Privatization plans mask problems at Petrobras

Despite President Jair Bolsonaro’s speech on the privatization of Brazil’s crown jewel, oil giant Petrobras has had trouble unloading even a handful of refineries. And your chances have never been worse.

With fuel demand still unstable from the pandemic and refineries shutting down elsewhere, Brazil is giving potential buyers another reason to stop: Petrobras is under increasing pressure to sell cheaper gasoline and diesel, a practice that will encourage it. It has generated losses of tens of billions of dollars in the past and that would hurt the competition.

The president himself has often demanded lower fuel prices as the country grapples with double-digit inflation in the run-up to next year’s elections.

Since coming out of a huge corruption investigation, Petrobras has sought to present itself as an independently managed producer focused on the largest deepwater oil discoveries of this century. It has a goal of raising $ 35 billion from asset sales, including eight refineries, but has so far only managed to sell two of them and raise about a tenth of that goal.

This month it became clearer that the refinery sale plan launched in 2017 faced a hurdle after Ultrapar Participações SA will withdraw from a deal to buy the Refap plant, citing concerns that Petrobras will bring cheap gasoline to the market to help the government contain inflation. Attempts to sell two other refineries earlier this year also failed.

“It is not about the asset itself, but about how Petrobras will set the price of gasoline in the future“, said Fernando Valley, who covers oil and energy in America for Bloomberg Intelligence. “Your best chance is to sell this year. If not, it is almost impossible; They really can’t do it in an election year. “

Petrobras It said it remains committed to selling 50% of its refining capacity and declined to comment on the impact of the policy on its divestment plan.

Bolsonaro’s top contender in the 2022 presidential race, former President Luiz Inácio Lula da Silva, has repeatedly said that Petrobras should sell fuel below international prices. Since the government owns more than 50% of the producer’s voting shares, it doesn’t take much more than the president’s decision to change the company’s board of directors, senior management and policies.

The CEO, Joaquim Silva and Luna, a former Army general appointed by Bolsonaro, has been questioned by Brazilian lawmakers about the recent gasoline hike. The head of the central bank has also complained about the impact of energy prices on inflation.

In September, Brazil’s benchmark wholesale price index rose about 25% from the previous year, while consumer prices increased more than 10% for the first time since 2016.

Bolsonaro expressed his frustration with fuel prices during an interview broadcast Oct. 14 on his Facebook page. He said he is blamed for high fuel prices even though he has no control over them, so he raised privatization as a solution.

“It’s very easy: gas goes up, blame Bolsonaro ”, said. “I want to privatize Petrobras.”

Petroleo Brasileiro SA, as the producer is formally called, still owns 13 of the 16 refineries in the country. Selling eight of them seemed a bit easier before COVID-19 triggered a slump in the oil market last year, while the transition to cleaner energy takes center stage.

It also doesn’t help that Brazil with China have deteriorated under the Bolsonaro Administration, reducing the investment possibilities of the main buyer of energy assets in emerging economies in recent years.