Petroleo Brasileiro Petrobras : Approval of revision of pricing policy for household gas (LPG-P13)

Rio de Janeiro, January 18, 2017 - Petróleo Brasileiro S.A. - Petrobras, further to the press release of 12/7/18, reports that its Executive Board has approved the revision of the pricing policy for commercialization of Liquefied Petroleum Gas to distributors sold in cylinders of up to 13 kg for residential use and defined a new criteria for the application of adjustments, plus a transition rule for the year 2018 that will reduce the price of LPG sold at refineries by 5% starting tomorrow (01/19).

The goal, as already disclosed, was to soften the transfer of price volatility in the international market to the domestic price, while the provisions of Resolution 4/2005 of the National Energy Police Council is upheld, which recognizes that differentiated prices for the sale of LPG for residential use is of interest to the national energy policy.

Petrobras believes that these new criteria will allow to keep the value of LPG referenced in the international market, but will dilute the effects of price increases typically concentrated at the end of each year, given the seasonal nature of the product. The reference will continue to be the price of butane and propane sold in the European market plus a 5% margin.

After the reduction that will come into force tomorrow, the average price of residential LPG without taxes sold in the refineries of Petrobras will be equivalent to R$ 23.16 per cylinder of 13 kg. As Brazilian law guarantees freedom of prices in the fuel and oil product's market, the revisions made by Petrobras may or may not be reflected in the final consumer price. This will depend on transfers made especially by distributers and resellers.

The main changes in the pricing policy are detailed below:

1) Adjustments are now quarterly instead of monthly, entering into effect on the 5th of the start of each quarter.
2) The calculation period of international prices and the foreign exchange that will define adjustment percentage will gradually be an average of the 12 months prior to the period of force, instead of the monthly variance.
3) Reductions or increases in rates above 10% will have to be authorized by the Executive Group of Market and Prices, composed of the Petrobras CEO and the Executive Officers for Refining and Natural Gas and for Finance and Investor Relations. In these cases, the date of adjustments application (05) can be modified. If the readjustment index is very high, the Executive Group of Market and Prices may decide not to apply it fully, leaving the difference for compensation according to detailed mechanism.
4) Creation of a compensation mechanism that will allow comparing the prices charged under this new policy and the prices that would be charged according to the previous policy. The differences accumulated in one year, adjusted by the SELIC rate, will be compensated by a fixed installment plus or minus the prices charged the following year.

In 2018, exceptionally, the calculation of price variance will follow the transition rule below:

1) Immediate reduction of 5% to current prices from 01/19 on, determined on the basis of the average international prices and the exchange rate between Jan. 1 and 12, 2018.
2) Increasing periods of reference for calculation of price variance until the 12-month average is reached, as per the table below: