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Brazil’s Petrobras Refineries’ Sale Suspended Due To Higher Price Demands – Exclusive Sources

John Wanguba by John Wanguba
December 15, 2021
in FX Industry
Reading Time: 7min read
Brazil's Petrobras Refineries’ Sale Suspended Due To Higher Price Demands – Exclusive Sources

Four sources with in-depth knowledge of the matter told reporters that at least once in the middle of the divestiture process of its biggest refineries, Brazil’s state-controlled oil company, Petrobras (PETR4.SA), has raised prices. This move is believed to have frustrated some bidders and delayed the long-awaited promise of breaking Petrobras’ monopoly in refining.

The last-minute changes in the divestiture process demanded by Petroleo Brasileiro SA, as the company is formally known, surprised bidders. The sources requested anonymity to disclose private discussions with Brazil’s largest state-run company.

Petrobras oil company

After a deal in June 2019 with antitrust watchdog, CADE, to introduce competition in fuel pricing, Petrobras, which used to control almost 100% of refining in Brazil, has committed to reducing its capacity by 50% selling eight of its 13 refineries. However, it has only sold three so far and a reduction in political pressures to artificially set fuel prices seems remote.

The sale of at least two of Petrobras’ largest refineries that are on sale – REFAP and REPAR – has been plagued by pricing changes, together with a paucity of buyer interest partially fueled by pressure from investors worried about ESG targets against buying fossil fuel assets.

According to oil regulator ANP data, the sale process of REFAP and REPAR, which have capacities of 201,280 barrels per day and 207,563 bpd respectively, producing 17.8% of Brazil’s fuel output, has yet to be restarted by Petrobras.

Although CADE extended a deadline for Petrobras to sell the eight refineries it had committed to divest to December 31 in July, Petrobras has publicly admitted that the deadline will not be met.

Rodrigo Araujo, Chief Financial Officer said on November 30 that Petrobras was unlikely to sell REPAR and REFAR before the October 2022 presidential elections.

petrobras gas station

Petrobras is “fully committed” to the sale of all eight of the refineries included in the agreement with CADE. For the three refineries that had their processes canceled, REFAP, REPAR, and RNEST, Petrobras will try again to sell them.

For LUBNOR, a 8,000-bpd refinery in the northeastern region that produces only asphalt and lubricants, and 150,00-bpd REGAP, located in the state of Minas Gerais, representing 7.1% of total refining capacity, the company is proceeding with their divestitures.

Petrobas Talks Breakdown

Since January, Brazilian conglomerate Ultrapar Participacoes (UGPA3.SA) had been in talks with Petrobras to acquire the REFAP refinery, which accounts for 7.7% of total Brazilian refining capacity and is located in the southern state of Rio Grande do Sul.

Two sources with knowledge of the matter said that since the beginning of the talks, Petrobras had been trying to get a higher price, and in September, it decided to ask for a higher bid. Thinking they had already secured a price and were discussing contract details, Ultrapar representatives rejected the request and left the talks.

On October 1, Petrobras confirmed that the talks had failed.

Ultrapar refused to comment on the matter. Petrobras declined to comment on particularly asking for a higher price for REFAP.

As for REPAR, a refinery located in the southern state of Parana that concentrates 10.1% of Brazil’s refining capacity, something different happened to it, according to ANP data.

A joint venture of Royal Dutch Shell (RDSa.L) and Brazilian energy company Cosan (CSAN3.SA), Raizen (RAIZ4.SA) had expressed interest in the asset. Even though Raizen delivered a bid above the initially set minimum price, Petrobras rejected the bid as too low after raising the price.

Raizen declined to increase its offer and no other bidders emerged. Petrobras said in a statement in February 2021 that it would not sell REPAR as it considered the bids offered to be too low.

Raizen declined to comment on this matter.

In a response to Reuters’ questions about the matter, Petrobras said:

“There was no rule change during the sale process.”

But, “different variables define the price and they have usually updated,” a fifth source that is familiar with the divestiture said. Global benchmark Brent crude has soared by about $10 to trade at $73 on December 14 since Petrobras launched the refineries sale process more than two years ago.

REGAP negotiations also appear to be stalled. The non-binding offers that Petrobras asked for were delivered in November 2019.

Although private equity firm EIG Global Energy Partners, which is the only bidder, delivered a bid, negotiations did not progress. EIG declined to comment on the matter.

Slow Divestiture

Petrobras has sold three refineries so far. United Arab Emirates investor, Mubadala Investment Co bought the largest RLAM refinery, in the northeastern state of Bahia with 330,000 bpd capacity, which represents 14% of Brazilian refining capacity, for $1.8 billion.

Furthermore, very small refineries in the northern region, including 46,000 bpd REMAN to Brazilian regional group Atem and 6,000-bpd SIX to Forbes & Manhattan Resources, were sold. So far, the assets sold are still insufficient to influence prices in the domestic fuel market.

Demand for refineries is dwindling as the asset sales drag on. For several of them, a single offer was fetched and there was no one interested in RNEST, in the northeastern state of Pernambuco.

Petrobras announced that will invest in the 115,000-bpd RNEST refinery and raise its capacity to 260,000 bpd by 2027 after the failure of the sale.

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Tags: Brazilbrent oilcrude oilfuel priceInvestmentMubadalaOiloil pricesPetrobasSouth America

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