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Bolsonaro to bring a new CEO for Petrobras

Roberto Castello Branco Roberto Castello Branco will be pulled from Petrobras. Photo: Fernando Brazão/ABr

Back in 2018, we at The Brazilian Report discussed how Petrobras’ utter dominance of the country’s oil refining industry puts the interests of its stakeholders at odds with one another. Petrobras’ quasi-monopoly creates a rift between minority shareholders — who are merely interested in raising the company’s profits and value — and the government, which owns a controlling stake and must consider the company’s role in public policies, inflation control, and its institutional symbolism.

That division has rarely been more apparent than today — as President Jair Bolsonaro angles to swap out the company’s chief executive officer in a push to tame rising fuel prices. 

</p> <p>In a Facebook post, Mr. Bolsonaro <a href="https://www.facebook.com/jairmessias.bolsonaro/photos/a.250567771758883/2299207500228223/">announced</a> that his administration will submit a potential replacement CEO to the Petrobras board. The president&#8217;s pick to replace the highly-respected Roberto Castello Branco is retired Army general Joaquim Silva e Luna.</p> <p>Mr. Silva e Luna <a href="https://brazilian.report/power/2018/04/05/brazilian-military-threats-democracy/">served as Defense Minister</a> under former President Michel Temer (2016-2018), being the first member of the military to occupy the position in democratic times. In 2019, Mr. Bolsonaro appointed him to lead Itaipu, the <a href="https://brazilian.report/power/2019/08/15/itaipu-paraguay-brazil-tension-mario-benitez-impeachment/">massive hydroelectric power plant</a> co-owned with Paraguay.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/5344034"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>&#8220;This is a bombshell,&#8221; says Eduardo Guimarães, an analyst at market intelligence firm Levante Investimentos. &#8220;Our initial reading of the situation is that this is bad news for shareholders, as Roberto Castello Branco was doing an excellent job. He focused on rehabilitating Petrobras&#8217; finances, selling off assets, and <a href="https://brazilian.report/business/2019/08/03/petrobras-recovery-crisis-debt/">increasing returns</a>.&#8221;</p> <p>The São Paulo stock market had already closed by the time of President Bolsonaro&#8217;s announcement. However, Petrobras shares traded in New York quickly crashed 9 percent after-hours —&nbsp;on top of a 7-percent drop during Friday&#8217;s trading session. And an even bigger slide is expected for Monday.</p> <p>Rumors suggest Petrobras&#8217; entire board of directors could resign in protest. On Thursday, minority shareholder representative Marcelo Mesquita <a href="https://valor.globo.com/brasil/noticia/2021/02/18/pessoa-com-poder-nao-pode-ficar-vociferando-coisas-assim-diz-conselheiro-da-petrobras-sobre-live-de-bolsonaro.ghtml">said</a> “it won’t be easy to find people with unblemished reputations willing to do the wrong thing [and accept government interference in fuel pricing].”&nbsp;</p> <h2>The Petrobras (new) crisis, explained</h2> <p>At the center of the controversy is Petrobras&#8217; pricing policy. Since 2016, the company has pegged prices charged to distributors to international oil rates. And while the move helped the company slash its debt — which at one point was the world&#8217;s highest for an oil company — it certainly hurt consumers who faced <a href="https://brazilian.report/newsletters/brazil-daily/2021/01/19/petrobras-price-hike-allays-suspicion-of-political-meddling/">constant hikes</a>. In 2018, that led to an 11-day truckers&#8217; strike which halted the country and had a <a href="https://brazilian.report/business/2018/06/06/brazilian-agribusiness-truckers-strike/">devastating effect on the economy</a>.</p> <p>With his decision to pull Mr. Castello Branco from the CEO position, Mr. Bolsonaro indicates he wants to at least partially re-establish the pricing policy Petrobras followed under center-left former President Dilma Rousseff — who froze fuel prices as a means to tame inflation. Amid a generational crisis and with an ailing economy, fluctuations in gas fares have become even more inconvenient for consumers — especially as the pandemic has stimulated individual transportation.</p> <figure class="wp-block-image size-large"><img loading="lazy" width="799" height="533" src="https://brazilian.report/wp-content/uploads/2021/02/50668590147_06a2f73779_c.jpg" alt="" class="wp-image-56971" srcset="https://cdn-statics.brazilian.report/wp-content/uploads/2021/02/50668590147_06a2f73779_c.jpg 799w, https://cdn-statics.brazilian.report/wp-content/uploads/2021/02/50668590147_06a2f73779_c-300x200.jpg 300w, https://cdn-statics.brazilian.report/wp-content/uploads/2021/02/50668590147_06a2f73779_c-768x512.jpg 768w, https://cdn-statics.brazilian.report/wp-content/uploads/2021/02/50668590147_06a2f73779_c-600x400.jpg 600w" sizes="(max-width: 799px) 100vw, 799px" /><figcaption>Joaquim Silva e Luna (left) with President Bolsonaro. The soon-to-be Petrobras CEO. Photo: Alan Santos/PR</figcaption></figure> <p>As we explained in our <a href="https://brazilian.report/newsletters/brazil-daily/2021/02/19/bolsonaro-threatens-to-interfere-in-petrobras/">Daily Briefing</a> (for premium subscribers), Mr. Bolsonaro took multiple jabs at Mr. Castello Branco during a live broadcast on social media this Thursday. He was particularly peeved by the recent bump in fuel prices — the fourth increase this year — and remarks from the executive, who said that a potential new truckers’ strike is not the company’s problem.</p> <p>Disgruntlement is rising among truckers —&nbsp;who tried (but failed) to <a href="https://brazilian.report/power/2021/02/02/why-brazils-latest-truckers-strike-was-a-massive-flop/">hold a new strike</a> on February 1. Mr. Bolsonaro, who has enjoyed widespread support from truck drivers, apparently did not want to risk fueling further resentment.</p> <p>Shareholders now fear that a change in CEO will mean that the recent price bumps will be overturned. For markets, Petrobras&#8217; ability to set prices without government interference is a non-negotiable clause.</p> <h2>How Petrobras picks its CEOs</h2> <p>While the government is Petrobras&#8217; controller, executing a change in leadership is not as simple as hiring or firing a cabinet member. Mr. Bolsonaro cannot simply remove Mr. Castello Branco and name Mr. Silva e Luna with the stroke of a pen. That decision will be up to the 11-member board of directors.</p> <p>The board&#8217;s seats are distributed in the following manner: seven to the government, three for minority shareholders, and one representative for employees.</p> <p>The board has the power to decline Mr. Silva e Luna&#8217;s appointment — in which case the government would be forced to call an extraordinary general shareholders meeting to replace the entire board. If it comes to that, the task to find credible candidates would be made much harder.</p> <p>Even in the best-case scenario, a change would take at least two weeks to materialize. According to Petrobras&#8217; statute – which has been followed to the letter since the Operation Car Wash scandal — multiple committees must approve all appointments before the person is invested with power.</p> <h2>Ripple effects</h2> <p>Political interference in Petrobras, Brazil’s biggest company, often reflects poorly on other publicly-traded state-owned firms. Energy producer Eletrobras saw its shares traded in New York slip after-hours, suggesting a ripple effect on similar stocks come Monday&#8217;s trading session. And that’s not to mention the 8-percent share Petrobras’ stocks have on Brazil&#8217;s benchmark index Ibovespa.&nbsp;&nbsp;</p> <p>Moreover, as Brazil’s quintessential blue-chip stock, Petrobras is an asset that attracts foreign investors — who also happen to be sovereign debt holders. On more than one occasion, the country’s image has been linked to that of the oil firm, and vice-versa.&nbsp;</p> <p>Eventually, the perception of increased risk from the company’s management could be seen as a lack of commitment to liberal views on behalf of the government.&nbsp;</p> <p>As <strong>The Brazilian Report</strong> columnist Marco Harbich stated, “any government intervention in state-owned companies is always bad news.”

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Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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