Why Brazil is preventing further refining investments

Brazil’s oil workers union FUP recently said that the return of control of the Mataripe refinery in Bahia state to Petrobras is close to happening. 

If it does take place, the federal oil giant will increase its market share in refining to 71% from around 60%, according to data from local private refiners association Refina Brasil. 

“It’s important to emphasize, however, that this possible transaction is not the reason that prevents Brazil from receiving more investments in the refining sector, but the persistence of regulatory and competitive distortions that hinder the return on these investments,” the president of Refina Brasil, Evaristo Pinheiro, told BNamericas. 

According to Pinheiro, one of these distortions is between sector watchdog ANP's reference price and the market price of oil, which encourages exports of the raw material instead of sales in the domestic market. 

He believes that Petrobras violates the right to competition by not supplying enough oil to independent refineries and providing price and sale conditions that differ from those at its own plants. 

Another point raised by Pinheiro is related to Petrobras' derivatives pricing policy, which would be detached from international prices, causing damage to independent refineries. 

In addition, there is what he considers to be a heavy tax burden on investments in new refining capacity. 

“If Brazil chooses to correct these obstacles, it will attract around 60 billion reais [US$10.5bn] in new investments in refining, generating jobs, income, lower fuel prices and also encouraging new refineries to invest in biorefining capacities associated with traditional refining, supporting the country's energy transition,” he said.

MATARIPE AND REAM

The Mataripe transaction is under negotiation between Petrobras and Acelen, the Brazilian subsidiary of Abu Dhabi sovereign wealth fund Mubadala, which bought the refinery, then called Landulpho Alves (RLAM), from Petrobras in 2021. 

FUP said that it was informed that the due diligence carried out by Petrobras has already been concluded, with analysis and assessment of financial, operational, legal and regulatory aspects.

FUP's view is that the deal to buy back the plant will be announced soon, with a binding offer for the possible full transfer of control of the refinery, which has a production capacity of 377,000b/d. 

Petrobras and Acelen declined to comment on the matter when contacted by BNamericas. 

An important political ally of Brazilian President Luiz Inácio Lula da Silva, FUP is also pressing for the repurchase of the Ream (formerly Isaac Sabbá – Reman) refinery in Amazonas state, which was acquired from Petrobras by Atem Distribuidora in 2022. 

According to FUP, Ream’s production is paralyzed and it is only operating as a logistical support structure for the distribution of imported derivatives. 

Atem claims that intensive maintenance is being carried out on the entire unit, which is why it was necessary to temporarily halt refining activities.

CONTEXT

After Lula’s election at the end of 2022, Petrobras changed its strategic orientation and decided to cancel the sale of several refineries and resume investments in expanding its refining park. 

The president sees Petrobras as a vector for national development, with the ability to generate investments and jobs in the country. 

Lula believes that Petrobras must remain an integrated company, comprising upstream and downstream activities. 

Last July, Petrobras signed an agreement with Brazil’s antitrust authority Cade on the amendments to its natural gas and refining divestment deals. 

Inked in 2019 during the Jair Bolsonaro administration, the terms of the deals were designed to reduce the state-run firm’s dominant position in those markets.