Petrobras’ divestitures: why is this positive for the country?

  • 07/04/2020
  • 10 minutes

Petrobras’ divestitures have been on the government’s agenda since 2015. As a result, a significant portion of the upstream, mid/downstream and refining operations have been passed on to other companies.

Considering that Petrobras is a government controlled private company, divestitures, in fact, should be taken more as a strategic realignment process. To broaden the scope of understanding on such an important topic, we invited Mário Ortiz, specialist in Supply Management and Strategic Sourcing at Fasd Group — see what he has to say.

What led to Petrobras’ divestitures?

Like any giant company with a strong state investment, Petrobras, over the years, ostensibly expanded its field of action. Over the past few decades, several subsidiary companies such as Liquigás (distribution) and Braskem (petrochemical), among others, have shared the company’s attention and investments.

Therefore, according to Mário Ortiz, the divestitures in these areas will make Petrobras “a company focused on exploration and production of oil and natural gas in deep waters, geographically concentrated in the states of Espírito Santo, Rio de Janeiro and São Paulo”.

Therefore, the “swelling” in the set of subsidiaries and in operations that are not directly linked to the company’s main business is the main reason for its restructuring. By transferring control of these companies to third parties, Petrobras gains new impetus to explore the oil basins located on the high seas within Brazilian borders.

In this sense, Ortiz points out that “the goal is to put all onshore or shallow water operations up for sale in other states, focusing on Petrobras’ core business, which is and always will be exploration and production”. 

It should also be considered that the larger the operation, the higher the costs. “Petrobras’ Strategic Plan 2020-2024 foresees divestiture between US$ 20 billion and US$ 30 billion for the period, with the highest concentration in the years 2020 and 2021”, says Ortiz.

Ortiz continues: “among other assets that are to be sold are thermoelectric power plants and the petrochemical Braskem. In the last 5 years, Petrobras signed contracts or concluded the sale of US$ 41.139 billion in assets, 64.5% of the total in the mid/downstream, 34.7% in the upstream and 0.81% in the sugar and alcohol segment.

How does this process affect the market?

A megacorporation like Petrobras does not act without causing changes in the market as a whole. After all, according to Mario Ortiz, “the operations encompass a total of 124 fields, located in 20 extraction centers. A part has already been sold and another is still awaiting the regulatory approvals that are indispensable for the sale”.

In addition to the impacts caused on the financial market and the industry, since the sale of subsidiaries implies the sale of the shares of these companies, there is a whole perception of the market, which reacts to this process.

Thus, there are developments in the productive sector as a whole, which, according to Ortiz “is being very receptive in relation to the divestitures and market opening, as it is clearly noted that the investments that will be and are being made are for E&P, the oil company’s core business”. 

As examples of this process, Mario highlights the divestitures in fertilizer factories, oil fields, refineries and biodiesel plants in the Northeast, South and North regions. “We had a total of 205 fields or exploratory blocks sold by Petrobras in the last four years, of which 145 are located in the North and Northeast regions”.

Perhaps one of the most direct consequences in terms of the market is the very appreciation of Petrobras’ shares due to the increase in its productive capacity. In the last quarter of 2019 alone, the growth recorded was 16.9%, reaching a peak of 2.264 million barrels per day. This proves the effectiveness of the divestiture program and is a confirmation that the path to be followed is the focus on the core business.

What to expect from the opening to new markets?

In contrast, sectors of civil society and government officials in the North and Northeast regions, the most affected by the withdrawal of investments, are dissatisfied with the process. However, as Mario Ortiz attests, there is nothing to worry about since “the expectation is that the divestitures of Petrobras in the fertilizer, biofuel and refining plants, added to the entry of new players will mean investments and the development of the production capacity and the logistics chain in this important Brazilian region”

He adds, “Petrobras has already transferred control of 8 of its 13 refineries, continuing to operate only in the 4 units located at the Duque de Caxias Refinery, in Rio de Janeiro and São Paulo. In this way, it expects to decrease its share in the national oil refining capacity by 50%, making room for other companies while improving its operating capacity, which today is in deficit”.

Ortiz complements his view on the divestitures “currently, a single company controls 98% of the refining capacity in Brazil. With the divestitures, we will have several producers, among them — and with a relevant presence — Petrobras. An entire industry will also be created with this process, that of oil in shallow waters and land plans and that of transportation and distribution of natural gas”.

He continues: “this all means improving the quality of the product to be offered to Brazilians and the final price due to the plurality of companies interested in these industries. The expected result is an improvement in the distribution of services and products across the country”.

What are the risks associated with this process?

The oil industry, including extraction, refining and distribution, has long led Brazilian regions and cities to a development model dependent on Petrobras. A good example of this is Macaé, in the lakes region, state of Rio. 

Formerly known as the “oil capital”, it is gradually reshaping its economy to return to the good times. This new phase, in turn, comes after a period of crisis, in which companies were closed and unemployment increased significantly.

In this regard, Ortiz highlights the impacts on the labor market, especially in the North and Northeast, from where Petrobras is even going to remove its head offices: “it was offered the possibility for part of the workforce to be transferred to Petrobras’ headquarters in Rio, although this movement does not cover 100% of them”.

The expert adds that “a survey carried out by Dieese estimated that the sale of the refineries will impact the lives of 4,895 employees. Some of them will be taken by the new companies, but, according to FUP/Dieese, they will first be fired before being rehired”.

“In any case, it is difficult to measure long-term impacts, but, of course, major changes will occur and the states must be prepared for the new scenario”, he continues.

Thus, the divestitures of Petrobras, if on the one hand are expected to boost the Brazilian economy as a whole, on the other hand bring consequences that are difficult to predict. In that case, there is no choice: only time will tell what will happen.

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