If the bill becomes law, it would deny the state of Rio and other oil-producing states billions of dollars in expected royalties. Rio’s annual oil revenue would fall to about $134 million from about $4.3 billion, state officials said.
But Rio’s governor, Sérgio Cabral, is fighting back, calling the vote in Congress a “lynching” and contending that it was unconstitutional. He said promised public works projects for the 2014 soccer World Cup and the 2016 Olympics in Rio could be imperiled by a sudden drop in revenues, although the federal government has pledged to back Rio’s Olympic effort.
Mr. Cabral, an ally of President Luiz Inácio Lula da Silva, organized a large march through Rio’s streets on Wednesday afternoon to protest the move by Congress. Despite a persistent rain, tens of thousands of people, many of them state employees who had been given the day off, showed up, with many arriving on buses from all over the state.
“No one has the right to take away that which nature has put within the limits of Rio de Janeiro,” Carlos Lupi, Rio’s labor minister, said in a speech at the march and rally.
Faced with the world’s most important oil discovery in years, Brazil’s government is seeking to alter the country’s oil laws to centralize control over future oil revenues in the federal government’s hands. The new region, lying under about 20,000 feet of water, salt and sand, is estimated to hold more than five billion barrels of crude oil. If recovered, it could transform Brazil into a global oil power.
While the bulk of the oil is not expected to flow for at least four years, Mr. da Silva and his allies in Congress are pushing to get a series of four oil-related laws passed before Congress goes into recess in June or July.
The bills would seek to make the Brazilian national oil company, Petrobras, the operator of all future oil discoveries from the new region, known as the presalt region. They would also include a mammoth capitalization of Petrobras, a stock issuance expected to be valued at more than $50 billion, said Christopher Garman, an analyst with the Eurasia Group, a risk consulting firm in New York.
With what could be hundreds of billions of dollars at stake over decades, the proposed bills have become extremely contentious in Congress, where opposition politicians are seeking to stall a full vote on the bills until after the presidential election in October.
“What Lula wants to avoid is that this huge fight over distribution of royalty taxes gets in the way of approving the proposal for oil reform,” Mr. Garman said. “That is the risk for the government.”
The proposals on oil reform and the issuance of stock in Petrobras came under a cloud last week when two members of Congress from states that do not produce oil, Ibsen Pinheiro and Humberto Souto, proposed the idea of equally distributing the portion of royalties from oil revenues that go to states and municipalities. This would include both past and future oil developments. The lower house approved the proposal 369-72.
The federal government receives about 40 percent of the nation’s oil royalties, and most of the rest currently goes to the oil-producing states.
Mr. Garman and other analysts said they expected that Mr. da Silva would eventually veto any bill that included a radical redistribution of royalties. But faced with the presidential election in the fall, in which he is trying to transfer his huge popularity to his chosen successor, Dilma Rousseff, his chief of staff, the president has been treading softly on the proposed redistribution.
With Mr. da Silva traveling in the Middle East, Jose Alencar, Brazil’s vice president, said Wednesday that the issue “needed to be debated broadly” in the Senate, and that the rights of producing states that based their budgets on existing rules for oil royalties have to be considered.
The dispute is steeped in election-year politics. For Mr. Cabral, the governor of Rio, the fight is a chance to show Mr. da Silva and his Workers Party that Mr. Cabral can be an influential running mate for Ms. Rousseff, said Alexandre Barros, managing director of Early Warning Consulting, a political consultancy in Brasília.
Ms. Rousseff’s likely campaign opponent, the governor of São Paulo, José Serra, was initially silent on the issue; São Paulo is a much smaller oil producer than Rio. But on Wednesday he, too, condemned the measure.
*Mery Galanternick contributed reporting.