Court analyzes in this 4th (4.out) appeal presented by the city of Guapimirim that maintained the division in the State
O STJ (Superior Court of Justice) judges this Wednesday (Oct 4, 2023) the appeal against the decision that maintained the division of oil royalties in the State of Rio de Janeiro. This is a million-dollar action that can reconfigure the distribution of revenue between cities in the region.
The appeal was presented by the municipality of Guapimirim, which is trying, together with São Gonçalo and Magé, to receive more royalties. It is another chapter in a long dispute that began in the Federal Court of the Federal District. Now, the Court judges the so-called “declaration embargoes” presented against the ruling of the STJ trial.
On April 19 of this year, the STJ unanimously endorsed the decision of President Maria Thereza Assis, which suspended the transfer of royalties to the municipalities of São Gonçalo, Magé and Guapimirim. The 3 cities ask to be included in the so-called ZPP (Main Production Zone), and thus have access to royalties.
In September 2022, the Federal Court of the Federal District granted preliminary authorization to change the distribution of royalties between municipalities. Originally, these resources belonged to Niterói – author of an appeal against the injunction, which provided for urgent protection –, the capital Rio de Janeiro and Maricá.
When deciding against changing the transfers, in September 2022, minister Maria Thereza considered the loss of R$1 billion per year to the city of Niterói, a value corresponding to almost 25% of the municipality’s annual budget. She also understood that the movement would cause serious harm to public order.
Just in August and July last year, because of the injunction, São Gonçalo had a 1,066% increase in royalty transfers – from R$4.2 million to R$49 million. During the period, Niterói saw its revenue fall by 49% – from R$101 million in July and R$52 million in August.
The state capital recorded a loss of R$39.8 million in resources in the month of August in royalty transfers. The municipality also estimated losses of more than R$200 million by the end of 2022 and R$500 million in the 2023 budget year. complete of the petition (PDF – 234 kB) presented by the municipality of Rio de Janeiro, an interested party in the process.
The region is surrounded by important post-salt and pre-salt oil fields, such as Tupi, the 2nd largest producer in Brazil. Royalties are collected by oil companies for the ANP (National Petroleum and Natural Gas Agency), which distributes them between municipalities according to the division established by IBGE (Brazilian Institute of Geography and Statistics).
São Gonçalo, Magé and Guapimirim claim that as they are bathed by Guanabara Bay, like the other 3 municipalities, they are also part of the Main Production Zone of these fields. According to the proposal made, part of the royalties received by the current cities would have to be divided.
Among the arguments, the applicants also point out the need to consider the rule of proportionality. They indicate that royalties allocated to Niterói are 30 times those of São Gonçalo, despite having fewer inhabitants.
Understand the movement of the case in the courts:
- 19.Jul.2022 – judge Frederico Botelho de Barros Viana, substitute for the 21st Federal Civil Court of Brasília, grants the change in the division of royalties to São Gonçalo, Magé and Guapimirim, starting to consider the municipalities as Main Production Zones. The judge had been on duty for 1 day and decided the issue through a sentence with urgent protection;
- September 1, 2022 – TRF1 (Federal Regional Court of the 1st Region) maintains the injunction after an appeal filed against the change by Niterói. Here’s the complete (PDF – 61 kB). The municipality, which would suffer the impact on public coffers, was not part of the process presented by the others and was only notified later. The decision came from a lawsuit against IBGE, responsible for defining the Main Production Zone; and the ANP, which pays royalties based on IBGE criteria;
- 14.Sep.2022 – Minister Maria Thereza, from the STJ, suspends the decision and its effects of urgent protection, which represented a victory for the municipalities of Niterói, Maricá and Rio de Janeiro. Here’s the complete of the decision (PDF – 55 kB);
- Dec 26, 2022 – the president of the STF (Supreme Federal Court), minister Rosa Weber, denies the request presented by São Gonçalo, Magé and Guapimirim to the Supreme Court to suspend the effects of the decision of the president of the STJ. She understands the request as “absolutely unreasonable”. Here’s the complete (PDF – 234 kB);
- 8.mar.2023 – there is a request to highlight the trial in the virtual session by the Special Court of the STJ of action against the decision of Minister Maria Thereza;
- April 19, 2023 – unanimously, the Special Court decides to maintain the division of oil royalties;
- May 4, 2023 – municipality of Guapimirim files a motion for clarification in the Superior Court.
“ISLAND SHADOW”
To calculate how much goes to each municipality, IBGE draws imaginary parallel lines from the limits of coastal municipalities. The proportion that lines take up in productive oil wells is the same proportion that cities can receive in royalties. For example, if a field is 50% on the coast of a single city, half of the royalties it produces will go to that municipality.
Another criterion used is the number of industrial or support facilities involving the production and distribution of oil that are active in a given territory, such as port terminals and pipelines. According to IBGE, São Gonçalo, Magé and Guapimirim do not fit the definition of Main Production Zone according to the 2 criteria.
The action filed by the municipalities argues that the IBGE would have changed its criteria in 2020 when there are projections on the Brazilian coast, and applied the new calculation when distributing royalties referring to São Sebastião, Ilhabela and Caraguatatuba, on the coast of São Paulo. The same measure, says the action, should be used in Rio.
The transfer obtained to the city hall of São Sebastião (SP) was suspended by decision of federal judge Antonio Cedenho, from TRF3 (here is the complete – 36 kB) on November 11, 2022. On December 5, the minister reconsidered (here is the complete – 64 kB) and certified the final judgment of the case (when there is no further appeal).
It turns out that this was not a new IBGE criterion, but rather a specific change in calculation in cases involving islands that make “shadow” in other coastal municipalities, blocking the lines drawn by IBGE.
Substitute judge Frederico Botelho de Barros Viana, however, accepted the argument that the method should also be used in Rio, as if some municipalities that are not islands should be considered as such within the lines defined by IBGE and cast a shadow on the others.
“Based on the projections applied today, the municipalities of Rio de Janeiro and Niterói, especially, cast a shadow on the author municipalities, preventing the tracing of geodetic lines from the geographical limits of the authors […]the geodetic projections are drawn as if Rio de Janeiro and Niterói were islands, and it is uncontroversial that the 2 municipalities create a barrier and prevent the projection of the authors’ lines [São Gonçalo, Magé e Guapimirim]”the judge said at the time.
Both IBGE and ANP sent opinions opposing the decision. They said that the concept of “island shadow” It is specific and should not have been applied, except in cases that actually involve islands.
“It is unfeasible to consider the hypothesis that the municipalities of Niterói/RJ and Rio de Janeiro/RJ carry out ‘island shadowing’ over the requesting municipalities, as they are not municipalities with island headquarters [uma ilha]”said IBGE.
WHAT MUNICIPALITIES SAY
The municipality of São Gonçalo argues that there is no correct application of the cartographic division of oil royalties in the coastal region of the State. He says that the calculation made by IBGE disregards Guanabara Bay.
The 3 municipalities also allege social issues regarding the living conditions of the populations of the cities involved. These are municipalities with smaller resources than those currently entitled to oil royalties.
What is understood, on the other hand, is that resources coming from royalties do not include social fund functions, as found out by the Power360. Furthermore, the procedure being judged does not concern the merits of the issue – that is, the fundamental issue raised by the action –, but assesses the legality of the injunction granted.
The mayor of Niterói, Axel Grael, told the Power360that an eventual division with the municipalities could bring a “budget chaos” and would put at risk the continuity of public works financed with royalties.
NITERÓI GOES TO THE TCE
To file the lawsuit in Federal Court, the municipalities of São Gonçalo, Guapimirim and Magé hired the firm Djalci Falcão Advogados Associados, which has a good entrance in Brasília. Djalci Falcão is the son of minister Francisco Falcão, from the STJ.
In a representation sent to the TCE (State Audit Court) of Rio de Janeiro, the Attorney General of Niterói spoke out against hiring the office. He states that the contract should be suspended and questions the hiring of the Nupec (University Center for Research, Studies and Consultancy) to carry out the study that led to the challenge of the division of royalties in the region. Here’s the complete representation (PDF – 5 MB).
Another questionable point is the percentage of fees charged by offices, 20% of the profits obtained. Only with the release of quarterly royalties granted by the Federal Court, the lawyers received R$100 million. The contract is for 36 months. According to the Niterói Attorney’s Office, the payment is expected to reach R$1 billion with the release of payments.
Municipal organizers claim that the hiring of consultancy to question the division of the Institute requires exemption, as the contract would ultimately aim at a new distribution proposal.
Nupec project director Sylvio Nunes Pereira claims that the attorneys representing Niterói, Rio de Janeiro and Maricá are not specialized in physical geography studies. Furthermore, he states that the other 3 municipalities do not seek, with their actions, an “equal” distribution of all royalty resources, but rather a proportional one. Here’s the complete (PDF – 403 KB) of one of the summarized studies presented by Nupec.
Furthermore, even though it is at the municipal level, the TCU (Federal Audit Court) also opened an investigation into the case, to analyze “possible losses for the Union and Petrobras resulting from the increase in the payment of royalties related to oil and gas production to municipalities”. Here’s the complete (PDF – 194 KB) of the MP’s representation at the TCU.
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