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RIO DE JANEIRO/SAO PAULO, April 17 (Reuters) - The state government of Rio de Janeiro, which is feverishly preparing for next year's Olympic Games, has failed to pay its phone and Internet bills, triggering a cutoff in service, the phone company responsible said on Friday.
Brazilian telecoms firm Oi SA said it had cut the lines after the state government racked up debt of 170 million reais ($55.7 million) in unpaid internet and telephone bills.
In the midst of funding a number of large infrastructure projects in time for the Olympics, Rio de Janeiro state has seen its tax take fall as a drop in the oil price has reduced oil royalties.
The Olympics are expected to cost nearly 40 billion reais ($13.1 billion), including projects like extending the subway and regenerating the port area of the city of Rio de Janeiro, which though not directly linked to the sporting event are planned to be finished for the Games.
A corruption scandal at state-run oil company Petrobras , based in the city of Rio de Janeiro, capital of the state of the same name, has further slowed investment and hurt the state economy.
Ratings agency Standard & Poor's stripped the state of Rio of its investment grade last week citing its weakening finances.
"This total (170 million reais) includes bills which were due over three years ago," Oi told Reuters via email, adding that the company had "for months been trying to negotiate payment with the government."
The cuts to the lines did not affect vital services such as the fire service, schools or hospitals, the company said.
A spokesman for the state government confirmed the lines had been cut, but contested the debt figure and added that Oi also owed the state money. Negotiations between the state and the company were "advanced," he said.
The cost of the Olympics is being borne by Brazil's federal and Rio state and local governments, plus private sector sponsorships. The state's funding share amounts to billions of dollars.
$1 = 3.05 Brazilian reais Editing by W Simon