Petrobras, CADE and the divestment of oil refineries

On June 11, 2019, Brazil’s antitrust Tribunal CADE approved a settlement agreement with Petrobras regarding the divestment of oil refineries.

Under the agreement, Petrobras must sell control over eight oil refineries and their respective transportation assets, representing about 50% of its refining capacity at the time. To ensure competition within different regions, oil refineries located in the same geographic region may not be sold to the same acquirer. In addition, Petrobras must publish in its website the prices for diesel and gasoline by point of sales, in order to increase transparency.

According to the agreement, the divestment involves a three-stage schedule, in the following terms: (i) to publish the teaser with respect to each divestment until December 31, 2019, (ii) to execute the divestment agreements until December 31, 2020, and (iii) to close all the transactions until December 31, 2021. Regarding the execution of the divestment agreements, the deadline was postponed by CADE to April 30, 2021.

The agreement with CADE purports to reshape, and introduce full competition in, Brazil’s downstream oil markets, almost 25 years after a change in Brazil’s federal constitution did away with Petrobras’s monopoly and the Oil Act of 1997 took effect. At the plenary session under which CADE approved the agreement, its President sought to illustrate its importance by referring to the decisions of other landmark antitrust decisions including Standard Oil (1911), AT&T (1982), E.ON Eletricity (2008) and RWE AG (2009).

The CADE-Petrobras deal was as important as, in some relevant regards, it was bold. The agreement was entered to close an investigation into an alleged abuse of dominant position by Petrobras in the national oil refining market. The investigation, which was motivated by a technical opinion by CADE’s Department of Economic Studies (DEE), had been opened a few months earlier and was at its very initial stages.

During the session which approved the settlement, two commissioners voted against it, due to (i) the absence of a connection between the obligations undertaken by Petrobras with the object of the investigation and (ii) the lack of evidence of abuse of market power at that stage of the proceedings.

In fact, the very proposal of such an expressive structural remedy to close an incipient investigation was unprecedented in CADE. Under the Brazilian Competition Law, the main sanctions for anticompetitive conducts are fines, behavioral obligations and measures related to reputational damages. For the sake of proportionality, severe measures, such as the imposition of divestments, can be applied to extreme conducts only and there is only a single precedent in CADE’s history where this was done.

As detailed in Renata Arcoverde’s article in this newsletter, now – almost two years after Petrobras agreed to the sale of some of its oil refineries – there is speculation as to whether the very decision will be maintained by Petrobras’s new management. If Petrobras chooses not to comply with the terms of the settlement agreement, CADE may resume its investigation. This may seem like a small price to pay considering that the investigation is still in its early stages and it is unlikely that sanctions will be applied in the near future.

Fines for anticompetitive practices range from 0.1% to 20% of the economic group gross revenues in the field of the business related to the violation. When it comes to unilateral conduct, such as the one Petrobras was being investigated for, CADE’s fines are usually in the lower part of this range. Given that other investigations against Petrobras in the oil refining market were closed in the past, it is fair to assume that, even if the agreement is breached and the investigation is resumed, it might not have substantial consequences for Petrobras.

Image: Jefferson Rudy/Agência Senado

Fonte: Agência Senado