By Reese Ewing
SAO PAULO Oct 30 (Reuters) - Brazil's state-run oil company Petrobras said on Wednesday it has asked the government to return to a transparent domestic fuel pricing policy in the wake of the latest quarter of dismal earnings.
Petrobras said in a market filing it has proposed a methodology to its government-controlled board that would automatically adjust domestic diesel and gasoline prices to international prices, without exposing local consumers to the volatility of international price swings.
The company has lost more than 30 billion reais ($14 billion) since the start of 2012 in its refining division due to a government policy that holds down fuel prices to contain inflation. That is equivalent to the company's total net earnings in 2011 and 50 percent more than 2012 profits.
The company imports fuel at international prices then sells it 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 potential turning point for the company.
Petrobras shares are up 7 percent since Friday's close when it reported net earnings fell 39 percent from a year ago due largely to losses as a result of the government's fuel pricing policy.
But some are skeptical, seeing the proposal as a distraction from the problems caused by the government's use of fuel prices as a counter-inflationary tool.
"The timing of the announcement was suspect, clearly," said Jose Marcio Camargo, an economist at Rio de Janeiro university PUC. "And why should we believe the government would approve a methodology that will raise prices when all along they have resisted just that ... raising fuel prices?"
Brazil's central bank has had difficulty bringing inflation down and government controls on fuel prices have been vital to keeping 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 international market during the administration of former President Fernando Henrique Cardoso. That allowed Petrobras to pass on the rise in oil prices without fully exposing the local economy to oil price shocks.
But former President Luis Inacio Lula da Silva and his successor President Dilma Rousseff have essentially dismantled that policy over the past decade.
After seeing the plan, Petrobras' board, which is chaired by Finance Minister Guido Mantega, asked for additional information, the company said in the filing. The board is due to discuss the plan in its next meeting on Nov. 22, and Petrobras said it is compiling the requested information. The board which is controlled by the government has the power to appoint or remove the company's executive, or management, team.
Earlier on Wednesday, the Valor Economico newspaper said Petrobras expected to raise gasoline and diesel prices on Nov. 22.
Later in the day, Mantega shot down any notion that the government has set a date for the next fuel price increase.
The government granted a 6.6 percent increase in gasoline and a 5.4 percent increase in diesel in January, but prices on the local market for both fuels remain between 10 percent and 15 percent below international levels.
Fuel sales make up roughly 40 percent of Petrobras' revenues and artificially low local prices have hit its bottom line hard in the past years.
The lack of clarity of what prompts the government to adjust prices at any given time has vexed the market, especially the cane ethanol sector which has called for greater transparency on when prices might fall or rise.
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.