a political backlash for him and President Dilma Rousseff, Cabral warned.
"The electoral tragedy in Rio would be dramatic," said Cabral, wary of losing cash before hosting the 2016 Olympics.Rio de Janeiro pumps the vast majority of Brazil's roughly 2 million barrels per day of crude.
"Right now this debate is holding hostage the whole development of the sector," said Latin America analyst Christopher Garman of the Eurasia consultancy in Washington.
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