Petrobras to raise domestic fuel prices on Nov 22 -paper

Reuters

RIO DE JANEIRO, Oct 30 (Reuters) - Brazil's state-run oilcompany Petrobras expects to raise gasoline and diesel prices onNov. 22, when it unveils a new pricing formula thatautomatically narrows the gap between local and internationalfuel costs, newspaper Valor Economico said on Wednesday.

The new formula, once it is in place, will set automaticfuel price rises or cuts, smoothing out short-term variations ininternational oil prices. Investors hope the plan will helpPetrobras cut debt that has ballooned because the company nowsells imported fuel at a loss to keep domestic prices low.

A Petrobras spokeswoman did not have an immediate comment on the story.

Valor said the formula will likely take into accountinternational oil prices during a certain number of months past,as well as a projection for future prices. The government stillhas to decide how often local fuel prices would be changed underthe new formula, the paper added, without saying how it obtainedthe information.

Shares of Petroleo Brasileiro SA, as the companyis known, have gained more than 6 percent since the companyannounced late Friday that its board was considering a newmethodology to better align domestic fuel prices with thoseabroad.

Chief Executive Maria das Graças Foster said on Tuesday abetter alignment of domestic and international fuel prices willbe crucial in achieving positive cash flow in 2015.

In 2002, former Brazilian President Luiz Inacio Lula daSilva ended a short experiment with world-market pricing. Hemoved Petrobras to the current system under which the companywould avoid raising domestic prices when world prices rose butalso avoid fuel-price cuts when world benchmark prices fell.

But prices have trended upward in recent years. Brazil haslet Petrobras charge more but has slashed wholesale fuel taxesto help keep domestic prices steady. Taxes hit zero, however,and recent permitted price increases have narrowed but notclosed the gap with international prices.

The most recent price increases have been largely swallowedby the weaker real, which made fuel imports more expensive inlocal-currency terms.

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