Dispatch from Minister Benjamin Zymler points out signs of irregularities in the state-owned company’s contract with Unigel; Court demanded explanations from the oil company
Minister Benjamin Zymler, from TCU (Federal Audit Court), demanded explanations from the Petrobras on a contract signed with the Unigel which could result in a loss of almost R$500 million for the state-owned company. The decision came after the Court's technical area pointed out “indications of irregularities” in the agreement. Here's the complete of the order (PDF – 219 kB).
The contract has a total value of R$759.2 million and is valid for the Camaçari (BA) and Laranjeiras (SE) units. The agreement of tolling (industrialization to order), signed on December 29, 2023, guaranteed the resumption of activities at the oil company's fertilizer factories that are leased (rented) to the company.
The decision was issued on January 31, ordering Petrobras and the Ministry of Mines and Energy to respond within 5 days. Technical analysis by the Court of Auditors indicated that the contract could cause a loss of R$487 million to the oil company's cash flow due to taking on a loss-making operation.
Among the possible irregularities, the TCU technical area listed flaws in the justifications for carrying out the deal, lack of signature from higher levels of the company on the contract and the fact that Petrobras assumed the risks of the business in an unfavorable market scenario.
Zymler stated that by maintaining the lease contract while contracting Unigel on an outsourced basis to operate the factory, Petrobras “begins to supply gas and receive fertilizer, becoming responsible for its commercialization, assuming the burden of a loss-making operation of almost half a billion reais in a period of 8 months”says in the decision.
The order mentions that the state-owned company's own risk analysis on the contract “would have pointed out that its celebration would result in an expected loss of R$ 487.1 million, while the other alternatives considered, of (i) resumption of both plants by Petrobras and (ii) failure to carry out the tolling and failure to resume the plants by the state-owned Petrobras, would cause even greater losses, of R$ 1.23 billion and R$ 542.8 million, respectively”.
However, Zymler stated that the comparison would be inappropriate, as, “because tolling is economically unfeasible and presents monthly operational losses, the longer the contract, the greater the loss incurred by Petrobras, the opposite being true. On the other hand, the other alternatives suggested, despite their premises having been harshly questioned by the technical unit, do not suffer relevant impacts over time, as they would be definitive solutions”.
Table shows the NPV (net present value) of Petrobras' loss with the plants, with the values expected under the tolling and in the event that the state-owned company resumes the factories or does nothing. Highlighting the methodology that considers the use of units from 2000 to 2023
In the order, the minister stated that the economic unfeasibility of contracting “seems to be indisputable” since Unigel itself, in the 2nd half of 2023, decided to suspend the activities of the leased plants alleging the economic unfeasibility of the operation, even though there were natural gas contracts for ship or pay (supply guarantee model with monthly payment) signed with Petrobras and Shell.
The minister, following the technical opinion, understood that the contract is an affront to the principles of efficiency, economy and reasonableness as it is a provisional solution in the face of other perennial possibilities. He also recalled that at the end of the 8 months the state-owned company will have to re-evaluate the issue again, “having to choose between extending the tolling contract indefinitely, which could cause even greater losses than any other definitive solution”.
The technical audit recommended the suspension of the effectiveness of the contract, which will still be analyzed by the TCU after the parties have expressed their opinion. Zymler chose to listen to the companies and the government in advance, even requesting that the amounts already paid be informed.
UNDERSTAND THE CASE AND WHAT IT IS TOLLING
Petrobras leased the Fafens in Bahia and Sergipe to Proquigel, a subsidiary of Unigel, in 2019, under the government Jair Bolsonaro (PL). The contract has a duration of 10 years. However, the company shut down the 2 fertilizer factories in 2023 due to lack of profitability.
The company is the 2nd largest petrochemical company in Brazil, but has been facing financial difficulties. From January to September 2023, the group accumulated a loss of R$1.05 billion. In the same period of 2022, the company had recorded a profit of R$491 million.
The management of Jean Paul Prates negotiated a way to resume production, since the president's government Luiz Inácio Lula da Silva (PT) had been demanding shares from the state-owned company in the fertilizer sector. The arrangement found for the short term was the tollingsigned at the end of 2023 and valid for 8 months.
By agreement of tolling, Unigel will continue to operate the two factories, which will have natural gas supplied by Petrobras. The final production will also be sold to the state-owned company. It is as if the company were to operate the factory for the oil company on an outsourced basis.
The factories came into operation in 2013 and together they have enough installed capacity to meet 14% of the national demand for urea. Both presented deficit results from 2013 to 2017. They were stopped in 2018 and only resumed with the lease to Unigel.
WHAT PETROBRAS SAYS
In response to Power360Petrobras stated that the contract with Unigel signed in December was preceded by understandings that began in June 2022 and consists of “measure aligned with the company’s 2024-2028 Strategic Plan regarding the return to production and commercialization of fertilizers”.
The state-owned company said that it will provide all clarifications and technical justifications to the TCU within the deadline and that “all contracts and projects are prepared and executed following all governance standards and requirements, decision-making hierarchy and operational responsibility of the company”.
Petrobras stated that the “contracting with Unigel for the processing service of Petrobras gas as raw material and the delivery/sale of fertilizers to the contractor, in the form of a service contract, does not represent a definitive and autonomous undertaking”.
The state-owned company highlighted that the measure is provisional in nature and allows the continued operation of the plants located in Sergipe and Bahia for 8 months, “while the contractors engage in the 1st phase towards a definitive, profitable and viable solution for supplying these products to the Brazilian market”.
The company justified the need to supply the national fertilizer market and therefore repositioned its operations in the segment in the new Strategic Plan.
“Petrobras' business strategies ensure that our resources are used on time and on appropriately valued assets, in order to guarantee a greater return on invested capital, in a safe and sustainable manner.“, concludes the company’s note.
The report from the Power360 also contacted Unigel to comment on the decision, but did not receive a response until the publication of this text. The space remains open.
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