Greater governmental oversight of a sector largely within state control has long been expected, following numerous pronouncements by President Lula da Silva. But a more equitable sharing of Brazil's oil bonanza has been a bone of contention between the regions where oil production is located, including offshore Rio de Janeiro and areas away from the hub of energy industry activities.

Brazil has the second-largest crude oil reserves in South America, after Venezuela, and is rated by industry experts as one of the fastest-growing oil producers in the world. Rio de Janeiro state and its offshore reserves contain about 80 percent of Brazil's total production.

So far oil-producing regions have enjoyed cash windfalls from royalties while neighboring regions have looked on. Lula has declared his intention to change that.

Increased earnings from oil production and exports, Lula said, belong to the entire nation and should be used wisely to fund wider education programs, industrial and technological development and measures that help ease crushing poverty in the neighboring regions.

Brazil's oil production is set to increase dramatically as offshore sub-salt deposits are developed, placing Brazil next to Venezuela as a major regional petroleum power. Governors of Brazilian states closest to the deposits, particularly Rio de Janeiro and Sao Paulo, have expressed strong reservations about Lula's plans for a "fair and even" distribution of the new oil wealth.

The sub-salt oil reserves stretch about 500 miles along Brazil's coast, and their development is part of an ambitious program requiring a total spending of $174.4 billion over the next five years. Returns on that investment in the following years would run into hundreds of billions of dollars, according to industry estimates.

Lula's aides have indicated a new state oil company called Petrosal will manage most of the exploration and production in the offshore fields to allow for foreign investment without diluting ownership of Petroleo Brasileiro SA, Brazil's major global player in the oil and gas sector.

Although Brazil owns expertise and technologies to drill for new oil as much as 16,000 feet below the seabed -- a total of about 22,500 feet below sea level -- it plans to raise part of the required capital by offering Petrosal shares worldwide.

There appears to be little resistance to inviting foreign investors into the oil fields development, but there is mounting opposition from the governorates of the oil-rich states to Lula's plans to spread the benefits across Brazil.

Last week the president invited the governors for talks in Brasilia on a national consensus on how best to make use of the oil windfall. Energy Minister Edison Lobao told reporters that talks with key governors on the issue were "inconclusive" and required further discussions. Disagreements center on ways to divide oil profits between federal, state and municipal governments.

"This Monday, Aug. 31, represents a new Independence Day for Brazil," Lula said Monday on his weekly radio program. He said Brazil needs to benefit from the new oil discoveries by establishing a new framework that would allow the state to become "the owner of the petroleum."

The government also wants to create a social fund with revenue from oil to finance social programs and investments in science and technology.

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