(Adds Ternium dropping negotiations on ThyssenKrupp plant, CSA on lawsuit notification)
By Rodrigo Viga Gaier and Guillermo Parra-Bernal
RIO DE JANEIRO, Dec 20 (Reuters) - Rio de Janeiro state prosecutors filed a lawsuit against former state Governor Sérgio Cabral, two of his former secretaries and ThyssenKrupp AG steelmaking unit Companhia Siderúrgica do Atlântico SA for administrative impropriety over the granting of an operations license.
The lawsuit worsens the prospects for selling the money-losing Brazilian plant, as Germany's ThyssenKrupp has been trying to do for four years.
Cabral, currently in jail pending trial on unrelated corruption charges, and his former secretaries may be fined and barred from public office for eight years if they lose the suit, according to a statement from prosecutors.
CSA declined to comment saying it was not notified of this new lawsuit and lawyers for Cabral did not immediately comment.
The CSA plant is the largest single foreign investment ever made in Brazil, costing about $10 billion.
Ternium SA, which had resumed negotiations to acquire the plant in October, gave up on the deal recently considering the regulatory and tax risks involved, a source with direct knowledge of the matter told Reuters this week.
Ternium declined to comment and ThyssenKrupp did not immediately respond to requests for comment.
State prosecutors say CSA was granted a temporary environmental license to begin operations in 2010, although the state's environmental body opposed it. At the same time, the steelmaker received tax breaks from the state.
The steelmaker may be barred from winning new public contracts in Brazil until it has paid for environmental damage if it loses the suit. CSA could also be barred for five years from receiving tax breaks in the state. (Reporting by Rodrigo Viga Gaier; Writing by Tatiana Bautzer; Editing by Diane Craft and Alan Crosby)