Brazil fuel trade association concerned about market verticalization

Brazil’s fuels and lubricants trade association Fecombustíveis is concerned about the advance of the main fuel distributors in the country in the transporter-reseller-retailer (TRR) segment. 

A TRR is a company authorized by oil and gas watchdog ANP to purchase large quantities of bulk fuel, finished lubricating oils and bottled grease and then sell the products in the retail market. It is also responsible for storage, transportation, quality control and technical assistance to consumers when selling fuel.

In a letter sent to ANP, Fecombustíveis said large oil derivative distribution companies have been acquiring corporate control of TRRs. Recent cases include acquisitions by companies such as the Ultra and SIM (Argenta) groups, in the south of the country.  

Last week, Vibra Energia, through its unit VB0224 Participações, submitted a request to antitrust authority Cade to approve the acquisition of the Risel group's TRRs (Risel Combustíveis and three subsidiaries; Coesa Transporte e Revenda Retalhista de Combustíveis and Jales Petróleo), with a strong presence in southeast Brazil. 

Fecombustíveis said if the operation is approved, Vibra will directly manage and administer the TRRs, since it holds 100% of VB0224, which would demonstrate verticalization. 

“Verticalization between distribution and resale is harmful to maintaining free competition due to the economic imbalance between the segments, which will certainly have an impact on the market in which the other TRRs operate, resulting in the slow and gradual elimination of competitors, most of which are small companies,” the federation said.

Through its press office, Vibra said Risel will maintain its total independence, with a separate operational structure and management of its client portfolio, respecting the specific conditions of the market niches in which the TRRs operate. 

“It's also important to note that the current controlling shareholders [of Risel] will remain in charge of the business,” the company told BNamericas. 

Vibra added that it will be an opportunity to improve and deepen its relationship with the agribusiness segment, where it intends to act more decisively.

Ultra and SIM declined to comment on the matter. 

Marcus D'Elia, a partner at Leggio Consultoria, explained that TRRs buy from distributors – they don't compete with them – and sell in bulk to small consumers, such as farmers who need fuel for their agricultural machinery. 

According to the consultant, these dealers serve 16% of the diesel segment, which is the main oil derivative traded by TRRs.

“But it's a fragmented market, with around 480 players. Therefore, if a distributor starts to participate in the TRR market, this is verticalization, but with little impact on competition in the sector,” D'Elia told BNamericas. 

He said that for ANP, this is a different link from distribution. As the agency aims for unbundling, i.e. the separation of the links in the chain, a distributor cannot act directly in the next link, such as the TRR segment. 

“But it can participate in this market by having an independent company to operate the TRRs, with its own margin, among other requirements,” said D'Elia. 

ANP confirmed through its press office that there is no prohibition on a fuel distributor having a stake in a TRR as long as they are companies with separate registrations known as CNPJs. 

The watchdog said the provision for legal de-verticalization favors the monitoring of companies' operations, with the aim of identifying possible unilateral conduct that could infringe on economic fairness, which requires the action of Cade.

And it stressed that one of the topics proposed by the agency for its new regulatory agenda, which is currently subject to public consultation, is a review of the regulatory treatment of verticalization.