Brazil Petrobras defends Suzano deal in Congress

22 August 2007 18:54  [Source: ICIS news]

By John Waggoner

HOUSTON (ICIS news)--Petrobras officials in a Brazilian Congressional hearing on Wednesday argued for the integration of refining and petrochemical production, claiming Brazil could become less competitive otherwise.

State-run Petrobras was at the centre of debates in a hearing of the Mines and Energy Committee of the Chamber of Deputies following its acquisition of petrochemical producer Suzano.

The rising presence of the state in the petrochemical industry represents an important change for the Brazilian petrochemical sector, given that petrochemicals were one of the first industrial segments to be privatized in the country.

As well, some members of society have questioned whether Petrobras, which has a de facto monopoly on refining in the country, will be able to compete on fair terms with the other base petrochemical producers such as Braskem.

“The presence of petroleum companies in petrochemicals is a global tendency. Either we go ahead with this or we fall behind,” Petrobras president Jose Sergio Gabrielli said in Portuguese during the hearing.

The Latin American chemicals sector will have to overcome major hurdles during the next five years if it is to avoid losing ground in its own domestic markets to distant-but-advantaged producers overseas.

According to Gabrielli, the acquisition of Suzano, and earlier this year of Ipiranga in a consortium with Braskem and the Ultra group, follows a global trend toward market concentration with increasingly large market participants.

Braskem remains Latin America’s largest petrochemical producer and itself has significant ties with state-run enterprises in the region such as Petrobras and PDVSA of Venezuela. Additionally, there has been talk of investment with the Bolivian state enterprise to build a petrochemical complex fed by gas feeds.

The increased presence of state enterprises is another trend in Latin America, with virtually every country that produces hydrocarbons also operating a state company in the sector.

Following nationalisation by Bolivia of its gas fields and refining industry last year, the topic became highly controversial in Brazil, where many sources in the industry said that the seizing of foreign-run economic interests represented a step backward for the region.

Venezuela’s President Hugo Chavez reportedly seeks to nationalise the Venezuelan petrochemical industry, but details of the plan remain cloudy.

Petrobras’ acquisition of Suzano, rather than limit competition, would encourage it, according to testimony by Petrobras supply director Paulo Roberto Costa.

The hearings on Wednesday also addressed the price paid by Petrobras for the acquisition.

Deputy Joao Almeida of the opposition Brazilian Social Democratic Party from Bahia, in the Brazilian northeast, testified that the price of Brazilian reais (R) 4.18bn ($2.08bn) was surprising to the market since the expected value was of some R2.7bn.

“The company (Suzano) has debts that reach R1.48bn, which makes the value absurdly higher than what was expected by participants in the capital markets,” Almeida said, according to official Chamber of Deputies information service, Agencia Camara.

Almeida claimed the amount paid was practicably double that of market value based on the share prices quoted on the Brazilian stock exchange Bovespa.

“If that fact were not enough, there are very strong indications of a leak of information, as evidenced by the sharp increase in the volume of trading and in the price of company shares experienced in days leading up to the sale,” Almeida said in Portuguese.

President Jose Lima de Andrade Neto of Petroquisa, the petrochemical subsidiary of Petrobras, rejected allegations that Petrobras overpaid for Suzano.

He said that the company spent R2.7bn in the acquisition, which was well within the price range indicated by ABN Amro bank, which advised Petrobras in the deal.

($1.00 = R2.01)

By: John Waggoner
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