OREANDA-NEWS. Oil-producing states in Brazil are considering new upstream taxes to cover budget gaps resulting from lower oil prices and deep investment cuts by state-controlled Petrobras.

Rio de Janeiro state, the heart of Brazil's oil industry, in June declared a "state of calamity" and warned of social collapse weeks before it hosted the Olympic Games.

The state has been hit hardest by the industry turmoil, and was the first to adopt new upstream taxes to offset losses.

In 2015, the state introduced a R2.71 environmental surveillance tariff on each barrel of oil and oil equivalent and a new 18pc VAT-type tax on each barrel of oil produced in Rio state.

Oil companies say the taxes complicate long-term planning.

Chevron, Portugal's Galp, Spanish-Chinese joint venture Repsol-Sinopec, Shell and its subsidiary BG, and Norway's Statoil won a court injunction blocking enforcement of the taxes until their legality is resolved.

Other Brazilian states such as Sergipe are flirting with similar taxes. Accounting for around 47,000 b/d of oil equivalent (boe/d), Sergipe recorded a 34pc plunge in royalties this year. Politicians there are monitoring the legal battle in Rio as they weigh their own tax proposals, a state government official tells Argus.

The states are also watching the evolution of a proposed change in the federal royalties calculation that could boost their revenue.

Brazilian oil regulator ANP is currently working on a proposal that would give it more flexibility to calculate royalties based on a basket of price assessments for crude and refined products. A public hearing on the controversial change is planned for 10 October.

Other states have looked to Petrobras to make investment pledges that could help ease record unemployment.

Petrobras chief executive Pedro Parente recently met with governors in Mato Grosso do Sul, the capital of Brazil's agriculture sector, and oil-producing Espirito Santo to offer a glimpse of local projects.

The company is expected to release its new five-year business plan by the end of September.

Although Petrobras has scaled back investment, some politicians from oil-producing states and industry executives are optimistic that planned reforms will help to revive activity and boost both federal and state revenues.