Petrobras will submit agreement to Unigel to resume control of leased fertilizer plant, sources say

Author: Fabio Teixeira and Marta Nogueira

RIO DE JANEIRO, Jan 10 (Reuters) – Brazilian state oil company Petrobras is close to a deal that would allow it to resume management of two fertilizer plants in the country’s northeast that it has leased to chemicals company Unigel. Two sources with knowledge of the negotiations told Reuters.

Under the new arrangement, Petrobras will manage the plants, while Unigel will be hired to run them and provide maintenance services for five years, sources said. It’s unclear how much Petrobras will pay for the services.

Unigel has agreed to the deal, but Petrobras management is awaiting a report from the company’s fertilizer working group to approve the deal, according to a source. Sources added that once the agreement is signed, operations at both plants may restart before the end of the first semester.

Petrobras did not immediately respond to a request for comment. Unigel said it would not comment.

The two plants were leased to Unigel in 2019 as part of the oil company’s divestment strategy. But both plants ceased operations in the second half of 2023, with high natural gas prices rendering the plants unprofitable, according to Unigel.

When Brazilian President Luiz Inacio Lula da Silva takes office in 2023, the two plants will be strategic to his plan to ease Brazil’s dependence on imported fertilizers, Petrobras said. The company (Petrobras) changed its strategy.

In late 2023, the two companies agreed to a “toll” arrangement in which Petrobras would supply natural gas in exchange for fertilizer. The deal will ease Unigel’s concerns about fuel prices and allow the plant to restart production. But last June, the bill failed to take effect after Brazil’s Federal Audit Court (TCU) said it could cause Petrobras 487 million reais ($79.81 million) in losses.

The new deal being negotiated by the two companies will help Unigel’s financial position, as the company loses money every month to maintain the plant. When the two plants became operational, Unigel became Brazil’s largest nitrogen fertilizer producer.

(Reporting by Fabio Teixeira and Marta Nogueira in Rio de Janeiro; Editing by Matthew Lewis)