Divestment in Refineries – Opportunity for Free Competition

The Brazilian Energy Policy Council (CNPE) published on May 14, 2019 Resolution No. 9/2019 setting guidelines to boost free competition in Brazil’s refining activities.

Such guidelines are the result of joint efforts from the Brazilian Petroleum, Natural Gas and Biofuels Agency (ANP) and the Administrative Economic Defense Council (CADE), whose main recommendation was the total sale of the assets included in the Partnership and Divestment Program of the main player of the refinery industry, i.e. Petróleo Brasileiro S.A. – Petrobras.

Technical Opinion No. 37/2018/DEE/CADE, published in December 2018 within the scope of CADE – ANP cooperation agreement, reviewed the national refining market structure, particularly in relation to the divestments proposed by Petrobras. The review showed that maintaining Petrobras’ relevant stake – even if clearly passive – in the assets to be divested tends to reduce the level of competition in the market, and, therefore, suggests that Petrobras sells all of its participation in the assets (without keeping any interest in the undertakings), seeking to avoid the creation of regional monopolies.

The Resolution followed CADE’s recommendation by establishing that it is of interest of the National Energy Policy that “in case of divestments by companies holding dominant position in the refining sector”, the following guidelines should be adopted to boost free competition:

(a) simultaneous sale of refineries and respective infrastructure assets necessary for access to their inputs and products, except in case they are shared by more than one user;

(b) transfer of potentially competitive refineries to different economic groups;

(c) transfer of refining assets without maintaining seller’s stake in such undertakings; and

(d) transfer of assets for access to inputs and products preferentially to downsized economic groups, considering the relevant market, subject to the ANP rules for third party access.

Petrobras informed the market on April 26, 2019 that new guidelines were approved for the management of its portfolio, including sale of assets, particularly in the refining segment, comprising eight refineries with total refining capacity of 1.1 million barrels per day: Refinaria Abreu e Lima (RNEST), Unidade de Industrialização do Xisto (SIX), Refinaria Landulpho Alves (RLAM), Refinaria Gabriel Passos (REGAP), Refinaria Presidente Getúlio Vargas (REPAR), Refinaria Alberto Pasqualini (REFAP), Refinaria Isaac Sabbá (REMAN) and Lubrificantes e Derivados de Petróleo do Nordeste (LUBNOR).

About a year ago, Petrobras informed the market of a refining and logistics divestment model based on formation of partnerships, through the sale of a 60% stake in two regional groups clusters of refining and logistics assets: the Northeast Cluster and the South Cluster, as mentioned in a prior article at this link.

It should be noted that CNPE, within the scope of its authority to define the strategy and the economic and technological development policy of the oil and gas industry, is neither imposing on Petrobras the obligation to adopt the above guidelines at the time of selling its refining assets nor is determining the sale itself but reinforcing that it is of interest of the National Energy Policy that such guidelines be observed.

The divestment from the refining industry means lifting barriers to entry such market and may represent the opportunity for maturation of this market, with more players and free competition. To that end, it is necessary to obtain legal certainty on the freedom to set fuel prices in Brazil, without any type of government’s interference.

Source Pinheiro Neto Advogados

 

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