Should Brazil’s Petrobras retake control of a key oil refinery?

Brazil’s Petrobras is being pressured by oil workers’ union FUP – an important political ally of President Luiz Inácio Lula da Silva – to retake control of the Mataripe refinery in Bahia state. 

Local experts told BNamericas they believe such a move could have positive and negative implications for the federal oil firm and the country. 

Formerly known as Landulpho Alves (RLAM), the plant was sold to Mubadala in 2021 for US$1.8bn. It is currently operated by the Abu Dhabi sovereign wealth fund’s subsidiary Acelen. 

According to FUP, the option to take back control of the plant is being evaluated by Petrobras, which, under the Lula administration, decided to pursue a strategy of verticalization, from exploration and production (E&P) to refining and, possibly, fuel retailing. 

Petrobras did not comment on the matter when asked by BNamericas. 

The federal oil giant and Mubadala have been discussing a new corporate and operational structure for RLAM. 

The two signed an MOU to develop studies covering future business in the downstream segment, with an emphasis on biorefining.

Mahatma dos Santos, director of petroleum studies think-tank Ineep, said the reincorporation of the refinery is important from a symbolic point of view to correct, even if only partially, the "erroneous privatization" carried out by previous administrations. 

"And also because it’s a strategic asset for national supply, since it’s the second largest refinery in terms of processing capacity in the country," Santos told BNamericas. 

He said Mataripe is located in one of the largest consumer markets in the northeast and is a major producer of low-sulfur bunker fuel, which ensures its competitiveness internationally. 

"By once again participating in the management of this refinery, Petrobras can contribute to mitigating the volatility of prices of oil products for the consumer market and the population of Bahia," added Santos.

Sidney Lima, an analyst at Ouro Preto Investimentos, believes that an eventual buyback of more than 51% of Mataripe's shares has the potential to generate a considerable profit, "although Petrobras doesn't have such a successful track record in refinery management," he said.

"Petrobras needs to consider the impact of this acquisition on its debt and liquidity, especially considering the recent history of divestments to reduce debt," Lima told BNamericas.

He added that, from a strategic point of view, having control over an important refinery allows Petrobras greater autonomy and stability in fuel supply. 

In addition, direct management of the refinery can give Petrobras greater influence over fuel prices in the domestic market, which has direct implications for the country's economy and energy policy.

"I believe that this will result in the government's interest in resuming the operation," said Lima.

João Abdouni, an analyst at Levante Corp, recalled that Petrobras has a budget of US$100bn for investments over the next five years, 25% of which will be for refining.

"Petrobras is expected to pay something like US$1bn for Mataripe, so it's a small transaction, given the size of the company," Abdouni told BNamericas. 

He warned of the quasi-monopoly over the country's refining segment, which previous federal administrations had been trying to reverse with Petrobras' divestments.

"The return [of Petrobras to Mataripe], in this sense, needs to be assessed by the way management will apply pricing. My view is that this return could be in line with the cost of capital," added the analyst.

FORCED RENATIONALIZATION?

Paulo Valois, a partner at law firm Schmidt Valois Advogados, believes that the chance of a forced renationalization of Mataripe is practically nil. 

"That would be a breach of legal certainty and terrible for Brazil's image and attracting investment," he told BNamericas.

"It's easier for the companies to reach some kind of commercial agreement to work together, not necessarily by buying and selling shares."

Lucas Barreto and Roger Maier Böing, specialists in energy, oil and gas at law firm Böing Gleich Advogados, see no legal arguments for the renationalization of Mataripe, even if the justification is to ensure domestic supply in a context of potential volatility in the international market.

"The renationalization would generate legal, economic and political instability, as well as significantly burdening the government, and could also face the opposition of the refinery's current shareholders," they told BNamericas via WhatApp.

The lawyers said the most likely scenario is to repurchase through negotiations with Acelen, without anything radical being done until all options have been exhausted. 

"One issue that has to be weighed up is the receptiveness of the initiative by the corporate bodies of both parties, especially the boards of directors of Petrobras and the Mataripe refinery," Barreto and Böing said.