Brazil's Petrobras lays out plan to raise local fuel prices
SAO PAULO (Reuters) - Brazil's state-run oil company Petrobras on Wednesday detailed components of a new pricing formula that would help close a large gap between local and international fuel prices that has hurt the company in recent years.
The new policy on setting domestic diesel and gasoline prices will automatically trigger adjustments based on international prices, exchange rate and other factors, Petrobras said in a market filing.
The shift in methodology still has to be approved by the company's board, which is controlled by the government. Fuel sales make up roughly 40 percent of the company's revenues and artificially low local prices have hit Petrobras' earnings hard in the past years.
After seeing the plan, Petrobras' board asked for additional information, the company said in the filing. The board is due to discuss the plan in its next meeting. Newspaper Valor Economico said earlier on Wednesday Petrobras expected to raise gasoline and diesel prices on November 22.
Over the past decade, the government has essentially frozen the price of diesel and gasoline at the refinery gate, which has allowed it to dampen the country's stubbornly high inflation rate in the past few years but has also committed Petrobras to big losses from its refining division as a result.
Investments in new ethanol production capacity have been on hold for the past five years as well due to the de facto subsidies on competing fuels, namely gasoline.
Petrobras last week reported third quarter net gains fell 39 percent from a year ago due largely to losses as a result of the government's fuel pricing policy that has forced the company to import fuel at international prices sell it at a loss domestically.
The methodology for determining prices for fuels will not allow full pass-through of volatility of international oil prices, the company added, as what is seen by the market as a reassurance to the government that the policy will not fuel inflation or hurt growth.
(Reporting by Reese Ewing, Silvio Cascione and Guillermo Parra-Bernal; Editing by Gerald E. McCormick and Krista Hughes)
