MercoPress. South Atlantic News Agency

Lula da Silva promises to veto bill on oil royalties sharing plan

Brazil is poised to become a world oil-power with the sub-salt deposits

Brazilian President Lula da Silva said on Tuesday he would veto a plan to change the distribution of oil royalties among state governments, paving the way for the implementation of a legal overhaul of Brazil's oil sector.

Lula da Silva is expected to veto an amendment proposing oil royalties be distributed beyond the three main oil-producing states, allowing him to sign legislation approved by Congress last week while avoiding angering oil producing states that receive most of those revenues.

“Upon receiving the proposal from Congress, I plan to veto it,” Lula da Silva said during a ceremony in Rio, referring to the royalties plan.

The government has said it would negotiate a more moderate redistribution of oil revenues among other states that do not produce oil.

Months of wrangling over how to distribute revenues from the offshore fields among Brazil's states delayed Lula da Silva's legal changes that create a production sharing system for future projects in the vast sub-salt offshore region. Current projects operate under a concession system created in the 1990s.

Brazil's discovery of billions of barrels of oil in deep waters off its coast spurred non-producer states to argue they should be given an equal portion of revenues from future projects, sparking outrage among producer states, such as Rio de Janeiro and Sao Paulo that stood to lose from the proposal.

The sub-salt is believed to hold more than 50 billion barrels of oil buried under the ocean floor beneath a thick layer of salt at a depth of at least 7.000 meters.

Lula da Silva proposed the new system last year as part of a broader package of oil laws meant to ensure Brazil's government gets a bigger share of the revenues from the offshore discoveries.