Almost 70 years ago Brazil founded a national oil enterprise on the back of a campaign with a slogan — “o petróleo é nosso!” — which reverberates to this day.
The populist sentiment behind the phrase, which means “the oil is ours”, is never far from Petróleo Brasileiro, better known as Petrobras. Especially when fuel bills are on the rise. As discontent over squeezed living standards shapes Brazil’s upcoming presidential election, Latin America’s largest hydrocarbon company is once again turning into a political football.
With double-digit inflation denting his popularity, President Jair Bolsonaro has lashed out at a big price hike for petrol, diesel and cooking gas by Petrobras this month, following a jump in oil benchmarks in the wake of war in Ukraine.
Speculation has mounted about the future of the listed but state-controlled group’s chief executive, whose predecessor was ousted by Bolsonaro only a year ago amid similar tensions.
The right-winger’s criticisms are a rare point of consensus with his presumed challenger, former president Luiz Inácio Lula da Silva of the leftist Workers’ Party (PT). Ahead in the polls, Lula has said Petrobras must consider “the wellbeing of 213mn Brazilians”.
For outside shareholders in the $80bn-valued business, the noise is an unwelcome reminder of damaging interventions by politicians in the past. The irony is that management just appeared to have restored its fortunes following a period of turmoil.
During PT rule in the previous decade, Petrobras was at the centre of the “car wash” scandal, with billions of dollars siphoned off in a vast corruption scheme. The company also was pushed to the brink of bankruptcy after being forced to keep fuel prices artificially low under former president Dilma Rousseff. Since then, it has reduced an enormous debt pile and is divesting assets such as mature fields and refineries in order to focus on exploration and production at its rich deep-sea reserves.
Yet if record earnings and dividends for 2021 were proof of the turnround, they caused anger at a time when many Brazilians are struggling. Bolsonaro branded the profits “absurd”.
At the heart of grievances is a policy of tracking international markets for domestic fuel rates. Both Bolsonaro and Lula have railed against the practice. The counter argument is that selling at a sustained discount is not only potentially harmful to Petrobras but also risks fuel shortages, since Brazil depends on importers to fill the supply gap.
In essence though, the renewed debate boils down to the fundamental question of what Petrobras is. “The Brazilian government has to make a decision,” says Roberto Castello Branco, whose removal as chief executive a year ago sent its shares tumbling. “Either it nationalises Petrobras and transforms it into a department of the ministry of mines and energy, which I do not advise, or else it privatises the company.”
Few see either outcome as realistic for now. Brasília owns about 37 per cent of Petrobras’ equity, but with slightly over half of voting rights, it effectively appoints the top boss. For all Bolsonaro’s promises not to interfere with the oil major, he could yet seek someone more amenable than incumbent CEO Joaquim Silva e Luna. The 72-year-old army reserve general has proved to be no pushover as shown by the increase to refinery gate prices for petrol, diesel and cooking gas this month.
Even if Silva e Luna departs, some argue that legal and corporate governance reforms introduced after the PT era should prevent direct meddling in how the business is run.
Marcelo Mesquita, an independent board member, says Petrobras now has a “robust” set-up. “This is now the third time that the president of the republic is not satisfied and wanted to mess with the company and its pricing policy and this is the third time he has seen that this is not possible,” he says.
Businesspeople hope Lula will display the pragmatism he has shown in the past if elected, while others believe the political costs of major changes to Petrobras will be too high, given memories of car wash. Until then, a new law intended to lower taxes on fuel could ease the pressure. Investors do not appear entirely convinced. Petrobras shares have slipped about 10 per cent from recent highs struck this month.
For Castello Branco, there is now greater resistance to political interference on Petrobras: “There is a lot of awareness of what is right and what is wrong, much more than a few years ago . . . For these facts to repeat themselves, nothing is impossible. But it’s unlikely.”
Source: Financial Times