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This excerpt taken from the PBR 20-F filed May 22, 2009. PifCo’s
Principal Commercial Activities
PifCo purchases crude oil and oil products for resale to us and
third parties. PifCo acquires substantially all of its crude oil
and oil products either through purchases on the spot market or
short-term supply contracts. PifCo also acquires a small portion
of its crude oil and oil products through long-term supply
contracts. PifCo’s crude oil and oil product purchase
obligations are, in most instances, guaranteed by us. PifCo then
resells the products purchased to us at the purchase price it
paid, plus a premium, determined in accordance with a formula
designed to pass on PifCo’s average costs of capital to us.
PifCo also purchases crude oil and oil products from us for sale
outside Brazil. Additionally, PifCo sells and purchases crude
oil and oil products to and from third parties and related
parties, mainly outside Brazil.
In addition, PifCo finances its oil trading activities
principally from commercial banks, including lines of credit, as
well as through inter-company loans from us and the issuance of
notes in the international capital markets.
Table of Contents
The following chart illustrates how PifCo acts as the
intermediary between international crude oil suppliers and us:
PifCo purchases crude oil and oil products from international
oil suppliers on a
free-on-board
(F.O.B.) basis under standard terms that traditionally require
payment within 30 days from the bill of lading. We would
typically be unable to meet the
30-day
payment term imposed by international suppliers because of the
complexity of Brazilian customs and importing regulations. For
example, if a shipment to which a bill of lading relates must be
delivered to different parts of Brazil, different sets of
documents must be delivered to each delivery point. Depending on
the unloading ports’ locations, this process may be
completed up to 120 days from the vessel’s departure.
Because PifCo is not subject to the Brazilian regulations
applicable to us, PifCo can pay the international supplier on
time without having to produce these different sets of
documents. To cover its financing costs, PifCo includes a
premium when it sells crude oil and oil products to us. We are
then able to buy crude oil and oil products from PifCo under
terms that allow for payment up to 330 days from the date
of the bill of lading, to ensure sufficient time to meet customs
and importing regulations.
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