Brazil Congress overturns veto on oil royalty bill
* Main producing states to contest bill in courts
* Former vetoed articles of bill to affect current contracts
* Veto overturn a defeat for President Rousseff
BRASILIA, March 7 (Reuters) - Brazil's Congress has overturned a presidential veto of a controversial oil and natural gas royalty bill, stripping billions of dollars in revenue from producing states, which have threatened to contest the bill in the courts.
While originally aimed at giving non oil-producing states a fair share of Brazil's future oil wealth, the new law cuts the share of oil royalties also received from existing production contracts by states and cities bordering maritime fields and redistributes the income among all 27 states and 5,500 municipalities.
By altering existing oil contracts, the new law risks poisoning future debates with states over tax reform and mining. The law could create fresh uncertainty for oil companies operating in Brazil as well, and delay the South American nation's plans to tap huge subsalt fields and become a major world oil producer.
The result of the vote announced on Thursday was a defeat for President Dilma Rousseff, who had committed herself to limiting the immediate impact of her government's oil industry reform on producing states led by Rio de Janeiro. One of the most divisive issues of her 2-year-old presidency, the issue has soured relations among Brazil's states.
"The royalty issue has become a zero-sum game, there are clear winners and clear losers and the losers are not happy," João Augusto de Castro Neves, a senior analyst with the Eurasia Group in Washington in an interview.
"The producing states' defeat may contaminate other issues such as Rousseff's push for a new mining code or lead them to block efforts for tax reform," Castro Neves, an economics and energy specialist, said. Continuación...