THE SALE OF PETROBRAS REFINERIES

The Petrobras refineries have been undergoing a privatisation process, intensified recently in the face of government initiatives that provide for privatisation procedures as a response to the national economic crisis. Thus, of a total of 13 refineries, in June the Administrative Council for Economic Defense (Cade) approved the privatization of four of them, and in September it announced the sale of another four, which would represent a total of little more than 60% of the national refining capacity and a refining capacity of about 1.1 million barrels per day. The eight units in question are Refap, in Rio Grande do Sul, Rnest, in Pernambuco, Rlam, in Bahia, Regap, in Minas Gerais, Repar, in Paraná, Reman, in Amazonas, Lubnor, in Ceará, and SIX, in Paraná, and their divestiture process should be concluded within 24 months.

This wave of privatization of the refineries within the company also encompasses the logistics operations that are related to refining (storage and distribution infrastructure) and the disposal of the control of BR Distribuidora through a share offer, and can be seen as a continuation of the measures that led to the reduction of the refining volume by up to 40% in recent years. Following what was already established in the Cessation of Practice Commitment Term, it was defined that companies from the oil and gas sector and financial investors that meet minimum annual revenue or minimum value requirements in assets under management, respectively, may participate in the acquisition processes. The sale may also not be made to the same group, ensuring there will be no market reconcentration.

It is important to stress that all these privatisations do not violate any law and have been conducted in a legal and judicially relevant manner. The monopoly of refining activities in the country, even though it exists in practice and is held by Petrobras, is not a legal monopoly. This monopoly was broken in 1997 through Law 9.478/97. However, the concentration of activities by the state-owned company until today (around 90% of all national refining capacity), placed it in the position of major responsible for the performance of the activity in the country. This means that the state-owned company was obliged, even if indirectly, to maintain a minimum level of investment to ensure the maintenance of this refining capacity on a national scale and was still accounted as the largest, if not the only responsible for the price policy of fuels and other oil derivatives.

Thus, for some analysts, privatization is not all negative, since by promoting the deconcentration of the market that currently exists in Petrobras and by increasing the general level of competitiveness, there will be a consequent improvement in the efficiency and productivity of the refining carried out in the country, in stimulating future investments by new agents that will enter the market because they will find it more open and attractive. In this way, a decrease in the company's debt interest expenses is also expected as a result of privatization.

However, it is through refining processes that the three main types of fuels essential for the maintenance of contemporary life are obtained: diesel, gasoline and liquefied gas. In this sense, privatization directly impacts the state's ability to influence and set the prices of these products, since production will be fragmented and controlled by other market agents, not the state, many of them international.

This process also means that Brazil will lose, through one of its largest and most significant state-owned companies, the ability to add value in the production of a commodity that is valuable to the entire world and that it not only has in abundance, but also holds one of the most advanced technologies in the world to explore and produce it. In this sense, the tendency is that Brazil will increase the volume of crude oil exports as well as the volume of oil products imports, but, on the other hand, due to the difference of added value in the two products and the possible volatility in the international commodities market, it is likely that there will be an economic deficit between these commercial transactions as a result. In other words, there is a reduction of the company's efficiency in the name of market mechanisms, which translates into a loss of the state-owned company's control over it when it takes the opposite path from most of the world's oil companies, which is deverticalization.

In summary, these measures, besides failing to ensure the cash generation they initially propose, as they no longer allow the higher and more stable prices of refined products to offset the lower prices resulting from the volatility characteristic of the commodity market, end up putting Petrobras in a position of vulnerability in the market in the long term by also compromising its ability to generate investments in the oil, gas and renewable chain and to reduce its debt ultimately.

Finally, it should be noted that Petrobras has undergone several changes in recent years that have aligned the company's policies with the more liberal economic policies of the current government, such as the (non) pricing policy that follows and internalises the ripples of international prices and the national currency, and makes the price of domestic production comparable to and even more expensive than import costs, the creation of the new natural gas market, which removes the state-owned company's monopoly on the product and the STF's permission for Petrobras to sell its subsidiaries without the need for Congressional approval. The central issue is that, although much of the discussion of privatizations in the refining sector revolves around political and economic arguments, there is also a strategic dimension that gets neglected with the privatization process, even more so when it comes to a strategic resource such as oil. The more the resource and its infrastructure are transferred to foreign hands, the more the development of the national industry and economy is compromised with the reduction of the state company's participation in the national market.

Text by Maria Bragaglia, post-graduate student in Energy Law at CEDIN.