Brazilian states challenge royalties law before high court

Brasilia, Mar 15 (EFE).- The oil-producing states of Rio de Janeiro and Espirito Santo on Friday filed a Supreme Court challenge against a new law that distributes royalties from crude and natural gas production more evenly among Brazil's 27 states.

The suit, filed by Rio state Gov. Sergio Cabral and Espirito Santo's Renato Casagrande and made public by the high court, argues that the law is unconstitutional and threatens the economies of their respective states.

Earlier this week, Congress overturned President Dilma Rousseff's partial veto of the controversial legislation.

Last November, Rousseff left intact the bill's proposal for a new royalty regime for future energy contracts but balked at slashing the revenue received from existing agreements by states and cities that border offshore oil and natural fields.

After the president signed the bill into law on Thursday, Rio de Janeiro and Espirito Santo opted to challenge it before the Supreme Court.

Deepwater fields off the coasts of Rio de Janeiro and Espirito Santo hold some 80 percent of Brazil's proven reserves.

Meanwhile, the so-called "pre-salt" frontier, a series of ultra-deep oil fields that were discovered in recent years and stretch for some 800 kilometers (500 miles) off the coasts of the southeastern states of Espirito Santo, Rio de Janeiro, Sao Paulo and Santa Catarina, could dramatically increase the proven-reserve tally and transform the country into a major crude exporter.

Rio de Janeiro officials say the new law will cost the state 3.4 billion reais ($1.6 billion) in revenue annually starting this year and hinder its preparations for the 2014 World Cup and the 2016 Summer Olympics.