This excerpt taken from the PBR 6-K filed Aug 19, 2005.
Petrobras takes incentives off the Bolivian Gas
(Rio de Janeiro, August 19, 2005). PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa: PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA], a Brazilian international energy company, announces that it is today communicating to its clients that it is substituting the existing price ceiling for Bolivian gas with a temporary discount system, which will result in an average increase in the final price (commodity plus transportation) of 13%, effective September 1st, 2005, followed by an additional 10%, effective November 1st, 2005. The contractual conditions of the Bolivian gas contract without any discount will be applied again in full as from January 1st 2006.
This decision was taken by Petrobras only after absorbing, since January 2003 (thirty two months), all the price increases under the gas purchase contract with Bolivian supplier YPFB, as part of its commercial strategy to stimulate the market served by the gas from Bolivia. The price of Bolivian gas is linked to a basket of oil products, the prices of which have suffered significant increases in recent months, resulting in higher prices under the contract with Bolivia.
The immediate impact on consumers of these price rises will depend on each individual link in the distribution chain (distributors, filling stations), on regulatory aspects specific to each concession, as well as on the weight of the cost of the gas itself in the final price charged by each segment.
The company has also informed to its clients that the prices of natural gas produced in Brazil, which have also remained unaltered for the past two years and eight months (since January, 2003), will be increased by 6,5% effective September 1st, 2005, followed by an additional 5%, effective November 1st, 2005
The price changes are the result of significant increases in the costs of exploration, production, acquisition and transportation of natural gas over these past 32 months and of the need to ensure the sustainability of Petrobras`s efforts to develop the market for this type of fuel, which is of fundamental importance to both the environment and to Brazil`s development as an industrial nation.
Petrobras reaffirms its commitment to the sustainable growth of the Brazilian natural gas market and believes that, despite these price increases, natural gas remains competitive with other fuels, even before taking into account the substantial advantages it offers in environmental and operational terms.