Petrobras plan to end refining monopoly in Brazil comes with caveats
Brazil’s Petroleo Brasileiro SA drew plaudits from investors last month for announcing a plan to sell off eight of its refineries in a process the company says could fetch some $15 billion. But analysts and industry experts say that while the divestments will help Petrobras shore up its finances, it may fail to create a competitive refining market in Brazil, an oft-stated goal of regulators and Petrobras executives. That’s because the company is hanging onto its refineries in the states of Sao Paulo and Rio de Janeiro, home to over 60 million Brazilians. They collectively process about 1.1 million barrels of oil per day, according to Brazil’s oil regulator, about half of the company’s total capacity. “I think it’s a little bit for show to make it seem like the refining market is being opened up,” said Alberto Barriga, a former refining executive at Petrobras and a partner at consultancy Bizup. “But it won’t make any difference in terms of competition as the distance between refineries is large and transport will be too expensive (to move fuel between regions).” In response to questions from Reuters, Petrobras said its refineries in Sao Paulo and Rio de Janeiro will be subject to competition from fuel imports and cabotage, or the transport of fuel from other refineries within Brazil. It added that four of the five refineries it will retain are integrated by pipelines and other infrastructure, making the sale of individual assets difficult. In addition, the facilities’ proximity to Brazil’s prolific Campos and Santos offshore oil basins supports its view that they are strategic, Petrobras added. Truckers protesting high diesel prices last year led Brazil’s government, under former President Michel Temer, to demand that Petrobras cut fuel prices, a move that hit the company’s shares and triggered the chief executive’s departure. That intervention and a more recent one by new President Jair Bolsonaro underline how politics often impinge on the Brazilian energy sector. Some analysts have said breaking up Petrobras’ monopoly on refining could help lower prices at the pump by boosting competition and lessen the firm’s exposure to meddling from Brasilia. But the prospect of political interference could dampen investor interest in the refineries. Petrobras’ plan to retain the refineries in the country’s economic sweet spot could also run afoul of antitrust regulator Cade, which in December opened an inquiry into Brazil’s refining market. “Whatever model Petrobras ends up using is going to have to pass through Cade. Does it stimulate competition? Or does it generate regional monopolies?” said Adriano Pires, a consultant for Brazil’s Center for Infrastructure. “It could be that Cade makes them sell something (in Rio or Sao Paulo).” Among the natural buyers for the refineries are national fuel distribution firms such as Raizen and Ipiranga, the fuel distribution unit of Ultrapar Participacoes SA, as well as trading firms that have established a presence in Brazil such as Glencore PLC and Vitol SA, analysts say. Petrobras distribution unit Petrobras Distribuidora SA is also seen as a potential candidate after its planned privatization. But for a successful sale, the government will have to prove its free-market credentials. “The government has to decide if it believes in the market or not,” said Edmar de Almeida, a professor and researcher and the Federal University of Rio de Janeiro.
Gujarat Gas net profit jumps 77 pc in March quarter
Gujarat Gas Ltd Monday reported a 77 per cent jump in net profit for the quarter ended March on the back of higher sales. Its net profit in the January-March period at Rs 116.54 crore, or Rs 1.69 a share, was higher than Rs 65.95 crore, or Rs 0.96 per share, earning in the corresponding period of the previous fiscal, the company said in a regulatory filing. Sales rose to Rs 1,963.26 crore from Rs 1,777.82 crore in January-March 2018. For the full fiscal 2018-19, net profit was up 43 per cent at Rs 417 crore. The company said it added 63 new CNG stations in 2018-19, highest-ever in a year by the company. The firm commissioned its first CNG station in Narmada within four months of receiving city gas distribution licence. Gujarat Gas added close to 1 lakh domestic cooking gas connections and 300 industrial customers during 2018-19. “The National Green Tribunal has ordered on March 6, 2019, to ban the use of coal-based gasifiers in Morbi, Gujarat. As a result of this order, the industrial sales volumes in Morbi have increased from mid-March 2019 and are currently flowing in the range of around 4.50 million standard cubic metre per day (mmscmd),” a company statement said. Currently, Gujarat Gas sells about 8.5 mmscmd of natural gas. It is India’s largest gas distribution company in terms of sales volume, geographical spread and customer base. The company distributes gas to about 13,55,000 domestic and 3540-plus industrial users. It has around 344 CNG retail outlets.
Indian fuel prices begin to decline on global cues
Domestic fuel prices have begun a slow decline as international rates tumble under the weight of record US crude output and US President Donald Trump’s threat to sharply raise the tariff on Chinese goods. On Monday, petrol sold for Rs 73 a litre and diesel at Rs 66.66 at Indian Oil Corporation pumps in Delhi. Rates of petrol and diesel have fallen 13 paise and 5 paise a litre, respectively, in two days and if the fall in international oil rates continues over the next few weeks, the domestic decline would be sharper. Domestic fuel prices are based on the trailing 15-day average of international oil prices and exchange rates. Sometimes, especially during polls, it’s hard to predict domestic fuel price trajectory as state-run oil companies do not necessarily follow an international trend. Brent crude tumbled to $68.79 a barrel on Monday, its lowest since April 2, before recovering a little above $70 on fears that the US and China may fail to stitch a trade deal, hurting global consumption and demand for oil. A 10% fall in 10 days shows the market isn’t too worried about Iranian supply going out of the market. A fortnight ago, the US had announced that any country importing oil from Iran after May 1would attract secondary sanctions. Higher inventory levels in the US and Trump’s constant pressure on Saudis to boost supply seem to have eased supply concerns. The US is pumping record crude output and is now the largest producer in the world, ahead of Russia and Saudi Arabia. China was said to be considering delaying a trip by its top trade negotiators to the US this week after Trump’s tariff threat, according to media reports. Lower prices are good for India, which imports nearly 84% of its oil needs, as they help keep inflation and current account deficit in control. Higher prices weaken local currency.