Petrobras: Price change is small, in theory – 05/16/2023 – Market

What changes in the definition of fuel prices and other Petrobras products? In theory, nothing, or nearly so.

In practice, we will only know after a few months, depending on what will be done with prices, their relation to international quotations, and what will be the company’s result. Apart from very obvious and gross exaggerations, it will be necessary to wait a couple of quarters. For now, at least, Luiz Inácio Lula da Silva (PT) scores a goal for the crowd. But the price was not “Brazilianized”. For now, at least.

The more objective part of the statement in which the company unveiled what it called a new “commercial strategy” reads like a footnote in an introductory microeconomics book. It’s as obvious as it is generic. But it obscures the pricing method, which gets more complicated, perhaps regionalized.

The definition of the price will depend, from what can be inferred: 1) The amount charged by competitors (customer alternatives), bidu; 2) The best combination (an optimal one) between production and imports, given costs and alternative purchase and sale prices, which are certainly more obscure now. Costs: oil, refining, capital, who knows what combination and weight.

But the basic reference price for these accounts is, roughly speaking, the international quotation. By the way, the president of Petrobras himself, Jean Paul Prates, said that “the international price reference will be maintained”.

Given the complexity of defining an optimal combination of refined products production and sale price at Petrobras, among other reasonable complications, it is very difficult to have an exact idea of ​​the result of this account, apart from, I repeat, in the case of very large lags and coarse.

By the way, from 2005 to 2010, in the years Lula 1 and 2, the price of Petrobras gasoline fluctuated somewhat above or somewhat below the international price, according to the compiled series and calculations by the Brazilian Center for Infrastructure (Cbie) . Seemed reasonable.

According to this journalist, in 41 months the price of gasoline at the refinery (without Cide and PIS/Cofins) was below the international quotation of interest for Brazil (including freight and storage); at 31 months, above. In the years of Dilma Rousseff 1, however, the price was above the international level in just two months.

Keeping prices below international quotations can also harm supply. The country imports about a quarter of the diesel it consumes. If the price is low, other companies won’t matter. In order to avoid shortages, Petrobras will be forced to import, with additional losses.

As for Petrobras’ pricing policy, it must be remembered that the company’s 2020 Bylaws and the State-owned Law are still in force. In theory, these norms impose important limitations on the company’s political manipulation of prices. In practice, this may not be exactly the case. But messing with prices too much and, therefore, jeopardizing results, can lead to lawsuits here and abroad, revolt by minority shareholders or other interested parties.

Yes, the government can propose a change to the law and statute. Politically, for now, it will not be very easy. Obviously, it will raise suspicions of greater intervention in the company, with predictable financial repercussions.

Petrobras can adopt policies guided by the Union, “in order to contribute to the public interest that justified its creation”, say the State Law and the company’s Statute. But the company can only be subject to conditions other than those of the market when such policy:

• “I – is defined by law or regulation, as well as provided for in a contract, agreement or agreement entered into with the competent public entity to establish it, observing the wide publicity of these instruments;
• II – has its cost and revenue broken down and disclosed in a transparent manner, including in the accounting plan”, among other restrictive conditions. The company must be compensated for any losses.

The Statute only details and expands what is in the State-Owned Companies Law, where it is written: “Any obligations and responsibilities that the public company and the government-controlled company that explore economic activity assume under conditions different from those of any other company in the private sector in who work must:

• I – be clearly defined by law or regulation, as well as provided for in a contract, agreement or agreement entered into with the competent public entity to establish them, observing the wide publicity of these instruments;
• II – have its cost and revenue broken down and disclosed in a transparent manner, including in the accounting plan.”