Brazil: Congress to vote on redistribution of oil royalties

• A version of this post ran on the author's blog, Riogringa. The views expressed are the author's own.

On Tuesday, Brazil's Congress is due to vote on a bill that could redistribute the country's oil royalties, reducing the share of oil-producing areas and expanding the share in other states. Officials in Rio de Janeiro and Espírito Santo, two of the states that benefit from the current royalties system, bitterly oppose the bill. But evidence shows that in coastal towns and cities that earn oil royalties in these states have growing cases of corruption and mismanagement, as well as high levels of inequality and little progress in human development.

A few recent examples are illustrative of the corruption and mismanagement problem in cities with large oil royalty funds.

In March, the government of Campos dos Goytacazes in Rio proudly announced the inauguration of a new Sambadrome, large enough to hold 40,000 (10 percent of the city's population). The stadium – funded entirely by oil royalties – cost 80 million reais ($39 million), going 10 million reais ($4.9 million) over budget. Campos is the city that earns the most oil royalties of any city in Brazil, receiving 9.7 billion reais ($4.8 billion) from 2000 to 2010. But over the same period, the city dropped from 17th to 42nd in Rio state's development index. Seventeen percent of the city's schools and preschools operate in rented homes. Primary education in Campos received the worst grade in the state.

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In April, a Federal Police case dubbed Operation Lee Oswald led to the arrest of 28 people including the mayor of the city of Presidente Kennedy, Espirito Santo. The city government was accused of fraud in awarding government contracts, overbilling, and embezzlement, with the mayor as the ringleader. Those arrested were charged with corruption, criminal conspiracy, and money laundering, among other crimes. Presidente Kennedy earns the most money in oil royalties in the whole state; the city gets 20 percent of the total amount of royalties earned in Espirito Santo. From 2000 to 2010, the city earned 398 million reais ($195 million) in royalties. Despite a high GDP per capita, the city has the fourth-worst human development index statewide.

In September, a Rio judge decreed that the secretary of security of Mangaratiba, a Rio coastal town, would lose his job and demanded to freeze his assets. The secretary, also a policeman, was accused of earning a fortune far beyond his means, and the judge demanded he pay a fine for illegally accumulating wealth dating back to 1992. Mangaratiba earned 170 million reais ($84 million) in oil royalties from 2000 to 2010.

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