State-controlled Petraleo Brasileiro SA agreed on Friday to refinance an outstanding 6 billion reais ($1.7 billion) tax debt with the Brazilian government, allowing the debt-laden oil producer to restructure an onerous liability. Under terms of the plan, the company commonly known as Petrobras will have the debt cut by half, and use tax credits to write down 876 million reais of the remaining amount. The company will use 1.26 billion reais from a judicial cash escrow account to pay part of the debt.
The remainder will be paid in installments between this year and 2017, according to a securities filing. The plan underscores Petrobras' efforts to improve corporate governance practices, which include revamping the way tax liabilities are accounted for. As part of those efforts, Petrobras may gradually set aside provisions on tax liabilities against the company's balance sheet.
Reducing the company's hefty tax bill is also a way to prevent Petrobras from further trimming capital spending in coming years and reduce the burden of cost cuts in efforts to make operational performance more efficient. Earlier this month the company reported an 89 percent drop in second-quarter profit after taking a one-time charge for underperforming assets. The charge was booked as Petrobras' new executives and board of directors grapple with the company's $132 billion debt, the oil-industry's largest.
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