Petrobras looking to cut costs through severance plans

Brazilian oil and gas giant Petrobras has made plans to achieve additional cost reductions through its incentive retirement and voluntary severance programs, which will affect around 3,800 employees.

Petrobras said on Wednesday that its board had approved the creation of an Incentive Retirement Program (PAI), a new severance program aimed at employees eligible for retirement effective until 31 December 2023.

The board also approved adjustments for incentives to join the three Voluntary Severance Programs (PDVs) of the company.

The first program PDV 2019 is for employees that retired under the INSS (Brazilian Social Security) until June 2020, the second PDV is specific to employees allocated to assets/units under divestment process, and the third PDV is exclusive for employees working in the company’s corporate segment.

This is another one of Petrobras’ measures aimed at cost reduction amid challenging market situation.

The PAI and PDV 2019 have an additional estimated return (avoided personnel cost less the disbursement with compensation) of R$ 7.6 billion ($1.5 billion) by 2025, with the new enrollments estimated of around 3,800 employees.

The incentive adjustments of the PDV 2019 will generate an additional provision of R$ 1.29 billion ($247.2 million) in the 2Q 2020 financial statements related to the employees already dismissed and registered and the provisioning of new registrations will take place as enrols become effective.

Petrobras noted that the expected impact would not immediately affect the company’s cash for 2020, instead, it would be deferred over the next three years.

It is also worth reminding that Petrobras earlier in April said that, due to the contraction of oil and oil products demand, it had decided to adopt new measures that comprise reduction of oil production, postponement of cash disbursement, and reduction of costs.