Brazil’s Unigel, Petrobras end fertilizers plants lease, contractual disputes

SAO PAULO (ICIS)–Brazil’s state-owned energy major Petrobras and chemicals producer Unigel have finally signed an agreement to end contractual disputes related to the two fertilizers plants in the country’s north which had been leased to Unigel.

Late on 22 May, the companies said the two fertilizers plants in the states of Bahia and Sergipe (northeast) would thus return to Petrobras’ portfolio.

The agreement must still be ratified by Brazil’s Arbitral Tribunal.

“The agreement provides for the reinstatement of Petrobras’ possession of the fertilizer plants (FAFENs) in Bahia and Sergipe, and the resumption of operations by Petrobras through a bidding process for the contracting of operation and maintenance services, in compliance with applicable governance practices and internal procedures,” said Petrobras.

“Petrobras aims to resume activities in the fertilizer segment to create value through the production and commercialization of nitrogen-based products, while aligning with the oil and natural gas production chain and the energy transition.”

Meanwhile, Unigel said the agreement represented the “definitive resolution of the contractual disputes” and litigation existing between the companies due to disagreements about the lease for the two plants.

The deal represents the withdrawal of the company from the fertilizers sector altogether.

The Camacari plant in Bahia state can produce 475,000 tonnes/year of ammonia and 475,000 tonnes/year of urea.

The plant in Laranjeiras, Sergipe, can produce 650,000 tonnes/year of urea, 450,000 tonnes/year of ammonia and 320,000 tonnes/year of ammonium sulphate (AS).

FAILED FERTILIZERS ADVENTURE
The agreement puts an end to the 10-year lease for the plants signed by Unigel and Petrobras in 2019.

While successful at first, as fertilizers prices shot up immediately after the first wave of the COVID-19 pandemic, prices started to fall in 2022 though while prices for natural gas rose sharply.

In 2024, Unigel idled the two plants as high prices for gas and low selling prices made operations unprofitable, it said.

Along the way, Petrobras accused Unigel of not fulfilling the terms and conditions of what they had agreed.

Moreover, from 2022, woes at Unigel’s petrochemicals divisions – mostly producing styrenics – added to those in fertilizers.

By the end of 2023, the company was forced to enter a debt restructuring process from which it only emerged in 2024.

Earlier in May, Unigel presented its first comprehensive quarterly financial metrics since 2023, when it entered the restructuring process. Brazil’s financial regulations provide for such a provision for companies in financial distress.

While it posted small earnings before interest, taxes, depreciation, and amortization (EBITDA), the producer continued haemorrhaging money in the first quarter, with sales falling year on year and posting a net loss of Brazilian reais (R) 209 million ($37 million).

($1 = R5.71)