Oil royalties in Brazil
Roll out the barrels
Finally, a deal on sharing out the oil bonanza
Dec 8th 2012 | SÃO PAULO | from the print edition
MOST of Brazil’s vast deepwater oil deposits, discovered in 2007, have yet to be extracted. But its politicians are already sharing out the barrels. Since 1997, when the oil industry was opened to foreign firms, the lion’s share of oil royalties—around 10% of sales revenue—has gone to the states and municipalities where production facilities are located. The federal government gets just over a quarter (in addition to other oil taxes), with local governments elsewhere making do with less than a tenth.
The three states whose coastal waters hold the new finds—Rio de Janeiro, Espírito Santo and São Paulo—are already among the richest. So the others reasoned that they should get a bigger share of the new bounty. But the constitution describes royalties as a recompense for the extra costs and risks oil brings. The producer states threatened to take the fight to the supreme court. The various bits of government have been arguing ever since.
Five years on, a deal has been reached. On November 30th the president, Dilma Rousseff, signed with amendments a law sent to her by Congress. Royalties from already-auctioned fields will still be shared out according to the old rules. New concessions will pay higher overall royalties of 15%, with more than half of this eventually going to oil-less states and municipalities.
The deal is probably enough to deter producing states from going to court. With a royalties law in place, the government is now free, after a long pause, to start auctioning new blocks again. “Oil firms care more about their total taxes than how they’re shared out,” says João Augusto de Castro Neves of Eurasia Group, a consultancy. “But a constitutional battle would have been unhelpful for a government that is already losing credibility with the private sector.”
Ms Rousseff is insisting that future royalties be spent on education. That will help the government to meet its target of spending 10% of GDP on education by 2020. Brazilian education spending is already in line with the rich-world average, but with much poorer results. There is little reason to believe more money alone will make it better.
from the print edition | The Americas