Brazil's Cade to rule on Gaspetro sale on 22 July

Brazilian antitrust agency Cade on 22 July will rule on appeals of the sale of Petrobras' natural gas distribution subsidiary Gaspetro to gas trading company Compass, owned by Brazilian energy conglomerate Cosan.

A source close to the entities that filed the appeals told Argus that the Cade board of judges are expected to rule in favor of the deal. But the entities plan to request remedies that would reduce Cosan group's influence on Brazil's natural gas sector.

The extent and the depth of the remedies are unclear and would depend on the voting dynamic. The groups that filed the appeals worry the remedies imposed by Cade will be "only cosmetic" and will not improve competition.

An agreement between Cade and Petrobras in 2019 committed to bringing more competition to the gas market, determining that no company could work in more than one area of the sector. For instance, a gas trader could not be a transportation company or a gas producer.

The lawyers working in behalf of the appeals suggested to Cade that the remedies adopted should result in the thorough limitation for Cosan group in the gas market. Since they already own São Paulo state distribution company Comgás, Cosan should be required to sell all other gas production, transportation and trading businesses.

The Gaspetro purchase would boost Compass' share of Brazil's gas distribution market to more than 76pc, giving it "elevated influence in the natural gas acquisition decision in the upstream market," according to the monitoring committee of the natural gas market opening, headed by the gas department at the ministry of mines and energy.

Gaspetro has shares in 18 natural gas distribution companies and is partnered with state governments as well as Japanese company Mitsui. Compass already said it intends to sell some of its distributors, but divestment decisions are not being overseen by Cade, which has a mandate to guarantee competition in the gas market. This is seen by the groups that made the appeal as Cade giving up on its legal obligations.

Also, the groups appealing the transaction - large gas consumers and transportation companies associations - have requested that the president for the board of judges, Alexandre Cordeiro, should recuse himself from the case since he was responsible for signing the Petrobras agreement to reduce its position in the gas market in 2019. Brazilian laws determine that a judge cannot participate in more than one instance of the same case.

Cade's board has seven judges. If Cordeiro does not recuse himself from the case, the case participants expect he will be favorable to the deal, with no limitations. Judge Gustavo Augusto Freitas de Lima is expected to follow Cordeiro's decision.

On the opposite side, judge Lenisa Prado has already spoken in favor of imposing limits on the acquisition.

Luiz Hoffmann is expected to approve the deal with remedies, a position that could be joined by Luis Henrique Bertolino Braido.

The two biggest uncertainties are judges Victor Oliveira Fernandes and Sergio Costa Ravagnani.

If Cordeiro recuses himself from the voting, a possible tie could happen. In this case, the tie-breaking vote could come down to Ravagnani.

By Flávia Pierry

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