By Marta Nogueira and Fabio Teixeira
RIO DE JANEIRO (Reuters) – Brazilian chemical company Unigel is seeking compensation from state-owned Petrobras for losses at two leased fertilizer plants, according to a legal letter seen by Reuters, in a new setback in negotiations over the reopening of the plants.
The two plants, a key part of President Luiz Inacio Lula da Silva’s plan to reduce Brazil’s reliance on imported fertilizers, have been idle since the second half of last year.
In December, the two companies signed a “tolling” contract in which Petrobras would supply natural gas in exchange for fertilizer, allowing Unigel to resume production without worrying about fuel prices. The deal fell through in June after Brazil’s Federal Audit Court (TCU) said it could cause Petrobras to lose 487 million reais ($87 million).
In the previously unpublished letter from Unigel’s lawyers, dated June 20, the chemical company complained that the deal had made its financial situation even more dire.
“The delay in the execution of the toll contract is resulting in significant losses” for Unigel, the lawyers told Petrobras a week before the state-owned company terminated the agreement.
The lawyers added that Unigel must be “fully compensated” by Petrobras for losses since the toll payment agreement.
In a statement, Unigel said total losses amount to “hundreds of millions” of real.
Petrobras did not answer questions about the demands in Unigel’s letter. Both companies are continuing to work on a solution to restart production, they told Reuters in separate statements.
However, the letter shows that the companies – currently in arbitration – were still far from a deal last month and that relations were tense. Unigel called Petrobras’ actions “abusive”.
Boosting fertilizer production is a priority for Lula’s government. Since he took office in 2023, Petrobras has reversed its course on fertilizer divestment, announcing in June that it would restart operations at one of its plants.
As an agricultural power, Brazil is one of the world’s largest consumers of fertilizers, importing more than 80% of them. Under a plan unveiled in 2022, Brazil aims to reduce fertilizer imports to 45% by 2050.
However, the two plants in Sergipe and Bahia States that Unigel has leased from Petrobras since 2019 have remained idle this year. When operational, the plants made Unigel Brazil’s largest producer of nitrogen fertilizers.
Unigel is spending about R$13 million ($2.4 million) a month on the factories, the lawyers said, worsening the financial situation of the company, which is trying to restructure R$4.1 billion in debt with bondholders.
Until March, when the company laid off workers at the factories, Unigel spent R35 million a month, the company’s lawyers said, adding that the company had kept the workers on at Petrobras’ request.
However, the company does not want to give up the assets, it told Reuters in a statement, saying it wants to resume operations as soon as they are economically viable.
Since December, Petrobras and Unigel have been engaged in a confidential arbitration process over clauses in their gas supply contract, without an agreement being reached.
According to Marcelo Godke, a corporate law expert at Godke Advogados, arbitration proceedings often take around two years to reach a conclusion, but sometimes it can take up to five years.
($1 = 5.5864 real)
(Reporting by Marta Nogueira and Fabio Teixeira in Rio de Janeiro; Editing by Brad Haynes and Marguerita Choy)
