Boston, MA 11/05/2013 (wallstreetpr) – Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has to lobby for a review of fuel prices to contain its runaway costs. Following its dismal quarter posting, the state-run business has asked the government for a shift in the domestic fuel pricing. It is asking that gasoline and diesel prices be adjusted to match the international prices, but in a manner that would still extend the cushion that the local consumers enjoy from international price volatility.
Looking at the environment in which the company operates, it is so clear that the going continues to get tougher and tougher as time passes by. Since the start of 2012, the company has lost more than $14 billion through its refining division and this came about as a result of what it now says unfavorable government fuel pricing policy. The Brazilian government has stricter regulatory measures in the fuel sector which are aimed at containing inflation. As a result, the PBR imports fuel at higher international price and then sell it domestically at a loss.
If the company’s board agrees to the proposal, it would mark a significant turning point for the cornered PBR. The inflation situation looks complex and the country’s central bank seems to herding cats and now the only vital way to keep things down is through suppressing of consumer-fuel prices.
In January, the Brazilian government allowed increase of gasoline price by 6.6% and diesel by 5.4%. But these prices are still far below the global market levels by around 10-15%. This means that PBR still doesn’t feel relief in its books. Fuel business contributes quite a significant amount of PBR’s revenue at 40%. But artificially low domestic prices have seen the company’s bottom line grow weaker and weaker in the past years. Its proposal to seek adjustment of domestic fuel pricing is expected to come up for discussion on Nov. 22.
