Reversing pipeline sale could harm Brazil regulator

Brazilian state-controlled Petrobras will have a hard time trying to interrupt its sale of gas pipeline company TBG as it may undermine antitrust agency Cade's authority and contradict prior pledges by President Luiz Inacio Lula da Silva.

TBG is the last piped gas transportation company still owned by Petrobras — connecting Bolivian gas supply to southeastern states — after the company sold other pipeline grids in 2020 and 2021. The sale was done under a commitment to Cade to diminish the company's stranglehold on Brazil's natural gas market.

Global private equity firm EIG Global Energy Partners made a bid for Petrobras' 51pc stake in TBG early last year. In November, then president-elect Lula's transition team met with Petrobras' directors and demanded that all Petrobras' assets sales be put on hold for analysis by the new administration.

To stop the sale, Petrobras would have to convince Cade to alter its 2019 ruling that the sale and other actions were needed to promote competition — a difficult task, as Cade's board of counselors has not changed since, because its members enjoy four-year mandate. Petrobras would have to show Cade the reasons to change the commitment and that keeping TBG would not harm competition to the gas market.

The sales process is 51pc complete, according to the mines and energy ministry (MME).

Stopping the sale, if successful, would undermine Cade's independence, as it may make it appear that the agency's decision-making process could be subject to political pressure.

"Cade is a technical agency and we presume its decision was made under technical analysis," said Giovani Loss, a lawyer at the Mattos Filhos law firm. "The elected federal administration heavily criticized the previous office's interference in the justice system and other agencies. If Petrobras questions Cade's decision, they are flouting a technical agency."

The Brazilian law for competition protection allows Petrobras/Cade-like commitments to be altered, provided that they are proven to be excessively onerous and that the changes are not detrimental to third parties. Therefore, Cade would also have to consider those conditions before making any changes to the deal, yet another step in an already arduous move.

"The request's motivation to change the commitment to Cade must be transparently publicized, which I think is improbable," another lawyer told Argus. "I am curious to see which drapery would be given by Cade and Petrobras in a decision to change the commitment to make it plausible according to the justice system."

The commitment signed by Petrobras with Cade to increase gas market competitiveness went further than requiring the state-controlled firm to sell the TBG, TAG and NTS pipeline grids and its shares in state distribution companies owned by subsidiary Gaspetro. Other clauses required Petrobras to not buy gas from other producers at the wellhead, so those producers would be forced to search for other customers.

The opportunity to reopen discussions on Cade's commitment could be used by Petrobras to change other obligations, which threatens the pace of gas market liberalization, market participants told Argus.

The MME says that 85pc of Petrobras' commitment with Cade was completed as of September. The company can be fined and suffer other penalties if the commitment is not met without sound reasons.

By Flávia Pierry