Petrobras Oil Refinery Privatization Will Increase Fuel Prices in Brazil, According to TCU Projections

With Plans to Privatize 8 Oil Refineries, Petrobras Advances in Search of New Investments for the Sector, but May Cause Fuel Prices to Rise in Brazil in the Short Term, According to TCU Projections

Although Petrobras’ project for the privatization of 8 oil refineries, announced in 2019, is beneficial for the state-owned company, fuel prices in Brazil may experience a short-term increase. These projections were made in the report by the Federal Court of Accounts (TCU), released this past Tuesday, (10/05), which also points out the main issues surrounding this process of selling the facilities to private companies.

TCU Report Points Out Main Issues Surrounding the Privatization of Petrobras’ Oil Refineries and States That Fuel Prices in Brazil Will Increase

After the completion of the privatization process of 8 oil refineries that Petrobras is planning, the oil and gas market in Brazil will need to adapt. Thus, the main impact, according to the TCU report, is the increase in fuel prices. And, although a collapse in the sector is not expected, the national market may take time to stabilize with the changes in prices, as the entire production chain depends on these resources.

The state company’s project became known as the New Refining Market, and the TCU report was titled “Risks and Opportunities of the Transition to the New Refining Market.” Thus, the TCU states in its report that “no efficiency gains are expected in the short term, which is why there is a considerable risk of the formation of less competitive markets soon after Petrobras exits” — that is, price increases for consumers. Mitigating these risks depends on investments in pipelines, terminals, and railways.

Regarding a widespread blackout in the Brazilian market, the TCU reassures entrepreneurs and states that the privatization project of Petrobras’ oil refineries will not cause such a problem. However, the report states that one issue that may intensify in Brazil is the risk of localized shortages, as the national territory does not have a large reserve of fuels for such moments. Thus, the TCU continues to warn Petrobras and the oil and gas companies about the state-owned company’s project to sell these facilities to private companies.

Project for the Privatization of State-Owned Oil Refineries Is Still in Its Initial Stages and Fuel Prices in Brazil Cannot Be Affected for Now

During 2019, Petrobras announced its privatization plan and committed to the Administrative Council for Economic Defense (Cade) to sell 8 of its oil refineries to private companies. Thus, economists and bodies in the oil and gas sector began to prepare for the possible impacts of this decision on fuels and the entire production chain in Brazil, but the company’s initiative is still in its initial stages.

This is because, so far, the company has only completed the sale of one asset: the Landulpho Alves Refinery (Rlam) in Bahia, to the Mubadala fund, for US$ 1.65 billion, in November 2021. Now, Petrobras is focusing its efforts on the privatization of oil refineries in an effort to finalize the sale of the Isaac Sabbá Refinery (Reman) in Amazonas and the Shale Industrialization Unit (SIX) in Paraná, still this year.

Finally, the company has also signed a contract for the sale of Reman to the Atem Group for US$ 189.5 million, in addition to a commitment term with F&M Resources for the sale of SIX for US$ 33 million, but it has not yet announced dates for the processes.