* Protesters block oil-region airports in Rio de Janeiro
* Politicians urge suspension of oil-field eco licenses
* Royalty dispute could hurt oil-rights auctions -assn
By Jeb Blount
RIO DE JANEIRO, March 8 Brazilian oil-producing
states retaliated on Friday against multibillion-dollar cuts
made by Congress to their oil royalties with a wave of protests
and threats to cut off most of the country's oil output.
The actions threaten to poison relationships between
Brazil's states, saddle oil companies with losses and complicate
efforts by President Dilma Rousseff to forge political alliances
needed to pass legislation in the last 17 months of her term.
Airports in Campos and Cabo Frio, Brazil, key bases in Rio
de Janeiro state for helicopter service to offshore oil
platforms in the Campos Basin, were blockaded for up to six
hours on Thursday, preventing oil workers from boarding flights
to drilling rigs and production platforms.
The airports are now working normally, airport officials
said. Flights to Petrobras' installations will be fully back to
normal on Saturday after the protest, state led oil company
Petroleo Brasileiro SA said in an e-mail response to
Rio de Janeiro Governor Sergio Cabral ordered the suspension
of all the state's payments - except for legally mandated public
employee salaries and transfers to municipalities - after
Brazil's Congress ruled on Thursday that new royalty sharing
legislation should apply to existing oil agreements, which could
mean a loss of 3.1 billion reais ($1.59 billion) in his state's
income this year alone.
Thirty-four congressmen from Rio de Janeiro have signed a
letter calling on Cabral to suspend all state environmental
licenses related to oil production, Rodrigo Bethlehem, one of
the congressmen said in an interview on the CBN Radio network.
"Royalties are compensation for the impact of resource
extraction," he said. "Those licenses were based on a certain
level of royalties that no longer exist and we would have to
look at new guarantees for environmental impacts."
If the licenses were suspended, related oil production could
be forced to stop. In January, Rio de Janeiro accounted for 1.7
million barrels day or 67 percent of Brazil's oil and natural
gas equivalent output of 2.53 million barrels a day. In 2012 the
state received 71 percent of all royalty payments to state and
ROUSSEFF VETO OVERTURNED
The airport protests, payment cut-offs and proposed
reprisals come after Congress overrode a presidential veto of
parts of the new Brazilian oil royalty bill.
The bill, part of a 2010 oil reform aimed at using giant new
offshore oil reserves to improve social conditions in the
country, redistributed oil and gas royalties more equally among
the country's 27 states and 5,560 municipalities.
Producing state royalties will be cut in half to 20 percent
of total payments by 2019 while producing cities will see their
share shrink to 4 percent from 10 percent.
While conceding that the congress could redistribute future
oil royalties any way it wanted, Rio de Janeiro and neighboring
Espirito Santo states, which produce 83 percent of Brazil's oil
and gas, objected to the reduction of royalty payments from
existing oil field concessions.
Rio de Janeiro legislators have also said they may seek to
reduce royalties to states such as Minas Gerais and Pará where
much of the country's iron ore and other minerals are produced.
President Rousseff is trying to draft changes to the
country's mining code considered essential to channel soaring
mining income to economic development and boost output of metals
and fertilizers needed by Brazil's growing agriculture industry.
Many states promised a percentage of oil royalties in debt
renegotiations with the federal government a decade ago and
taking away the existing royalty stream breaks a contract with
federal authorities, producing states say.
Taking those existing revenue streams away will cripple
state finances and make it hard for Rio de Janeiro to pay for
infrastructure needed for its role in the 2014 soccer World Cup
and 2016 Olympics, Cabral has said. State legislators are
threatening to raise taxes on oil companies.
That alleged breach is unconstitutional because it alters
existing agreements and commitments, Cabral and other governors
say, a legal theory Rio de Janeiro, Espirito Santo and Sao Paulo
state plan to present to Brazil's Supreme Court.
It will also reduce interest in three oil-rights auctions
planned for this year, said João Carlos de Luca, president of
Brazil's IBP, the national oil producers association, and
Adriano Pires, head of the Brazilian infrastructure institute, a
Rio de Janeiro energy think-tank.
The first auction, scheduled for May 14 and 15 will be the
first in the country in five years and is considered essential
to help oil companies renew exploration leases and secure
long-term access to Brazilian production.
"Rio is going about this all the wrong way, punishing the
oil industry instead of taking it to the courts," Pires said.
"If this happens Rio will lose jobs and investment."
It was not clear on Friday if Rio de Janeiro's order on
Thursday to suspend all unessential payments would include debt
payments to the federal treasury or just suppliers and
contractors. Economists and federal officials contacted by
Reuters said the state has little leeway to apply pressure by
halting payments because many of its expenses are considered
obligatory by law.