Brazil's Petrobras, union strike talks fail, risk of fuel shortage rises

RIO DE JANEIRO, Nov 9 (Reuters) - Brazil’s Petrobras and unions failed to reach an agreement on Monday over worker demands that the state-run oil company reverse budget cuts and cancel assets sales aimed at trimming its massive debt, union and company officials said.

The week-old strike, already the biggest in 20 years, now risks an impasse that could hurt domestic fuel supplies and further hobble a company already under financial pressure and the fallout from a corruption scandal.

“Our demands are not for salaries, but in defense of national sovereignty and that the company goes back to being the impulse for development of the country,” FUP, the country’s main oil-union federation said late Monday.

Combined with a growing truckers strike, the Petrobras walkout could further harm a Brazilian economy already struggling with its worst recession in decades.

The two sides plan to meet again on Tuesday. A Petrobras official with direct knowledge of the talks told Reuters on Monday the company expects an agreement by the end of the week.

“There is still no deal, but the unions better understand the company’s economic situation,” said the official, who asked not to be identified because the talks are private.

While FUP is asking for an 18 percent salary increase, more than double the country’s inflation rate, union officials say their demands to reverse nearly $100 billion in budget cuts and stop plans to sell oil fields and a stake in its distribution unit are more important.

Without the sales and budget cuts Petrobras will have trouble paying its more than $130 billion of debt, the largest in the oil industry, the company says.

Since the strike began, Petrobras said on Monday, it has held output cuts to about 115,000 barrels a day in Brazil, or about 5.5 percent of pre-strike production, thanks to management and contingency plans.

FUP, though, says Petrobras’ estimate is low and that as much as 400,000 barrels a day are affected. Companies, particularly on-shore independents, say Petrobras, one of the main buyers of non-Petrobras output in Brazil, has been unable to honor purchase contracts due to strike activity at terminals.

FUP members and members of the rival FNP oil workers confederation are on strike at 12 of Petrobras’ 13 Brazilian refineries. In the past Petrobras officials have said they can maintain refinery output for about 10 days without major output drops and the need to use up fuel stocks. (Reporting by Jeb Blount and Rodrigo Viga Gaier; Editing by Lisa Shumaker)