Petrobras natural gas hikes seen enduring even as shares dip

Petroleo Brasileiro SA is unlikely to be able to back away from a 39% hike in natural gas prices slammed by Brazil's President Jair Bolsonaro, sources close to the company said, pointing to the durability of existing contracts with distributors.

Despite the fact that shares of Petrobras - as the Rio de Janeiro firm is known - dipped on Thursday as investors absorbed the latest threat to the state-controlled company's independence, sources said Bolsonaro's saber-rattling would have little practical effect.

Even if the company eventually tried to decouple natural gas prices from market swings, contracts with distributors reflecting that linkage do not expire for another couple of years, they noted.

A 9 billion reais ($1.62 billion) Petrobras contract with Brazil's largest natural gas distributor, Comgas, in Sao Paulo state, was renewed in January 2020 and expires in December 2023, for instance.

Brazil imports a substantial portion of its natural gas needs and the recent price hike reflects international prices.

Bolsonaro's reaction is the latest in a series of tussles over fuel prices in the past months between Petrobras and the right wing populist president, whose government controls the company with a majority of the voting shares.

On Wednesday night, Petrobras asked the Mines and Energy Ministry, which formally oversees the company, to clarify comments from the president earlier in the day.

The query came from the company whose current chief executive, Roberto Castello Branco, was fired by Bolsonaro in February for raising diesel prices. Castello Branco will be replaced next week by Joaquim Silva e Luna, a retired Army general with no experience in the oil and gas industry.

Bolsonaro had said in a public event next to Luna the natural gas pricing policy could be changed, insisting that would not constitute government interference.

Investors gave Bolsonaro's latest pronouncements on the running of Brazil's largest company the thumbs down, dragging its preferred and ordinary shares 1.3% and 1.7% lower, respectively, in afternoon trade.

They were among the worst-performing shares on the broader Bovespa index, which was up 0.54%.

Bolsonaro's remarks started taking a toll on Wednesday, wiping out earlier gains in both the preferred and ordinary shares.

Petrobras announced this week it would raise prices starting in May. Contracts, which are mostly priced against global benchmark Brent crude oil, are adjusted quarterly based on international prices from the previous quarter. Prices for May, June and July will be 39% higher than in the first quarter, reflecting a 38% Brent increase from January to March, the company said.

Brazil imports most of its natural gas via a pipeline from Bolivia, or by sea, through cargoes of liquefied natural gas (LNG). Part of Brazil's domestic natural gas production is also controlled by private producers. ($1 = 5.5414 reais)

(Reporting by Sabrina Valle, Tatiana Bautzer, Jamie McGeever and Paula Laier; Editing by Toby Chopra, Paul Simao and Marguerita Choy)

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