OIL-BRAZIL: Deficit and Monopoly Impede Recovery

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Mar 21 2000 (IPS) - Brazil must expand its oil refining capacity 20 percent if it hopes to meet current national consumption levels and reduce a trade deficit that continues upward as investment ebbs.

The nation’s fuel demand will grow four percent annually, hitting 2.2 million barrels per day in 2002, stated Henry Philippe Reichstul, president of the state-run oil enterprise Petrobras, which maintains a near monopoly over the nation’s refining industry.

The 11 Petrobras refineries produce 1.5 million barrels of oil derivatives per day, while the two small private refineries in the country put out just two percent of the total.

The government oil monopoly originated in 1953 and was legally abolished four years ago – but there were virtually no changes in the area of oil refining, unlike the exploration sector, which now involves several private national and foreign firms.

Increased fuel consumption alongside a stagnant refining capacity has meant growing imports of petroleum derivatives – which are more expensive than unrefined crude – at a time when Brazil is fighting to reverse the unfavourable trade balance that has plagued the economy for the last five years.

Oil imports are a major burden on the Brazilian economy given that its 1.2 million-barrel daily output fills just two-thirds of the national demand. An average of 600 million barrels are imported per day in the form of crude or as derivatives.

Because the nation does not process enough of its own fuel it must stimulate other firms to build new refineries, which is the best way to overcome the oil monopoly, affirmed Petrobras management as it faced pressures to open the market to competitors.

Reichstul assured that the government enterprise would not open new units and would only seek new oil-related projects in partnership with other companies.

The National Petroleum Agency (ANP), the government’s oil regulatory body, wants Petrobras to sell off some of its refineries in order to accelerate real competition, given that building a new refinery implies a five-year wait and requires heavy investment.

The Thyssen group out of Germany is building a refinery in Ceará, a state in northeastern Brazil, but it will be years before it will have an impact on reducing the nation’s fuel production deficit.

There is scant commercial interest in refining activities because the profit margin is so small and “there are currently an excess of refineries around the world,” observed Alvaro Teixeira, executive at the Brazilian Petroleum Institute, an umbrella organisation of local and foreign firms in Brazil from all areas of the petroleum industry.

To be self-sufficient in refining oil, however, is strategically important if there is an international crisis, said Teixeira, something that must be of great concern to the Fernando Henrique Cardoso government.

The Petroleos de Venezuela company had decided to work with Petrobras to build a refinery in Brazil in exchange for the Brazilian company conducting oil exploration in Venezuelan territory, which would have been an “ideal alliance,” said Teixeira, but the deal fell through.

Other talks, which have also apparently hit a dead end, were underway with Spain’s Repsol, which recently acquired YPF, an Argentine oil firm.

Repsol, under pressure from the Argentine government to reduce its monopolistic power in fuel sales, proposed exchanging some 800 gasoline service stations in that country for one Petrobras refinery.

Brazilian nationalist forces, which include leftist parties and unionists, oppose any move by the government oil company to relinquish its property.

What they are trying to do is privatise Petrobras “in parts, reducing its market price,” accused Argemiro Pertence, director of communications for the firm’s Association of Engineers (AEPET) union.

The refineries in private or foreign hands are not interested in processing Brazilian crude, which is heavy and produces fewer profitable derivatives, like gasoline.

Future owners of the refinery, with their eyes on the profit margin, would end up importing light crude, casting the national product aside and deepening the trade imbalance, argued Pertence. This would be the case if Repsol were to begin importing crude from Argentina for its refinery here, he added.

In addition, there are the negative social impacts of the privatisation plans, he said.

Petrobras, which employed 58,000 people in 1994, currently has just 36,000 people on its payroll. Low morale among the government firm’s aging officials does not bode well for competition, commented the AEPET leader.

Given the lack of a real solution for the trade deficit or the oil refining monopoly, small and mid-sized firms are attempting to fill in the gaps.

The Brazilian government’s ANP is soon to authorise three petrochemical plants, which would include gasoline among their products, and could raise privately-produced fuels from two to 10 percent of the total national output.

Petrobras is planning work with other companies to expand some of its refineries, as in the case of Ipiranga – one of the two private firms in Brazil’s oil-refining sector – which is preparing an alliance with the government enterprise for three of its units.