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Brazil Offers Petrobras Compensation For Lower Diesel Prices

fuel pump

Amid widespread trucker protests in Brazil against the recent price hikes in fuels, the government has offered Petrobras to compensate it with up to US$274.04 million (1 billion reias) for losses it would incur by cutting the price of diesel.

Reuters quotes a knowledgeable source as saying the government has suggested that Petrobras cuts diesel prices by a tenth for 60 days. The proposal follows a statement from a former government minister who is negotiating with the protesters that the cabinet has offered them adjusted fuel prices on a monthly basis rather than a daily basis, as Petrobras does now.

Petrobras agreed to the diesel price cuts, but said yesterday it will only enforce the cuts for 15 days. The announcement was followed by a credit rating downgrade for the company by BofA, Merrill Lynch, Credit Suisse, and Morgan Stanley.

According to bankers, the price cut itself will have a negligible effect on Petrobras’ balance sheet, but the implications of such a move include the company potentially losing its pricing independence, which is a much more serious matter for investors.

Related: Oil Prices Fall Despite Iran, Venezuela, Libyan Supply Outages

However, Petrobras CEP Pedro Parente said the decision to cut prices for 15 days and then start gradually bringing them back up to market levels had not been made under pressure from the government, but aimed to ease the pressure on the streets, where more than 200,000 truckers are protesting the price hikes resulting from higher international oil prices.

Even so, Reuters reported yesterday that the price cut decision had worried potential suitors for four refineries that the Brazilian state energy giant is selling. Citing unnamed sources, Reuters said investors were worried that if Petrobras changes its pricing strategy, it might lead to unfair competition at the expense of smaller private fuel retailers—bad news for refinery owners.

By Irina Slav for Oilprice.com

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