Unigel presses Petrobras for financial relief over halted fertilizer plants

Unigel has formally requested that Petrobras, Brazil’s state-owned oil giant, compensate for losses tied to two fertilizer plants leased from Petrobras. These plants have been idle since the latter half of last year, affecting President Luiz Inacio Lula da Silva’s strategy to reduce Brazil’s dependence on imported fertilizers.

In December, Unigel and Petrobras entered into a “tolling” agreement, wherein Petrobras would supply natural gas in exchange for fertilizer, enabling Unigel to restart production without being affected by fuel prices. However, the agreement collapsed in June after Brazil’s federal audit court (TCU) projected a potential loss of 487 million reais ($87 million) for Petrobras.

A June 20 letter from Unigel’s lawyers highlighted that delays in executing the tolling contract had exacerbated Unigel’s financial troubles. They asserted that Petrobras should fully compensate Unigel for the financial damages sustained since the agreement was signed. Unigel claims total losses in the “hundreds of millions” of reais.

Petrobras has not responded to questions regarding Unigel’s demands. Both companies are reportedly seeking a solution to resume production. The letter indicates that as of last month, the firms, currently in arbitration, were far from reaching a deal, with Unigel labeling Petrobras’ actions as “abusive.”

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Boosting domestic fertilizer production is a priority for Lula’s administration. Petrobras, reversing its previous divestment plans, announced in June that it would restart operations at one of its plants. Brazil, a major agricultural producer, imports over 80% of its fertilizers and aims to reduce this dependency to 45% by 2050.

Despite leasing the plants in Sergipe and Bahia since 2019, Unigel has not been able to operate them this year. These plants previously positioned Unigel as Brazil’s top nitrogen fertilizer producer. The company spends approximately 13 million reais ($2.4 million) monthly on the idle plants, worsening its financial condition as it negotiates restructuring 4.1 billion reais (approx. $739 million) of debt with bondholders. Up until March, Unigel was spending 35 million reais ($6.3 million) monthly on the plants, having retained employees at Petrobras’ request.

Unigel intends to keep the plants, aiming to restart operations when they become economically viable. The arbitration process between Petrobras and Unigel, which began in December over disputes in their gas supply contract, could take up to five years to conclude, according to corporate law expert Marcelo Godke.