Government reviewing Petrobras price formula: CEO

Brazil's federal government is considering changes to the market-based fuel pricing formula used by state-controlled Petrobras in order to bring a definitive end to a crippling truckers' strike and stave off further unrest.

On a call today aimed at calming investors, Petrobras chief executive Pedro Parente said Petrobras sent a team to Brasilia to discuss the government's recently announced diesel subsidy policy. Parente said a provisional law covering the details of the policy is forthcoming, and suggested the final draft could alter the formula that the company uses to determine domestic diesel prices.

"We all agree we have to preserve the economic result, the financial outcome of our pricing policy," Parente said. "We know quite well what is key to us and what has to be preserved. We are currently discussing with the government how things should be put in place…so it would come as no surprise that a formula has to be adopted. But it's important that we have total freedom to establish our own margins."

Parente ushered in a more transparent fuel pricing policy in October 2016 with international parity as the guiding principle, following a long period of below-market prices that cost the company billions of dollars.

The new policy was adjusted in June 2017 to allow for daily price fluctuations, a factor that makes prices hard to predict, motivating, in part, the truckers' strike, Parente said.

On 27 May, after the strike had snarled food and fuel supplies, embattled Brazilian president Michel Temer ceded to striking truck drivers with a 60-day, R0.46/l ($0.12/l) reduction in diesel prices. Parente says around R0.16/l of that amount will come from a reduction in federal fuel taxes Cide and PIS/ Cofins, a proposal that is still being discussed in Brazil's congress, and the remaining R0.30/l will be a government subsidy.

Government officials have said the subsidy will be extended to diesel imports to ensure a level playing field. An import tax is also expected to be detailed in the provisional law.

The government had hoped the controversial proposal, which should be reviewed on a monthly basis through the end of the year and could end up costing around R10bn, would bring a definitive end to the strike that started on 21 May. Strike leaders blame outside instigators for smaller ongoing protests.

Parente downplayed the impact of the government's decision on the company's plans to sell 60pc stakes in four of its domestic refineries. The executive also said a significant reduction in market capitalization over the last week has not disrupted its strategic goals, including participation in next week's fourth pre-salt licensing round and the conclusion of negotiations concerning the pre-salt cluster known as the transfer of rights region.

Temer's weakened government is now searching for ways to improve Brazil's fuel sector and lower consumer costs.

Among the proposals announced today by anti-trust watchdog Cade are variable rather than fixed federal fuel taxes, direct ethanol sales to distributors, and self-service stations. Throughout the day, congressional commissions debated proposals to lower fuel prices in the country. A recurring theme was the removal of Parente.

Appointed to the post in May 2016, Parente says he will not step down unless the government forces him to do anything unlawful.

"This is a state-controlled company and elections have a big influence on what happens in the company. What we have tried to do is manage the firm in the best way possible to create the right conditions to protect it," he said today.