Petrobras vows to resist Lula effect on fuel pricing

Brazil's Petrobras is trying to reassure investors that its market-linked fuel pricing is immune from former president Luiz Inacio Lula da Silva's pledge to dismantle it if he wins back his old job in October 2022 elections.

In New York today, the state-controlled company showcased its $68bn 2022-26 business plan. Analysts there repeatedly questioned whether the firm was equipped to resist interference by leftist icon Lula if he should prevail. With a commanding lead in preliminary polls, the two-time former president has threatened to reverse Petrobras' refinery sales and revert to the opaque pricing in place during the 13 years that his Workers' Party held power.

"We are not going to maintain this policy of increasing prices for gas and gasoline that Petrobras has adopted because it has to even out prices with the international market. Those who must profit from Petrobras are the Brazilian people," Lula said today on social media. In a local radio interview earlier today, the former labor union leader pledged to change the company's market-based pricing if elected next year.

Petrobras compliance director Salvador Dahan said the company's decentralized corporate structure, including multiple review committees, is intended to mitigate such risks. Adopted in October 2016, the company's market-based pricing policy is guided by import price parity, departing from years of below-market pump prices that piled up debt. The company brought down total debt levels to $60bn in the third quarter from $132bn in 2014, and continues to sell a range of assets to manage indebtedness.

Incumbent conservative president Jair Bolsonaro, who is expected to run for re-election next year, also criticized the company's fuel pricing policy while on the campaign trail, winning the support of truckdrivers. Recently he has questioned the company's profit levels and made management changes that appeared aimed at controlling pump prices — interference he and Petrobras chief executive Joaquim Silva e Luna have repeatedly denied.

Bolsonaro's combative rhetoric has not helped the firm in its effort to court asset buyers. A delay in shedding 1mn b/d of capacity by a 31 December deadline established in a 2019 anti-trust agreement now leaves the firm's sales process exposed to political turbulence in an election year.

In a sign of progress today, Petrobras concluded the landmark $1.8bn sale of its 333,000 b/d Landulpho Alves refinery (RLAM) to Abu Dhabi's state-owned investment fund Mubadala. But the company pulled the plug on sales processes for the 208,000 b/d Alberto Pasqualini refinery (REFAP) refinery and the 208,000 b/d Presidente Getulio Vargas refinery (REPAR) earlier this year. Petrobras'downstream director Rodrigo Costa Lima e Silva said the initiatives could be relaunched in 2022, but binding offers will only be accepted after the 2022 elections.

Last week, Petrobras said it plans to complete two 130,000 b/d phases at the Abreu e Lima refinery (RNEST) — which failed to attract bids earlier this year — by 2026. A distillation unit at the second phase is 90pc complete, a coker 80pc done, and other facilities around 70pc, Lima e Silva said. The sales process for the completed refinery is expected to be launched around 2024.

RNEST was at the center of the sweeping Lava Jato corruption probe that saw Lula briefly imprisoned but later exonerated over judicial bias.

"The objective of Lava Jato, we already know what it was. It was to destroy the naval industry in the country. Destroy the oil and gas industry. Look at the price of gasoline now... There is no explanation for this price policy linked to the international market," Lula said on social media.

By Nathan Walters