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Petroleo Brasileiro Petrobras SA : Brazil States File Oil-Royalties Lawsuits with Supreme Court

03/15/2013 | 03:26pm US/Eastern

RIO DE JANEIRO--Three Brazilian states that stand to lose billions of dollars of revenue from the redistribution of oil royalties filed lawsuits Friday with the country's Supreme Court to block implementation of the new law, court and state officials said.

The lawsuits are the latest step in a long-running political battle that pits Brazil's three major oil-producing states of Rio de Janeiro, Espirito Santo and Sao Paulo against the country's remaining 24 states, which have little oil production and stand to benefit financially from the new distribution scheme. The legal wrangling, however, isn't expected to delay an important auction of new oil and natural gas exploration concessions set for May.

In the filings, the three states said the distribution plan is unconstitutional because it breaks contracts signed by the government with oil drillers over the past decade. The states, which estimate the change will cost them about $3 billion in annual revenue from crude oil and natural gas production, also said the change will cause budget shortfalls.

Rio de Janeiro Gov. Sergio Cabral said the changes compromised public works projects and other investments in the state, including preparations for the 2014 Soccer World Cup and 2016 Summer Olympics.

The states requested an injunction to block implementation of the new royalties regime, in addition to a ruling on the constitutionality of the new law. The law, however, is effectively suspended until the Supreme Court makes a definitive ruling on the lawsuits, a court official said.

Supreme Court Justice Carmen Lucia was assigned the case, and could make a ruling on the injunction as early as Friday, the court official said. The ruling on the injunction would then be reviewed by the full court at a later date, the official said. The Supreme Court holds plenary sessions on Wednesdays and Thursdays.

The new law, which was published Friday in the Federal Register, equally distributes royalties from existing and future oil production between the country's 27 states.

Write to Jeff Fick at Jeff.Fick@dowjones.com

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