<article><p class="lead"><i>Brazilian state-controlled Petrobras' $1.65bn sale of the 333,000 b/d Landulpho Alves refinery (RLAM) to Abu Dhabi's Mubadala and seven other refinery deals expected by the end of 2021 are at risk of being disrupted by concerns over Brasilia meddling in the company's fuel pricing policy, leaders from Brazil's fuel importers consortium Abicom warn. In a recent interview with Argus, Abicom president Sergio Araujo and market intelligence consultant Milena Mansur discussed pressing market concerns and why they remain optimistic for fuel supply in the country. Edited highlights follow. </i></p><p class="lead"><b>What risks does Abicom see with Petrobras' refinery sales plan?</b></p><p class="lead"><i>Araujo</i>: There is uncertainty and hardly any investor will complete the purchase of a refinery at this time. I fear that Mubadala, which has advanced in the purchase of the RLAM refinery, should rethink whether to sign a check or not. When there is a real possibility of government intervention, of the majority shareholder influencing pricing, there is no attraction for investment. Debates related to assets value also began to emerge, and we've seen there are actions challenging the values.</p><p class="lead"><b>Days after unexpectedly naming a new Petrobras chief executive, President Jair Bolsonaro said he just wanted "transparency and predictability" and did not want to fight with the company. With recent changes, is it possible to bring some security or predictability to importers?</b></p><p class="lead"><i>Araujo</i>: The situation is uncertain and we are paying attention to the facts to have a position. The market knows that the motivation for the departure of president Roberto Castello Branco was the increase in the price of diesel. This is a contradiction: there will be no [government] interference, but the president [of Petrobras] will be replaced because he increased prices. It shows that, in fact, Petrobras had been dampening the increases. We are still not clear about the new management.</p><p class="lead"><b>After operating at a loss for months, are importers fighting for survival? </b></p><p class="lead"><i>Araujo</i>: Survival is threatened, but I am optimistic and very persistent. Brazil has a supply deficit of the main oil products such as diesel, gasoline and jet fuel. Even in a scenario of crisis and social isolation, imports were necessary. </p><p>When Brazil grows again, the need will be greater and there will be no [additional] domestic production. If Petrobras reverts to selling imports below parity, it will represent a loss for the company and its shareholders and prevent [investment in] refining and logistics infrastructure. Petrobras will practice prices aligned with import price parity, opening space for independent importers, or it will practice the prices that the government wants, with a social bias, pretending that it is not working with commodities.</p><p class="lead"><b>The ministry of mines and energy is considering the creation of a fund to offset fuel price volatility, an idea previously discussed. Do you believe the proposal is now ripe for adoption?</b></p><p class="lead"><i>Araujo</i>: We have discussed this issue since May 2018. The solution to resolve the impasse: let the refiner charge a price in line with the market, establishing a business environment in which there is regulatory and legal security to make investments. Such an amortization fund would use excess revenue from oil royalties. I do not see a solution different from this today. </p><p>The idea is gaining more momentum now because President Bolsonaro, in his words, is "rubbing salt in the wound". This provokes a more intense debate and an extreme decision was made to remove the president from a state-owned company that was bringing good results to the company.</p><p><i>Mansur</i>: This fund has federal resources for all producers and importers, it is a fund to serve all diesel and gasoline suppliers. This money must come from the government and not from Petrobras, so as not to harm the company. At a time when fuel prices are pressured by foreign exchange or oil prices in the international market, government royalty revenue is also increasing.</p><p class="lead"><b>What is the likelihood of a supply crisis, considering the recent decline in fuel imports? </b></p><p class="lead"><i>Araujo</i>: I don't have a precise answer, I would have to check because I don't know stocks held by distributors and importers. Our associates have received contacts from distributors because they had volume cuts in five or six hubs, in which Petrobras informed that it would not meet all orders. We have information that it had a cut of up to 60pc. The risk can be mitigated by using imported stocks originally intended for sale in January and February.</p><p><i>Mansur</i>: The role of the importer is to complement gaps in domestic production, but short notice doesn't permit planning for timely cargo deliveries. </p><p class="bylines"><i>By Gabrielle Moreira and Alexandre Melo</i></p></article>
