Don’t believe the Petrobras privatization hype

. Aug 22, 2019
petrobras privatization

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Good morning! The government announced a massive privatization plan, which included Petrobras. But is it for real? Plus, how the Amazon is being burned in recent years. And the rising number of people killed by Rio de Janeiro cops. (This newsletter is for platinum subscribers only. Become one now!)

Don’t believe the Petrobras privatization hype

Yesterday, shares of Brazilian state-owned

companies were the sensation of the São Paulo stock market after the government unveiled its plan to privatize multiple companies by the end of the year—and thanks to a report by newspaper <em>Valor</em> stating the government wants to sell oil and gas firm Petrobras, Brazil&#8217;s crown jewel, before the end of Jair Bolsonaro&#8217;s term. Petrobras shares (<a href="">PETR4</a>) jumped from BRL 24.54 to 25.96 in a matter of minutes, closing at BRL 25.45 (+5.95%).</p> <figure class="wp-block-image"><img loading="lazy" width="1006" height="667" src="" alt="" class="wp-image-22690" srcset=" 1006w, 300w, 768w, 610w" sizes="(max-width: 1006px) 100vw, 1006px" /></figure> <p><strong>Why it matters.</strong> Petrobras is Brazil&#8217;s biggest company and is responsible for 93% of the oil produced in the country. The company has always been vulnerable to political interference in its pricing policy and corruption scandals. Some experts believe that a private Petrobras would be more efficient, &#8220;<em>having</em> to make the right call,&#8221; as Vladimir Fernandes Maciel, coordinator of the Economic Freedom Center at São Paulo’s Mackenzie University, told <strong>The Brazilian Report</strong>.&nbsp;</p> <p><strong>Possible? </strong>Chief of Staff Onyx Lorenzoni said studies will be launched into how to privatize Petrobras. The discourse is that President Jair Bolsonaro (who recently called the firm &#8220;strategic&#8221;) has been persuaded to sell it, and that Petrobras&#8217; ongoing divestments program would make it easier.</p> <p><strong>Yes, but…</strong> The government gave no details whatsoever about how it plans to do it. Would it sell off shares in increments, until eventually losing controlling interest, or would it sell its entire stake at once? Moreover, the government&#8217;s struggles to run studies to privatize the state-owned postal service Correios and to promote infrastructure concessions that hadn&#8217;t already been set into motion by previous administrations raise doubts that a deal so big (and which would certainly be challenged in the Supreme Court) could happen before December 31, 2022.</p> <ul><li><strong><em>Go deeper:</em></strong><em> </em><a href=""><em>What could Brazil gain from privatizing Petrobras?</em></a></li></ul> <hr class="wp-block-separator"/> <h2>Privatization Fest 2019</h2> <p>Alongside with the Petrobras rumors, the government announced a list of companies it plans to privatize in the short term. It was supposed to have 17 companies, but ended up with only nine, without any major novelty (many of the companies listed have been on the privatization radar for years). Markets, nevertheless, reacted with excitement: the stock market index rose 2%, with Eletrobras, Brazil&#8217;s energy company, being the highlight of the day, up 12.39%.</p> <p><strong>The list:</strong> Serpro (data processing), Telebras (telecoms), Dataprev (social security), ABGF (credit insurance), EMGEA (asset management), Ceitec (microelectronics), Correios (postal services), Codesp (docks at the Port of Santos), Ceagesp (food storage).</p> <p><strong>Why it matters.</strong> Upon taking office, Economy Minister Paulo Guedes promised to pursue an ultra-liberal economic agenda, privatizing every possible state-owned firm. Brazil has more state-owned companies than any other Latin American country: 418, of which 138 are federally owned—many are inefficient and riddled with corruption. However, privatization raises worries that services may no longer reach (or be affordable for) peripheral communities.</p> <p><strong>More smoke than fire.</strong> The government only listed companies in its privatization plan, with one Economy Ministry secretary saying that &#8220;the chosen direction, not the timetable, is what matters.&#8221; However, privatizations need Congress&#8217; approval—and, in some cases, changes to the Constitution. Also, opposition parties are expected to take matters to court in trying to stop privatizations.</p> <hr class="wp-block-separator"/> <h2>#PrayForTheAmazon</h2> <figure class="wp-block-image"><img loading="lazy" width="700" height="578" src="" alt="amazon deforestation" class="wp-image-22646"/><figcaption>AMAZON DEFORESTATION (1989-2019)</figcaption></figure> <p>After weeks ignoring alerts of increasing deforestation (and even challenging numbers produced by the government itself), President Jair Bolsonaro acknowledged the growing number of fires in the Amazon region. But, true to his style, without any proof, he chose to blame environmental NGOs for starting the fires, saying these organizations are plotting to make him look bad in the eyes of the world. On Twitter, the hashtag <a href=";src=typeahead_click">#PrayForTheAmazon</a> made its way into the worldwide trending topics.</p> <p><strong>Why it matters.</strong> Over the past five years, Brazilian forests have been burned down at a never-before-seen rate. Between January and August 19, the country registered an 83% increase in forest fires from the same period in 2018. Fires have also increased in protected areas, with 68 blazes in indigenous territories and conservation areas this week alone. Not surprisingly, fires have occurred more often in areas where deforestation also increased (ranchers often set fires to clear areas that will be used for crops, such as soybeans, or as pastures).</p> <p><strong>Reaction.</strong> Environment Minister Ricardo Salles was booed yesterday during the Latin American Climate Change Week in Salvador. He then announced plans to oversee a &#8220;Pro-Amazon task force&#8221; with NGOs, mining companies, and government bodies such as the Federal Police and indigenous affairs agency.</p> <p><strong>World.</strong> Amazon deforestation has put Brazil on international headlines in recent weeks. Some outlets, including British magazine <em>The Economist</em>, talked about the possibility of boycotts to Brazilian products as a reaction to environmental policies.&nbsp;</p> <p><strong>Slow burn.</strong> We have compiled data from PRODES—the government’s program to monitor Amazon deforestation—and images from Google Earth that help understand the devastating effects of human action on the planet’s largest rainforest. <a href="">Read here</a>.</p> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>USD/BRL.</strong> The Central Bank auctioned USD 550m on the spot market yesterday, in a strategy to tame the recent devaluation of the Brazilian currency. However, only 36% of that amount was purchased by financial institutions. <a href="">More auctions will happen</a> between now and August 29. It is the first time since 2009 that the bank has sold dollars on the spot market—which reduces Brazil&#8217;s international reserves, currently at USD 385bn.</p> <p><strong>Budget.</strong> The Supreme Court will hold today a trial on whether state governments are entitled to reduce civil servants&#8217; working weeks—thus reducing their salaries. The Fiscal Responsibility Law allows administrations to do that, but that particular article has been suspended since 2001. The court will also decide on whether or not the Executive branch can reduce other branches&#8217; budgets in times of fiscal strife. The justices are currently 5-4 in favor of the provision, with two votes left to be made. The current minority claims that it would reduce the independence of the legislative and judiciary branches.</p> <p><strong>Investigations. </strong>The crisis within the Federal Revenue Service has revived the push for a Parliamentary Hearings Committee (CPI) to investigate members of superior courts. The idea had been shelved by the Senate president, but lawmakers claim that a move by the Supreme Court to freeze 133 probes by tax auditors (which also targeted the wives of two members of the highest court) constituted unlawful interference.</p> <p><strong>PSDB. </strong>The Brazilian Social Democracy Party&#8217;s board chose not to expel Congressman Aécio Neves, its presidential candidate in 2014. Mr. Neves faces nine corruption investigations. São Paulo Governor João Doria (who wants to run for president in 2022) wished to make an example out of Mr. Neves—and use him to boost a rhetoric of intolerance toward corruption. After the decision, Mr. Doria said his party chose &#8220;the wrong side of history.&#8221;</p> <p><strong>Violence.</strong> Rio&#8217;s police never killed so many people as it has in 2019. Since January, 1,075 people have been killed by cops, a record since the number started being measured in 1994. July also registered the highest number for any one month: a total of 194, or one every four hours. Meanwhile, murders dropped to the lowest number for the January-August period since 1991, with 2,392 cases in the state.

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