Bloomberg Línea — The choice of Brazilian Senator Jean-Paul Prates to head the giant oil company Petrobras (PETR4, PETR3), in information just announced by President-elect Lula on Friday afternoon, was not exactly a surprise to those who follow the oil and gas market.
Prates was among those quoted since the final stretch of the electoral campaign, in which he was one of those responsible for the proposals of President-elect Luiz Inácio Lula da Silva for this strategic sector.
The 54-year-old politician is affiliated with the PT (Workers’ Party) of Rio Grande do Norte, the leading state in wind energy production in Brazil, and governed by the party since 2019. Rio de Janeiro-born lawyer, Prates was secretary of energy and international affairs in Rio Grande do Norte state. He was the first alternate to Senator Fatima Bezerra, who was re-elected governor of the state in October.
Since Lula’s victory at the polls on October 30, Petrobras’ shares have suffered a downgrade in the recommendation and a reduction in target price by brokers and banks.
The reports point to greater risks of intervention by the controlling shareholder (the Brazilian government) in the strategic plans of the state-owned mixed capital, as well as a turnaround in priorities for the next five years of the company, which has become the largest payer of dividends in Brazil.
With the forecast route correction in business, Petrobras preferred shares, the most traded on Ibovespa, plummeted from the R$37 ($7) level to R$24 ($4,54) in the last two months.
On January 19, the oil company promises to pay the second and last installment of R$ 43.7 ($8.27) billion in remuneration to shareholders, despite criticism from the PT party command regarding the size of this distribution.
On November 3, the national president of PT, Gleisi Hoffmann, questioned, on Twitter, the remuneration policy of the state company to shareholders, described by her as “a bloodletting that removes from the company its investment capacity and only enriches shareholders.
Industry analysts share the consensus that, under Lula’s third term, Petrobras should reduce the percentage of profit distribution (payout), from the moment the new CEO takes office.
It is a date that still depends on a legal procedure, since the CEO indicated actively participated in the electoral campaign, and the Law of Corporations requires a quarantine to assume the function. The banks expect that Petrobras will only officially change its CEO in March.
On 1 December last, Petrobras announced to analysts a total investment projection of $78 billion over five years, compared to $68 billion in the previous plan. The strategic plan, released by the current administration, runs into, however, the disagreement of the elected government in relation to the highlighted priorities. Prates will have as one of his first missions to review this plan.
Fuel prices
One of the main challenges pointed out by analysts for the future Petrobras CEO is to avoid measures considered “populist” to lower fuel prices, such as decreeing the end of the parity of gasoline and diesel prices in relation to international market quotations.
The issue is strategic for the new government due to its impact on inflation indexes and, consequently, on market expectations about the timing of the beginning of the cycle of interest rate cuts, currently at 13.75% per year.
The president-elect has repeated that the order is to ease the cost of living for families to encourage consumption, boosting Brazil’s GDP, at a time of pessimistic analysts’ forecasts of low growth in 2023 due to the projected scenario of a global recession.
The sharp rise in fuel prices in Brazil in 2022, especially in the first half of the year, reflecting concerns about the future of demand amid the energy crisis in Europe with Russia’s War on Ukraine, was pointed out by political analysts as one of the main foci of wear on the popularity of the management of President Jair Bolsonaro.
The exoneration of the product, with losses for the states with the ICMS tax collection, was one of the temporary solutions approved in Congress in the middle of the year to contain the rise in prices at service stations.
Gas reduction is another priority
Lowering the price of cooking gas at Petrobras is listed in the political environment of Brasilia as one of the first measures of the new government. The next CEO of the state-owned company will, however, have to face the interests of a sector with competition problems, especially in the Northeast, the electoral stronghold of the PT.
In August, CADE (Administrative Council of Economic Defense) condemned the companies Nacional Gás Butano Distribuidora, Revendora de Gás da Paraíba, and Frazão Distribuidora de Gás for forming a cartel in the market of distribution and resale of LPG (liquefied petroleum gas), used mainly as cooking gas, in northeastern states.
One of the arguments used by the Workers Party in defense of an artificial reduction in the price of bottled gas is the relationship between the purchasing power of the minimum wage and the purchase of fuel.
The same happens with diesel. According to data provider Dieese, the minimum wage can buy 180 liters of oil. In 2021, it was possible to buy 241 liters; and, in 2020, 305 liters.
The analysts also expect a greater influence of the union instances in Petrobras’ decision-making process. Today a representative of the employees is entitled to a seat on the board of directors of the oil company.
Refineries and renewable energy
Another task on the table of the future CEO is to suspend the plan to sell five refineries, a divestment measure agreed upon with Brazil’s antitrust watchdog Cade in 2019. The market considers the plan favorable, as the resources with the sales have been used to reduce the company’s debt.
The PT is against the sales, because it considers the strategic sector to be managed by private enterprise, besides alleging the defense of sovereignty to keep the refining activities under the state.
Projects to build new refineries should be unleashed, according to analysts. With Operation Lava Jato, which began in 2014 investigating allegations of corruption involving Petrobras directors with contractors, the state-owned company suspended some of these projects, mainly in the Northeast (Ceará and Maranhão).
Another point of market attention for the new Petrobras management is the focus on clean energy sources, such as solar and wind. The theme was one of the main mottos of Lula’s campaign, which criticized the environmental policy of Jair Bolsonaro, blaming it for the flight of foreign investors before the news about the advance of deforestation and burning in the Amazon and the use of fossil fuels.
In early November, a report by Banco do Brasil pointed to the scenario in which Petrobras should reduce the volume of dividend payments to invest more in renewable energy sources, a trend in the sector.
Increased fiscal incentives for the production of solar energy and the installation of wind turbines at sea make up the list of demands from companies in the sector.
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