Petrobras pitches new fuel pricing scheme as losses mount


By Reese Ewing

SAO PAULO, Oct 30 (Reuters) - Brazil's state-run oil companyPetrobras said on Wednesday it has asked thegovernment to return to a transparent domestic fuel pricingpolicy in the wake of the latest quarter of dismal earnings.

Petrobras said in a market filing it has proposed amethodology to its government-controlled board that wouldautomatically adjust domestic diesel and gasoline prices tointernational prices, without exposing local consumers to thevolatility of international price swings.

The company has lost more than 30 billion reais ($14billion) since the start of 2012 in its refining division due toa government policy that holds down fuel prices to containinflation. That is equivalent to the company's total netearnings in 2011 and 50 percent more than 2012 profits.

The company imports fuel at international prices then sellsit at a loss at home.

Analysts at local investment bank Grupo BTG Pactual and JPMorgan see the proposal to the board,which must approve it for it to be implemented, as a potentialturning point for the company.

Petrobras shares are up 7 percent since Friday's close whenit reported net earnings fell 39 percent from a year ago duelargely to losses as a result of the government's fuel pricingpolicy.

But some are skeptical, seeing the proposal as a distractionfrom the problems caused by the government's use of fuel pricesas a counter-inflationary tool.

"The timing of the announcement was suspect, clearly," saidJose Marcio Camargo, an economist at Rio de Janeiro universityPUC. "And why should we believe the government would approve amethodology that will raise prices when all along they haveresisted just that ... raising fuel prices?"

Brazil's central bank has had difficulty bringing inflationdown and government controls on fuel prices have been vital tokeeping consumer prices from rising further.

The company's proposed pricing policy is nothing new.

Brazil used to adjust fuel prices in a similar manner,smoothing out abrupt price swings in oil on the internationalmarket during the administration of former President FernandoHenrique Cardoso. That allowed Petrobras to pass on the rise inoil prices without fully exposing the local economy to oil priceshocks.

But former President Luis Inacio Lula da Silva and hissuccessor President Dilma Rousseff have essentially dismantledthat policy over the past decade.

After seeing the plan, Petrobras' board, which is chaired byFinance Minister Guido Mantega, asked for additionalinformation, the company said in the filing. The board is due todiscuss the plan in its next meeting on Nov. 22, and Petrobrassaid it is compiling the requested information. The board whichis controlled by the government has the power to appoint orremove the company's executive, or management, team.

Earlier on Wednesday, the Valor Economico newspaper saidPetrobras expected to raise gasoline and diesel prices on Nov.22.

Later in the day, Mantega shot down any notion that thegovernment has set a date for the next fuel price increase.

The government granted a 6.6 percent increase in gasolineand a 5.4 percent increase in diesel in January, but prices onthe local market for both fuels remain between 10 percent and 15percent below international levels.

Fuel sales make up roughly 40 percent of Petrobras' revenuesand artificially low local prices have hit its bottom line hardin the past years.

The lack of clarity of what prompts the government to adjustprices at any given time has vexed the market, especially thecane ethanol sector which has called for greater transparency onwhen prices might fall or rise.

Investments in new ethanol production capacity have been onhold for the past five years as well, due to the de factosubsidies on competing fuels, namely gasoline.

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