Martha Beck, Mariana Durao and Daniel Carvalho, Bloomberg News

BRASILIA/RIO
EnergiesNet.com 09 18 2023

Brazil’s state-controlled oil company Petrobras must settle a dispute involving billions of reais in back taxes with the federal government to show it has a duty to the country and not only to its private investors, according to the nation’s energy minister. 

Alexandre Silveira’s call for the oil giant to set an example to other companies with outstanding tax debts comes as President Luiz Inacio da Silva’s administration seeks to cut deals with them in an effort to raise revenues and balance the nation’s budget.

“Petrobras has an obligation to sit at the table with Brazil’s bureau of federal revenue and the finance ministry and consider all the possibilities to honor its tax commitments,” minister Alexandre Silveira told Bloomberg News in an interview in New York on Saturday, highlighting the company’s “staggering profitability” in recent years. 

Petrobras has hundreds of lawyers in its legal department and hires dozens of private law firms, Silveira added, but it doesn’t mean it should take all tax disputes to the courts, in cases that can take years to be resolved. “It’s evident that the company needs to show its responsibility to Brazil.”

A potential agreement with Petroleo Brasileiro SA, as the company is formally known, could bring in 30 billion to 40 billion reais ($8.2 billion) to public coffers, helping narrow Brazil’s budget gap even as Lula plans to further increase public spending. 

Petrobras owes more than 100 billion reais in back taxes resulting from its failure to pay levies on imports, remittances abroad and past profits, according to three government officials familiar with the matter. The debt is under analysis by Brazil’s tax appeals court, known as Carf. An agreement could cut the company’s liabilities to by more than half by reducing fines and interest owed, the officials said. All requested anonymity because talks are not public.

The officials said Finance Minister Fernando Haddad and Petrobras Chief Executive Officer Jean Paul Prates have discussed a way for the company to pay some of the debts that are under Carf review. Haddad has heard from him that the oil firm could pay as much as 30 billion reais as part of an agreement, but the economic team is pushing for a larger figure, one of the people said. The talks were first reported by Valor Economico newspaper.

Petrobras disputes the idea of ongoing negotiations about back taxes. Asked whether Prates and Haddad had talked about the topic, a spokesperson referred to an Aug. 15 statement where the company maintains that “news of a possible negotiation for a deal with the federal government is unfounded.” In the statement, the oil producer says its decisions on tax liabilities take into account risks of negative rulings in administrative and judicial spheres. Petrobras can still appeal the Carf decision in Brazilian courts. 

Three people close to Petrobras, speaking on condition of anonymity, added that no discussion about the topic has so far reached its board of directors, which would need to approve any tax deal involving the Brazilian government, the oil producer’s majority shareholder. 

The finance ministry didn’t immediately respond to a request for comment.

Raising Government Revenue

Clearing outstanding tax debts is part of Haddad’s strategy to find 168 billion reais in revenue he needs to achieve the zero primary deficit, which excludes interest payments, projected in the 2024 budget proposal the government released in late August.

Brazil’s congress recently approved a change in Carf’s rules that is expected to speed up decisions in cases involving large companies and could generate as much as 55 billion reais by the end of 2024, the finance ministry projects. Part of that amount is expected to come from Petrobras.

Bank economists are warning about the potential impact of debt payments on Petrobras’s dividends. Citigroup Inc’s analysts led by Gabriel Barra still sees prospects of Petrobras distributing extra dividends, according to a recent note. But a settlement or an unfavorable Carf decision could be a dividend drag by reducing the amount of cash available for them, Barra said in an interview.

Members of the government’s economic team, meanwhile, have argued that the company cannot avoid its tax liabilities in order to shower investors with additional dividends.

In a report released this week, Goldman Sachs estimated a $6 billion impact to Petrobras’s free cash flow in a scenario in which the 40 billion reais currently under Carf review resulted in an unfavorable outcome for the firm. If Petrobras appeals any of those rulings, any potential repayment would be delayed.

bloomberg.com 09 17 2023