Rio de Janeiro Suspends Payments Over Oil Royalty Dispute

The government of Rio de Janeiro state suspended all non-obligatory payments except for payroll over an oil royalties dispute only 16 months before it hosts the soccer World Cup final.

The state will halt payments until the Supreme Court rules on a royalties bill passed by Congress today that would reduce Rio’s revenues, according to an e-mail from the press office of Governor Sergio Cabral. The suspension will be applied to all non-mandatory payments, said an official who declined to be identified because of internal policy and gave no further detail.

Rio de Janeiro is one of the three major oil-producing states in Brazil and has opposed a bill that President Dilma Rousseff vetoed but Congress ratified yesterday. The suspension is designed to pressure Rousseff to compensate revenue shortfalls or get the Supreme Court to block the bill, said Rafael Cortez, political analyst with Tendencias Consultoria Integrada.

“It’s an attempt to get public attention,” Cortez said by telephone from Sao Paulo. “The government is not interested in Rio suspending investments, particularly not ahead of the World Cup.”

Under the new law, royalties that now go exclusively to the producing states will be distributed among all 27 states. It will cost Rio de Janeiro 4 billion reais ($2 billion) this year and could provoke the state’s financial collapse, Cabral told reporters Nov. 7. Oil royalties in Brazil totaled 15.6 billion reais in 2012.

Rio de Janeiro will challenge the bill before the Supreme Court, Cabral said at an event earlier today. He said that Rousseff considered parts of the bill unconstitutional when she vetoed it last year. Sao Paulo and Espirito Santo states also said they would challenge the law.

“The proposal to retaliate is a trump card that Cabral is playing to see what he can get,” said Marly Motta, a local history professor at the Getulio Vargas Foundation in Rio de Janeiro. “It might work, it might not.”

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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