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In 19 Countries, Brazil’s Petrobras Learns to Play Global Game

State-controlled Brazilian oil company Petrobras State-controlled Brazilian oil company Petrobras

State-controlled Brazilian oil company Petrobras Brazil's state-controlled oil company Petrobras will present its experiences at the Conference of the World's National Oil Companies, to take place in Dubai, in the United Arab Emirates, between February 26 and 28. The Brazilian company will be represented by insurance manager Luiz Octávio Parente de Mello Júnior.

"I am going to address our experience in the insurance market, how we have dealt with the closed reinsurance market in Brazil and how we have executed our operations abroad, where the market is open. We have experiences of two worlds with different advantages and disadvantages," said Mello.

Petrobras has had operations abroad for two decades, but in recent years the organization started intensifying its actions abroad and is currently present in 19 countries, including Brazil.

They are: Angola, Bolivia, Colombia, the United States, Nigeria, Venezuela, Mexico, Ecuador, Peru, Uruguay, Paraguay, Tanzania, Iran, Libya, Equatorial Guinea, Turkey, China and more recently Pakistan.

During the globalization process, the organization decided to establish, in 1997, its own insurance company, Bear, which is based in the Bermudas, and became the main insurance supplier for the company's business abroad.

"To have premium benefits due to scale we bought a package that includes all our global operations," said Mello. That is, the more the company produces and the more assets there are to cover and the lower the relative insurance costs.

"At the same time, it works as an instrument for risk management, and you can analyze what is the best insurance for different regions, each with different characteristics and legislations," he said.

The own and exclusive insurance company makes it possible for Petrobras not to have to seek insurance in each country in which it operates, reducing the need for intermediaries. "The more intermediaries, the greater the cost," he said.

This is an example of the challenge that the company has to face in the globalization process. In fact, before deciding on the current model, Petrobras addressed a consultancy company and came to the conclusion that the best option was to create Bear, which, as it is part of the group, is in line with the oil company's risk management policy. "These are positive experiences that have been presenting good results," said Mello.

Reinsurance

Another example is the reinsurance sector, which is the sector that insures insurers. In Brazil the market was monopolized by the Brazilian Reinsurance Institute (IRB), other companies could only operate in the sector under authorization by the IRB. But in January the National Congress approved a law that opened the market.

"In Brazil we did not need to find reinsurance companies, to worry about their solidity, to do risk analysis, as the sector was monopolized by IRB. Abroad we had to worry about it, to find specialized reinsurance companies," he said.

Different from insurance, the solution found for reinsurance was pulverization of operations. In the case of the P-36, for example, the platform that sank in 2001, according to Mello, there were over 40 reinsurance companies involved, reducing the possibility of lack of payment.

"If an accident occurs, each reinsurance company has to make a share of the payment, you pulverize the risk. It is not possible to place your eggs in the same basket," he said. The value of the P-36 was around US$ 500 million.

According to Mello, last year Petrobras paid US$ 34.5 million in premium to insure all its refineries and platforms in Brazil. The state-owned organization is the largest company in Brazil and had the largest revenues among Latin American companies last year, US$ 12.4 billion, 9% more than in 2005.

Anba – www.anba.com.br

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