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Petrobras plan to end refining monopoly in Brazil comes with caveats

May 16/2019

MOSCOW (MRC) -- Brazilís Petroleo Brasileiro SA drew praise from investors last month for announcing a plan to sell off eight of its refineries in a process the company says could fetch some USD15 billion, reported Reuters.

Thatís because the company is hanging onto its refineries in the states of Sao Paulo and Rio de Janeiro, home to over 60 million Brazilians. They collectively process about 1.1 million barrels of oil per day, according to Brazilís oil regulator, about half of the companyís total capacity.

"I think itís a little bit for show to make it seem like the refining market is being opened up," said Alberto Barriga, a former refining executive at Petrobras and a partner at consultancy Bizup. "But it wonít make any difference in terms of competition as the distance between refineries is large and transport will be too expensive (to move fuel between regions)."

In response to questions from Reuters, Petrobras said its refineries in Sao Paulo and Rio de Janeiro will be subject to competition from fuel imports and cabotage, or the transport of fuel from other refineries within Brazil.

It added that four of the five refineries it will retain are integrated by pipelines and other infrastructure, making the sale of individual assets difficult. In addition, the facilitiesí proximity to Brazilís prolific Campos and Santos offshore oil basins supports its view that they are strategic, Petrobras added.

Truckers protesting high diesel prices last year led Brazilís government, under former President Michel Temer, to demand that Petrobras cut fuel prices, a move that hit the companyís shares and triggered the chief executiveís departure.

That intervention and a more recent one by new President Jair Bolsonaro underline how politics often impinge on the Brazilian energy sector.

Some analysts have said breaking up Petrobrasí monopoly on refining could help lower prices at the pump by boosting competition and lessen the firmís exposure to meddling from Brasilia.

But the prospect of political interference could dampen investor interest in the refineries.

Petrobrasí plan to retain the refineries in the countryís economic sweet spot could also run afoul of antitrust regulator Cade, which in December opened an inquiry into Brazilís refining market.

ďWhatever model Petrobras ends up using is going to have to pass through Cade. Does it stimulate competition? Or does it generate regional monopolies?Ē said Adriano Pires, a consultant for Brazilís Center for Infrastructure.

"It could be that Cade makes them sell something (in Rio or Sao Paulo)."

Among the natural buyers for the refineries are national fuel distribution firms such as Raizen and Ipiranga, the fuel distribution unit of Ultrapar Participacoes SA, as well as trading firms that have established a presence in Brazil such as Glencore PLC and Vitol SA, analysts say.

Petrobras distribution unit Petrobras Distribuidora SA is also seen as a potential candidate after its planned privatization.

But for a successful sale, the government will have to prove its free-market credentials.

"The government has to decide if it believes in the market or not," said Edmar de Almeida, a professor and researcher and the Federal University of Rio de Janeiro.

As MRC informed before, in October 2017, Petrobrasí minority stakes in Braskem and Deten Quimica was excluded from Petrobrasís divestment program, according to a government decree published in Brazilís Official Gazette. The decree prevents Petrobras from immediately selling its minority stake in Braskem, which had been announced last year. A new decree will be required to release the stock sale.

Headquartered in Rio de Janeiro, Petrobras is an integrated energy firm. Petrobras' activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks as well as refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
Author:Margaret Volkova
Tags:crude and gaz condensate, petrochemistry, Braskem, Petrobras, Brazil.
Category:General News
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