Brazil’s Finance Minister Guido Mantega turned down Petroleo Brasileiro SA’s (PETR4) most recent requests for fuel-price increases and told management that delivering on production targets would ease its financial difficulties, said a person with direct knowledge of the talks.

Mantega, who chairs Petrobras’ board of directors, told Chief Executive Officer Maria das Gracas Foster in April and May that a weaker local currency had helped the state-owned oil company’s short-term finances when she requested price adjustments, the person said, asking not to be identified because the discussion was private. Company officials expressed concern to Mantega that continued fuel price caps could result in a lower rating and higher credit costs, the person said.

The real has gained 3.4 percent against the U.S. dollar this year after falling 13 percent in 2013. A stronger currency reduces the cost of Petrobras’ fuel imports. The most indebted publicly-traded oil company has been subsidizing imported fuel since 2011 as part of a government policy to use price controls to slow inflation that has exceeded the official 4.5 percent target throughout President Dilma Rousseff’s term.

Mantega, since last year, has been pushing Petrobras to increase production in an effort to reduce imports, said a different person briefed on the matter. Mantega has told Petrobras management that international fuel prices would have less of an impact on its balance sheet if it produced enough to supply the domestic market, said the person, who asked not to be named because he isn’t authorized to speak publicly on the issue.

Petrobras fell 1.3 percent to 16.68 reais at 12:53 p.m. in Sao Paulo while Brazil’s benchmark index lost 0.5 percent.

New Refineries

The Finance Ministry’s press office declined to comment on fuel-price negotiations with Petrobras. Petrobras didn’t respond to an e-mail and phone call requesting comment.

Petrobras is building new refineries to reduce imports and improve its return on capital, the company said in a June 2 e-mail. Its five-year business plan calls for a fuel-price alignment to improve leverage and shareholder returns, it said.

In early May, Petrobras estimated it was selling gasoline and diesel at a 15 percent and 13 percent discount, respectively, to international prices, the person said. Subsidies have cost the company more than $31 billion in three years, Citigroup Inc. said in a May 22 research note. Petrobras calculates annual losses of about $500 million for every percentage point gap in fuel prices, the person said.

Petrobras’s production has declined for two years in a row. It expects to boost domestic output 7.5 percent this year as it adds new offshore production units. Average output through April is little changed.

Spending Surge

The fuel losses have coincided with a jump in investments as the company expands its capacity to produce and refine oil. The Rio de Janeiro-based producer has the largest cash flow deficit of any publicly-traded oil company at $24 billion in the past 12 months, according to data compiled by Bloomberg.

Petrobras, the worst performing major oil stock in the past year, has risen 34 percent since March 17 on speculation Rousseff will either be voted out of office in October and replaced with a more business-friendly administration, or start adjusting fuel prices after the elections.

Polls show Rousseff’s lead narrowing at a time consumer-price increases erode purchasing power in Latin America’s largest economy, damping consumer and industry confidence.

Opposition Candidate

Presidential candidate Aecio Neves, 54, said June 2 his government would set clear rules for changing regulated prices, which he wouldn’t boost all at once. Neves, a senator with the Brazilian Social Democracy Party, said he would have to study the impact of altering prices for companies such as Petrobras.

Rousseff’s lead over Neves fell to 17 percentage points in a May 7-8 Datafolha poll from 28 points in February. She was supported by 37 percent in the May poll, which had a two percentage-point margin of error. That wouldn’t be enough for her to win in the Oct. 5 first round, where a candidate must have more votes than all others combined.