UPDATE 1-Petrobras says fuel policy does not adjust prices automatically
SAO PAULO Dec 4 (Reuters) - Brazil's state-run oil company Petroleo Brasileiro SA said on Wednesday the fuel-pricing policy approved by its board last week will not automatically adjust prices in relation to international levels.
Petrobras, as the company is known, on Nov. 30 raised gasoline prices by 4 percent and diesel by 8 percent, less than the market expected. In the third quarter, domestic gasoline was 18.9 percent below world prices and diesel 20.1 percent below, according to Planner Corretora, a Sao Paulo securities brokerage.
When it announced the price hike and policy the same day, Petrobras declined to say how future price changes would be calculated and when they would be made, insisting on secrecy to protect its commercial interests.
Petrobras is Brazil's only refiner. It is also the only Brazilian fuel importer willing to take a loss on imports.
The policy was announced just as investors were seeking clarity over how Petrobras would earn the revenue needed to finance its ambitious expansion plans.
"In regards to the application of the adjustments, these will not be automatic," the company said on Wednesday in a filing that responded to questions on the policy from Brazil's securities regulator.
"The methodology establishes adjustment bands, giving the executive board discretionary power over the dynamics of domestic and international markets."
The clarification partly contradicted Petrobras' original announcement on Oct. 30 that it planned to adopt a new pricing policy that would include "automatic adjustments to the prices of diesel and gasoline," according to a note to investors from Banco Itau BBA on Wednesday.
Petrobras common shares added 0.4 percent to 16.67 reais, and preferred shares, the company's most traded class, edged up 0.5 percent to 17.59 reais.
The common and preferred shares have been the two worst performers on the benchmark Bovespa index in Sao Paulo in the last five days, losing 16 percent and 15 percent, respectively.
"Not having a clear methodology for international parity for diesel and gasoline prices in Brazil, a net importer of both fuels, is bad enough," the Itau BBA note said. "But confusing messages about such a critical aspect of the company's investment thesis can be even more damaging to market perception about corporate governance and government intervention."
Going forward, the confusion may undermine the impact of an expected crude oil production increases in 2014, the note added.
For many in the market, the new pricing policy is no different than the old policy. Prices will rise in line with world prices when the government of President Dilma Rousseff's decides it will.
Brazil has resisted fuel price increases to help control inflation, which has hovered above or near 6.5 percent, the top of the government's target range since last year.
The policy has caused Petrobras' refining division to lose more than 30 billion reais ($12.6 billion) since 2012. With new refineries behind schedule and domestic fuel demand growing due to government economic stimulus programs, Petrobras has been forced to increase fuel imports, which it sells at home at a loss.
The policy also hurts margins on domestically produced fuel. Because Petrobras accounts for its own Brazilian crude oil production at world prices, fuel produced and sold at home from domestic oil provides less revenue than it could.
This has reduced the amount of cash available to pay for the company's $237 billion five-year investment plan, the world's largest, and forced the company to borrow more.
While non-government private investors own a majority of stock in the company, the government owns a majority of voting shares, allowing it to control decision-making.
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