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
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