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Saturday, October 15, 2016

Petrobras Outlines New Pricing Formula

Petrobras outlines new pricing formula

Brazilian oil company seeks to assuage investor concern over transparency
© Bloomberg
Brazil’s state-owned oil company Petrobras has sought to allay one of the principal concerns of investors by detailing a new pricing formula for petrol and diesel sales. 
The company said the new policy would be based on international market prices plus a margin for operational risks, profits and taxes in contrast to the old model that was seen as opaque and subject to political interference. 
“The new policy provides for evaluations to revise prices at least once a month,” Petrobras said in a statement. Petrobras shares were up 1.71 per cent on the news. 
Petrobras’ pricing policy is one of the most controversial issues facing the company, with analysts accusing the government of previous president Dilma Rousseff of almost bankrupting the producer by demanding it sell petrol at below market prices to help keep inflation down. 
Fuel prices are particularly sensitive in Brazil because of the country’s heavy reliance on roads to carry goods rather than trains or ships. Any change in the fuel price directly affects the price of most goods and is immediately reflected in inflation. 
During 2013 and 2014, when international oil prices reached their highs, Ms Rousseff’s government forced Petrobras to import fuel at highs and then sell it at the refinery gate at a loss. 

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The losses from the fuel price policy exceeded those from a corruption case at Petrobras in which former members of Ms Rousseff's ruling coalition were accused of conspiring with company executives and contractors to extract bribes from the group.
“This is a positive development,” said Goldman Sachs economist Alberto Ramos in a note. He said the policy would help ease inflation, creating room for the central bank to begin easing benchmark interest rates as early as next week. 
Petrobras shares have delivered a return of 139.3 per cent so far this year on optimism over the removal of Ms Rousseff, who wasimpeached in August, and her replacement by the more market-friendly government of her former vice-president President Michel Temer
The president has appointed what some call a “dream” economic team, with Petrobras chief executive Pedro Parente seen as one of the key figures because of his liberal economic background. 
Mr Parente has announced a turnround planthat would decrease leverage by more than half at Petrobras, the world’s most indebted oil company. 
As part of Friday’s announcement on fuel prices, Petrobras said it was cutting petrol prices by 3.2 per cent and diesel prices by 2.7 per cent starting at midnight on Saturday. 
The company cited as the reason for the change growing competition from fuel imported by competitors in the market that was eroding its market share. 
It said a more competitive pricing policy was required to attract investors in its refineries business as part of a programme to divest stakes and raise money to pay down debt. 
Petrobras said the main difference between the new pricing policy and the old one would be that it would be updated every month, with a more transparent decision-making process. There was no timetable for updating the price under the old regime.