Petrobras to Oppose Higher Bolivian Natural Gas Prices

Brazil's federal energy company Petrobras (NYSE: PBR) will not accept prices higher than the US$3.80/MBTU it currently pays for Bolivian gas and is ready to go to arbitration to defend its position, company CEO Jose Gabrielli told reporters at a press conference on Wednesday.

Petrobras currently imports some 24-26 million cubic meters a day (Mm3/d) of a natural gas from Bolivia through the 3,000km Bolivia-Brazil (B2B) gas pipeline under a 30Mm3/d contract that expires in 2019.

In the weeks leading up to Bolivia's May 1 presidential decree that nationalized the country's hydrocarbons industry, Bolivia's government had been indicating it wanted to increase the price at which gas is sold to Brazil and Argentina, its only two foreign buyers.

Bolivia's President Evo Morales said in a recent interview the revenue from the country's natural resources needed to be increased to finance expansion of public health and education services. Although the decree also increased taxes and royalties to a combined 82% from 50%, he also intended to increase gas prices.

"There is no reason to increase natural gas prices," Gabrielli said. "We haven't been officially notified of the intention of [Bolivia's state oil company] YPFB to raise gas prices, and if we are notified, we won't agree."

Petrobras imports Bolivian gas based on a 20-year agreement signed in 1999, which does allow changes in volumes, prices and the duration of the contract, but unilateral changes can be questioned at the American Arbitration Association in New York, Gabrielli said.


A second issue that could end up in international arbitration courts is the reimbursement that will be offered by YPFB for taking over a 50% plus one share control of Petrobras' two refineries and their associated downstream operations. The third issue could be the prices YPFB will offer for production at Petrobras production fields still under Petrobras control, Gabrielli said.

"The decree has given YPFB the power to set prices and conditions for reimbursement based on auditing it will carry out, which we consider legitimate and legal," Gabrielli said. "It's up to Petrobras to show it has obeyed Bolivian law, but the decree is open to interpretation and we can question the auditing if necessary to defend our interests. We have six months of heavy negotiations ahead of us."

Petrobras' Bolivian subsidiary Petrobras Bolivia has a book value of US$1.3bn, but the net worth of the assets there are estimated at US$365mn, said Gabrielli.

The difference is made up of liabilities and debts, including to banks, suppliers, the International Finance Corporation (IFC) and taxes, Gabirelli said, pointing out the division of this debt with YPFB also needs to be discussed.

Despite the readiness to defend the company's interest in negotiations with the YPFB and Bolivia's government or arbitration courts, Gabrielli said he is confident the gas export agreements will not be broken.

"There is no possibility of 'blackout' in gas supply in Brazil," he said. "Analysts and columnists who have said this are speculating irresponsibly."

The reasons for his confidence in the continuation of gas supply are based in the gas supply agreement (GSA) export contract, public statements by President Morales and other top Bolivian officials and the need for Bolivia to ensure hard currency revenue.

"There is no acceptable motive for thinking gas supply [to Brazil] will be interrupted," said Petrobras gas and power director Ildo Sauer, who was also at the press conference. "Bolivia needs to increase its revenue. Cutting off supply to Brazil would mean killing the goose that lays the golden egg."

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