UPDATE 1-Petrobras says new fuel price method to reduce debt
RIO DE JANEIRO, Oct 28 (Reuters) - A new fuel-pricing plan at state-run oil company Petrobras will make the timing of Brazilian gasoline and diesel price adjustments clearer, boosting cash generation and cutting debt levels, Chief Financial Officer Almir Barbassa said on Monday.
Once the new policy is in place, it will set automatic fuel price rises or cuts, Barbassa told investors, analysts and reporters on a conference call to discuss third-quarter earnings on Monday.
The new pricing system, though, will not change the company's policy of targeting long-term international prices for gasoline and diesel rather than short-term changes in global benchmarks, Barbassa said.
The Brazilian government has prevented Petrobras, known officially as Petroleo Brasileiro SA, from raising gasoline and diesel in line with world market prices in order to hold inflation in check. The price gap has increased in recent months with the weakening of Brazil's currency, the real, against the U.S. dollar. Because of the policy, all imported fuel is sold at a loss in Brazil.
The resulting reduction in income, exacerbated by the need to boost fuel imports to make up for rising domestic demand and a cut in the amount of ethanol used in gasoline blends, has led the company's debt to balloon by more than a third to 250.9 billion reais ($112.5 billion) in the 12 months ending Sept. 30.
"The new policy will provide predictability and help us reduce our debt levels," Barbassa said, adding the policy is currently under final study and will be presented to the board by Nov. 22.
Preferred shares of Petrobras, the company's most-traded class of stock, rose 6.9 percent and common shares gained 8.5 percent in early afternoon trading in Sao Paulo on Monday.
The stock gains came on expectations the new price methodology will better align domestic prices with those abroad. The change in policy does not mean a gas price increase long awaited by the market is imminent, however.
"The new policy will still target long-term prices," Barbassa said.
In 2002, former Brazil President Luiz Inacio Lula da Silva, current President Dilma Rousseff's predecessor, ended a short experiment with world-market pricing and moved Petrobras to the current system.
Under the current methodology, Petrobras would avoid raising domestic prices when world prices rose, expecting to make up for any losses by avoiding fuel-price cuts when world benchmarks fell.
Prices though have trended upward in recent years and efforts to maintain the policy by letting Petrobras charge more but keeping domestic prices steady by slashing wholesale fuel taxes reached their end when those taxes hit zero. Recent permitted increases have narrowed but never closed the gap with international prices.
The most recent increases have been largely swallowed by the weaker real, which made fuel imports more expensive in local-currency terms.
The sustained increase in global prices and continued reliance on imports has saddled the company with more than 30 billion reais of refining-unit losses since the beginning of 2012, crimping its ability to pay for a $237 billion five-year investment plan.
A long-delayed oil refinery being built on Brazil's northeastern coast could help reduce Petrobras' dependence on imported gasoline. The so-called Abreu e Lima refinery is now 82 percent complete, Jose Carlos Cosenza, Petrobras' director of refining and supply said.
Petrobras last month abandoned a partnership with Venezuelan counterpart PDVSA, which was supposed to finance the project with the Brazilian company, and said it would finish the refinery alone.
PDVSA had wanted to sell some of the fuel produced at the refinery abroad, but Petrobras said its requirements under Brazilian law made exports unlikely. Venezuela can get more money selling its refined crude outside of Brazil than in it.