UPDATE 1-Brazilian oil states take royalty war to Supreme Court
* Oil-producing states want new law declared unconstitutional
* Law shares out royalty income to other 23 states
* Legal battle clouds future of troubled oil industry
By Anthony Boadle and Jeb Blount
BRASILIA/RIO DE JANEIRO, March 15 (Reuters) - Brazil's main oil-producing states asked their country's Supreme Court on Friday to overturn a new law that strips them of billions of dollars in royalties levied on the output of rich offshore oil fields.
The three main oil-producing states, Rio de Janeiro, Espirito Santo and Sao Paulo, filed challenges with the court in Brasilia arguing that the legislation is unconstitutional because it changes existing contracts and violates Brazil's fiscal discipline law.
Brazil's constitution has clauses limiting the government's ability to deprive people of established rights. A decade ago, Rio de Janeiro and other states pledged a percentage of oil royalties to make payments on debt to the federal government.
The bill signed into law by president Dilma Rousseff on Thursday night forces the government to share offshore oil royalties more equally among the country's 26 states, federal district, and 5,500 municipalities.
The dispute has poisoned relations between Brazil's states and clouded the once-bright future of Brazil's oil industry, where plans to auction production sharing concessions to tap huge subsalt fields have been delayed by regulatory quarrels. Continuación...