Exclusive-Unigel demands Petrobras pay for losses on Brazil fertilizer plants, letter shows

By Marta Nogueira and Fabio Teixeira

RIO DE JANEIRO (Reuters) - Brazilian chemical company Unigel is demanding compensation from state-run Petrobras for losses on two leased fertilizer plants, a legal letter seen by Reuters showed, marking another setback in negotiations to reopen the plants.

The two plants, a key part of President Luiz Inacio Lula da Silva's plan to ease Brazil's dependency on imported fertilizer, have halted operations since the second half of last year.

In December, the two firms inked a "tolling" contract in which Petrobras would supply natural gas in return for fertilizer, letting Unigel restart production without concern about fuel prices. The deal fell through in June without taking effect after Brazil's federal audit court (TCU) said it could cause a loss of 487 million reais ($87 million) to Petrobras.

In the previously unreported letter from Unigel lawyers, dated June 20, the chemical firm complained that the deal had made its financial situation even more critical.

"The delay in implementing the Tolling Contract is resulting in significant losses" to Unigel, the lawyers told Petrobras a week before the state-run firm ended the agreement.

The lawyers added that Unigel must be "reimbursed in full" by Petrobras for losses since the tolling deal was signed.

In a statement, Unigel said the total losses run into the "hundreds of millions" of reais.

Petrobras did not answer questions about the demands in the Unigel letter. Both firms continue to work on a solution to resume production, they told Reuters in separate statements.

However, the letter shows that as of last month the firms - currently in arbitration - were far from a deal and relations were strained, with Unigel calling Petrobras' actions "abusive."

Boosting fertilizer production is a priority for Lula's government. Since he took office in 2023, Petrobras has reversed course on its divestments from fertilizers, announcing in June that it would resume operations on one of its plants.

As an agricultural powerhouse, Brazil is among the world's top consumers of fertilizers, more than 80% of which it imports. Under a plan unveiled in 2022, Brazil plans to cut fertilizer imports to 45% by 2050.

Yet the two plants in Sergipe and Bahia states that Unigel has been leasing from Petrobras since 2019 have remained idle this year. When operational, the plants made Unigel the largest Brazilian producer of nitrogen fertilizers.

Unigel is spending around 13 million reais ($2.4 million) per month on the plants, said the lawyers, worsening the firm's financial situation as it seeks to restructure 4.1 billion reais of debt with bondholders.

Up until March, when it fired the plants' employees, Unigel was spending 35 million reais per month, its lawyers said, adding that the firm had kept them employed at the request of Petrobras.

Still, the firm does not want to let go of the assets, it told Reuters in a statement, as it aims to resume operations when they become economically viable.

Without a deal, Petrobras and Unigel have been in a confidential arbitration process since December over clauses in their gas supply contract.

Arbitration processes often take around two years to reach a conclusion, but some can last up to five years, said Marcelo Godke, an expert in corporate law at Godke Advogados.

($1 = 5.5864 reais)

(Reporting by Marta Nogueira and Fabio Teixeira in Rio de Janeiro; Editing by Brad Haynes and Marguerita Choy)