Brazilian congressman wants royalties divided into a constitutional provision.

SAO PAULO, March 20 (Reuters) - Representative Marcelo Castro (PMDB-PI) filed a proposed amendment to the Constitution (PEC) this Wednesday that aims to establish a new formula for the distribution of oil royalties, in yet another chapter of the controversy involving oil-producing and non-producing states.

If approved, the change will cause significant losses to Rio de Janeiro, the main producing state, and cannot be challenged before the Supreme Federal Court (STF), as is happening now, according to the congressman.

"This PEC distributes oil royalties, now enshrined in the Constitution, but for what purpose? To prevent Lula from vetoing it, Dilma from vetoing it, Minister Fux from issuing an injunction, Minister Cármen Lúcia from issuing an injunction," the congressman told Reuters by telephone.

A new formula for distributing royalties from oil exploration has already been approved twice by Congress, vetoed by two presidents, and reinstated by the legislature this year, in addition to being the subject of four direct actions of unconstitutionality (Adins) in the Supreme Federal Court.

The proposed constitutional amendment has the support of just over 200 deputies, according to Castro. Under congressional rules, 171 signatures are required to propose a constitutional amendment.

Under the proposed new formula, royalties from offshore oil exploration would be distributed as follows: 30 percent to the federal government, 35 percent to the states, and 35 percent to the municipalities, without differentiation between producing and non-producing areas.

If the measure is approved without modifications, these rules would also apply to fields that are already being explored, the congressman said.

The proposal stipulates that the distribution between states and municipalities should be done using the same criteria used for sharing the State Participation Fund (FPE) and the Municipal Participation Fund (FPM).

A new rule for the FPE (Fund for Participation of States) is being discussed by Congress after the current one was deemed unconstitutional by the Supreme Federal Court (STF) in 2010. The current rules, which according to the new deadline given by the Judiciary must be changed by June, benefit states in the North and Northeast regions.

Castro acknowledged that the formula for distributing royalties proposed by the PEC, filed under number 253, "is radical".

"With this amendment, Rio de Janeiro loses. And it's not a small loss, it loses a lot," said the congressman. "And that's precisely the intention," he added.

According to him, the PEC is also retaliation for what parliamentarians from non-producing states saw as inflexibility on the part of the governor of Rio de Janeiro, Sérgio Cabral (PMDB), in negotiating when the issue was being debated in Congress.

"Now, with the proposed constitutional amendment that we are presenting, he will seek us out to make a deal. And then we will say, 'it's too late now,'" he said.

JUDICIALIZATION

On Monday, Supreme Court Justice Cármen Lúcia granted an injunction requested by the government of Rio de Janeiro, suspending the application of part of the law approved by Congress, which redistributes royalties by increasing the share of non-producing states in these resources.

The fact that Castro's proposed constitutional amendment was presented while the issue is being questioned in the Supreme Federal Court has generated criticism.

"The presentation of this PEC demonstrates, at the same time, an acknowledgment that the law approved by Congress is unconstitutional and an affront to the Supreme Federal Court, which has just begun to analyze the issue," said Congressman Alessandro Molon (PT-RJ).

Castro said he will await the Supreme Court's decision. If it is favorable to non-producing states, he will withdraw the proposal; otherwise, he will proceed with it.

If approved in the Chamber of Deputies in two rounds with at least 308 favorable votes, the measure will also have to pass through the Senate, also in two rounds and with a three-fifths majority. But the PMDB congressman is confident of its approval.

"Its approval in the Senate is straightforward. It's more difficult in the Chamber of Deputies than in the Senate," he said.

CONTROVERSY

The controversy over the distribution of oil royalties dates back to the government of former President Luiz Inácio Lula da Silva, who decided to create a new regulatory framework for oil exploration in the country, determining that pre-salt fields would be auctioned under a production-sharing regime and no longer under a concession regime.

Lawmakers from non-producing states saw the change as an opportunity to redistribute royalties among states and municipalities, without any privilege for producing states, even altering existing contracts. Approved by Congress, this new distribution was vetoed by former President Lula in 2010.

During Dilma's government, parliamentarians from non-producing states returned to the charge and once again approved a new division of royalties last year, which was vetoed by the president. The veto was overturned in early March by Congress, since the non-producing states hold a majority in the Senate and the Chamber of Deputies.

Dilma wanted the new rules to apply only to future bidding processes, a way of respecting contracts, as argued by the governments of the producing states. The president also advocates that royalty revenues be allocated to education.

(By Eduardo Simões, with additional reporting by Ana Flor, in Brasília)