Ipiranga pursues refinery even as Brazil state seeks new Petrobras CEO

HOUSTON (ICIS)–Ipiranga still plans to continue negotiations to purchase a refinery from Petrobras – even as the Brazilian government seeks to replace the CEO of the state energy producer, the fuel retailer said on Thursday.

Ipiranga owns several stations in Brazil that sell gasoline and diesel. It is in negotiations to buy the Alberto Pasqualini Refinery (REFAP) in the southern state of Rio Grande do Sul. It would be Ipiranga’s sole refinery.

Although Ipiranga has made the best price offer, the companies have not sealed any agreement, and Ipiranga may decide to cancel the talks without a deal, said Frederico Curado, CEO of Ultrapar, the Brazilian conglomerate that owns the fuel retailer. Curado made his comments during an earnings conference call.

UNCERTAINTY ENTERS REFINERY SALES PROCESS
While Ipiranga will continue its talks with Petrobras, Curado acknowledged that some uncertainty has entered the sales process.

Earlier in February, the Brazilian government requested that Petrobras replace its CEO, Roberto Castello Branco, with Joaquim Silva e Luna, a former military official. Branco’s term ends on 20 March 2021.

The Brazilian government made the request after the nation’s president, Jair Bolsonaro, commented about recent price increases for gasoline and diesel.

The concern is that the government could impose controls on fuel prices, limiting the ability of refiners to recoup costs.

The government has imposed such restraints in the past to control inflation.

Any new leadership at Petrobras could adopt pricing policies that are too low, said Fitch Ratings, a credit-rating agency.

In fact, the government’s request for new leadership at Petrobras coincides with mounting social pressure over domestic diesel prices, Fitch said.

Investors are concerned. Following the request by the Brazilian government, Petrobras’s US-listed shares fell by 21%.

IPIRANGA REFINERY TALKS CONTINUE
Ultrapar CEO Curado stressed that the negotiations with Petrobras are ongoing and complex.

“We still have a long process of contract negotiations and also the need to confirm that the conditions to assure a free, competitive market remain valid,” Curado said during the conference call.

“There can be an impact in the short term, yes, some political influence,” he later said in comments translated from Portuguese.

But several obstacles will make it difficult for the Brazilian government to influence prices.

“If there is some subsidy as we had in previous years, we also see this as something that is very unlikely,” Curado said.

Petrobras’s by-laws do not allow state-owned companies to be used as political instruments, Curado said. Even if the by-laws were changed, the fiscal health of the Brazilian government would prevent it from participating in the nation’s fuel market.

Brazil adopted large spending programmes in 2020 to help people in the country withstand the recession caused by the coronavirus. The economic package stressed the government’s budget, leaving it with less money to adopt other spending programmes.

So far, Petrobras has shown no signs in altering the course of its negotiations with Ipiranga, Curado said. “So we are carrying on with the negotiations.”

Curado sees Petrobras’s refinery sales as part of a larger trend, under which energy companies are shedding their refineries so they can focus on oil and gas production.

“This is not a matter of the current executive team,” Curado said. “It’s a global trend.”

Some aspects specific to Brazil reduces the risk in participating in the country’s fuel market, he said. Brazil has a structural deficit in gasoline and diesel. Even if all of its refineries are running at full capacity, production could not meet domestic demand, Curado said.

The move by Petrobras to sell some of its refineries will improve the dynamics and competitiveness of Brazil’s fuel market, he said. “We want to be a player in this new scenario.”

PETROBRAS REFINERY SALES
The following shows refineries that Petrobras wants to sell. The capacity reflects crude distillation output as of 2019.

Refinery	Location	Capacity (bbl/day)
LUBNOR (Lubrificantes e Derivados do Nordeste)	Fortaleza, Ceara	8,000
REFAP (Alberto Pasqualini)	Canoas, Rio Grande do Sul	201,000
REGAP (Gabriel Passos)	Betim, Minas Gerais	157,000
REMAN (Isaac Sabba)	Manaus, Amazonas	46,000
REPAR (Presidente Getulio Vargas)	Araucaria, Parana	208,000
RLAM (Landulpho Alves)	Mataripe, Bahia	279,000
RNEST (Abreu e Lima)	Ipojuca, Pernambuco	88,000

Source: Petrobras

LUBNOR’s capacity includes 2,000 bbl/day of naphthenic base oils.

Petrobras still aims to sign purchase and sales agreements for REFAP, REMAN, RNEST, REGAP and LUBNOR as well as the Shale Industrialisation Unit (SIX) in Parana. SIX converts the kerogen found in shale into oil through pyrolysis.

Mubadala Capital made the best final offer – $1.65bn – for the RLAM refinery in the northern state of Bahia.

The sale is still pending approval from corporate bodies. Petrobras did not say when the deal could close.

Petrobras will keep the following refineries. Capacity figures reflect 2019 levels.

Refinery	Location	Capacity (bbl/day)
RECAP (Capuava)	Capuava, Sao Paulo	57,000
REDUC (Duque de Caxias)	Duque de Caxia, Rio de Janeiro	239,000
REPLAN (Paulinia)	Paulinia, Sao Paulo	434,000
REVAP (Henrique Lage)	Sao Jose dos Campos, Sao Paulo	252,000
RPBC (Presidente Bernardes)	Cubatao, Sao Paulo	170,000

Source: Petrobras

Refineries produce naphtha, which many of Brazil’s crackers use to make ethylene. Refineries also produce aromatics and propylene.

(Recast last table to exclude RPCC (Potiguar Clara Camarao) from the refineries that Petrobras plans to keep)