This excerpt taken from the PBR 20-F filed May 22, 2009.
Risks Relating to PifCo
PifCos operations and debt servicing capabilities are dependent on us.
PifCos financial position and results of operations are directly affected by our decisions. PifCo is a direct wholly owned subsidiary of Petrobras incorporated in the Cayman Islands as an exempted company with limited liability. PifCo purchases crude oil and oil products from third parties and sells them at a premium to us on a deferred payment basis. PifCo also purchases crude oil and oil products from us and sells them outside Brazil. Accordingly, intercompany activities and transactions, and therefore PifCos financial position and results of operations, are affected by decisions made by us. Additionally, PifCo sells and purchases crude oil and oil products to and from third parties and related parties mainly outside Brazil. Commercial operations are carried out under market conditions and at market prices. PifCos ability to service and repay its indebtedness is consequently dependent on our own operations.
Financing for PifCos operations is provided by us, as well as third-party credit providers in favor of whom we provide credit support. Our support to PifCos debt obligations is made through guarantees and standby purchase agreements whereby we agree to repurchase from the holders of PifCos notes their right to receive payment from PifCo in the event PifCo defaults on its payment obligations.
Our own financial condition and results of operations, as well as our financial support of PifCo, directly affect PifCos operational results and debt servicing capabilities. For a more detailed description of certain risks that may have a material adverse impact on our financial condition or results of operations and therefore affect PifCos ability to meet its debt obligations, see Risks Relating to Our Operations.
PifCo depends on its ability to pass on its financing costs to us.
PifCo is principally engaged in the purchase of crude oil and oil products for sale to us, as described above. PifCo regularly incurs indebtedness related to such purchases and/or in obtaining financing from us or third-party creditors. All such indebtedness has the benefit of a guaranty, a standby purchase obligation or other support from us, and PifCo has historically passed on its financing costs to us by selling crude oil and oil products to us at a premium to compensate for its financing costs. If for any reason we are not permitted to continue these practices, this would have a materially adverse effect on PifCos business and on its ability to meet its debt obligations in the long term.