End of Petrobras’ divestment commitments could mean reopening of investigations

Agreements signed by Brazil's federal oil company Petrobras and antitrust regulator Cade last week could lead to the reopening of administrative proceedings that gave rise to the cease and desist agreements (TCCs) originally signed between the firm and the agency. 

The contract amendments, which put an end to Petrobras' remaining divestment commitments, could also pave the way for other companies to demand a review of the terms of similar agreements, signed in order to avoid threats to competition.  

That is the view of Luciana Martorano, a partner at Campos Mello Advogados in cooperation with DLA Piper and head of the antitrust practice in Brazil. 

Originally signed in 2019, the TCCs were triggered by allegations of abuse of Petrobras' dominant position in the refining and natural gas areas. In order to halt Cade's investigations, the company undertook to sell a series of natural gas transportation and distribution assets, as well as refineries.  

Of the divestment commitments made, there remained the sale of natural gas pipeline operator Transportadora Brasileira Gasoduto Bolívia-Brasil (TBG), as well as the Abreu e Lima (RNEST), Presidente Vargas (Repar), Gabriel Passos (Regap), Alberto Pasqualini (Refap) and Lubrificantes e Derivados do Nordeste (Lubnor) refineries.

"How will these behaviors that were already practiced back then be remedied through the amendments, which are looking to the future?" Martorano told BNamericas. "Cade has to guarantee to the complainants that they won't happen again, but with the loosening of the remedy [the remaining divestment commitments], it loses some of its effectiveness," she added.

The amendments signed with Cade establish additional safeguards for the process of electing independent members to TBG's board, as well as the independence of TBG's management from Petrobras and a prohibition on transferring employees from Petrobras or its subsidiaries to join the board of TBG. 

Regarding the refining market, Cade ordered the creation of mechanisms to monitor data related to Petrobras' commercial activities in the oil and oil products markets, making it possible to verify the non-discriminatory nature of the company's prices. 

Petrobras will also have to disclose non-discriminatory guidelines for oil deliveries by sea to any independent refinery in national territory and offer contracts that allow 'cargo to cargo' negotiation to any independent refinery for deliveries by sea.

Martorano warned that the amendments could serve as an invitation to parties dissatisfied with agreements signed with Cade or with cases still pending to knock on the agency's door. 

"It’s legitimate, within the legal process, within the democratic rule of law, for other players to be entitled to isonomic treatment," she argued.  

The lawyer also suggested that Cade's decision could send out a message that institutions in Brazil will act according to government policy rather than a solid policy to defend competition, thus discouraging new private investment.

Marcelo Frazão, a partner at Campos Mello Advogados in cooperation with DLA Piper and co-head of the energy and natural resources sector in Brazil, said Petrobras is opening a discussion on the following question: How do the rules for de-verticalization, provided for in the new gas law (approved in 2021), apply retroactively? 

He underscored that Petrobras claims it is possible to maintain a corporate relationship with companies that have obtained authorization to carry out gas transportation activities up until the date of publication of the new gas law. 

"In this sense, Petrobras argues that it can maintain a shareholding in the transport company TBG, as long as it complies with the obligations of independence and autonomy to be defined and certified by [Brazi's sector regulator] ANP," Frazão said.

But another possible interpretation is that the de-verticalization rules only allow the corporate relationship until the end of the transition period for de-verticalization, which runs until March 4, 2039. 

"In other words, on that date, there can no longer be any corporate relationship. This will generate great debate among investors and companies involved in the natural gas market. Transportation activity is extremely capital intensive and requires long-term predictability for investments," he said.