UPDATE 1-Petrobras shifting costs to fuel distributors -Sindicom

Tue Dec 11, 2012 3:12pm EST

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By Jeb Blount and Leila Coimbra

RIO DE JANEIRO, Dec 11 (Reuters) - Brazil's state-led oil company Petrobras is pushing fuel distributors to increase stocks of gasoline, diesel and other refined products in an effort to free up investment capital by shifting costs to clients and consumers, an association representing distributors said Tuesday.

To this end, Petrobras, Brazil's only refiner, doubled the minimum time between fuel-tanker deliveries at terminals on Brazil's coast to about two weeks, effective Sept 1, said Alisio Vaz, president of the association known as Sindicom. If supply is needed earlier, distributors pay extra.

With demand for fuel in the world's No. 6 economy growing at more than 6 percent a year, fewer deliveries mean distributors must accumulate bigger stocks and build the tank farms to hold them, Vaz said. Sindicom members will spend more than 1 billion reais ($480 million) this year and a similar amount in 2013 on infrastructure, the bulk of it on tanking, tri pl e 2009 levels.

With a reduced need to expand its own storage, Petrobras' savings are freed up to invest in oil production. It also lets the Rio de Janeiro-based company get around the government's refusal let it raise wholesale fuel prices in line with world benchmarks.

"Unable to raise the price it charges distributors for fuel, it passes on its costs instead," said Oswaldo Telles, oil analyst at the Sao Paulo office of Portugal's Espirito Santo Investment Bank. "The distributors, who are free to increase what they charge, either pass the cost to consumers at the pump or swallow a cut in their own profit."

Petrobras' refining and supply unit, which deals directly with the distributors, has lost more than $8 billion so far this year. Rising costs and falling oil production also led to a company-wide loss in the second quarter, the company's first in 13 years.

This has made it harder for Petrobras to finance its $237 billion five-year investment plan, the world's largest corporate spending program.

Borrowing jumped to $25 billion this year, 56 percent more than the average annual amount expected in the spending plan. About $5 billion of that was for short-term operating capital and trade operations, some directed to the import of fuels as Petrobras' refineries fail to keep up with demand, Petrobras told Reuters Monday.

Petrobras did not immediately respond to requests for comment on the changes in fuel distribution strategy.

Sindicom represents 12 fuel and lubricant blenders and distributors that own 19,800 filling stations and account for about 80 percent of the fuels market in Brazil, Latin America's largest economy.

Members include Raizen, a joint venture between Royal Dutch Shell Plc and Brazil's Cosan SA, the world's largest sugar and ethanol producer, as well as Brazil's Ale and Ipiranga.

The organization, though, which includes BR Distribuidora, Petrobras' fuels distribution unit, has not openly criticized the move by Petrobras to unload its costs on Sindicom members.

While free to import fuels from any source, Petrobras' government-controlled, below-world-market wholesale gasoline and diesel prices give it a de facto monopoly in Brazil's wholesale fuels market. Sindicom last imported fuel in 2009, Vaz said.

"While we, the larger distributors, can see long-term advantages in this policy, this is a Petrobras initiative, we didn't ask for it," Vaz said. "It may help us increase our market share."

With fuel demand growing at rates of about 20 percent in some of the fast-growing states on Brazil's northeast coast, bigger fuel stocks would allow fuels distributors to better respond to rising demand and could have helped avoid some minor shortages earlier this year.

While some individual gas stations ran out of fuel this year, no major city or region was left without fuel, though the margin of safety is falling, Vaz said.

The challenge facing distributors as Petrobras forces them to take on costs is more related to the timing of when storage facilities will be built and where to build them.

"We won't have any problem financing this," Vaz said. "Our problems are more with permits and finding the proper location for our new tanks."

Petrobras preferred shares, the company's most-traded class of stock, rose 2.2 percent to 19.99 reais on Tuesday, its highest close in nearly a month, on Sao Paulo's BM&FBovespa exchange. The Bovespa index of the most-traded stocks on the BM&FBovespa rose 0.6 percent.

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