Following the dismissal of the CEO of Brazil’s state-controlled oil group Petrobras by President Bolsonaro earlier this week, experts fear greater intervention might be underway in the country’s oil industry.
The removal of CEO, Roberto Castello Blanco, from his position at the head of Petrobras followed a conflict with the President over rising energy prices. Concern that rising diesel prices would lead to protests led Bolsonaro to oppose the Petrobras price hike under Castello Blanco.
President Bolsonaro quickly replaced Castello Blanco with former Defense Minister Joaquim Silva e Luna, who had no previous experience in the industry. However, the outspoken former CEO hit back, warning that state intervention policies could place artificial limits on fuel prices. Castello Blanco explained“If you want to have a market economy, you have to have a market price. The prices below have many consequences, some are predictable and others are unpredictable, but all of them are negative, ”.
The former CEO seemed like it too makes a statement in her wardrobe choices, wearing a t-shirt with the slogan “Mind the Gap”. This reflects the Petrobras 2019 slogan, which refers to its goal of closing performance gaps with leading oil and gas companies around the world. More state intervention is expected to further widen this gap.
Following the change of leadership, Petrobras’ stock plummeted, losing 20 percent of its value Monday, about $ 13 billion. This also had a negative impact on the Brazilian currency, which fell by 2 percent in value.
This is not the first time Brazil’s oil industry has struggled with state intervention. Petrobras is on the brink of filing for bankruptcy under former President Dilma Rousseff, easing fuel prices that are wreaking havoc on the industry.
Currently, Brazil pegs its oil prices to international prices, but because the country owns 36.8 percent of shares in Petrobras, and 50.5 of the votes, Bolsonaro holds the card for fuel prices.
Although the president has assured the public that his actions are not the same as ‘interference’, based on previous fuel subsidies by the state, international investors are unsure of the president’s intentions.
With elections set to take place in 2022, Bolsonaro is trying to win public support from major demographics. Reducing fuel costs could significantly affect thousands of truck drivers, who protest against rising fuel costs.
That The President also signaled greater intervention in the energy sector over the next few weeks, this time with a focus on electricity. “If the press is worried about yesterday’s transition [in CEO], next week there will be more, “he said. “We will stop the electricity, which is also a problem”.
However, larger interventions in the energy sector could discourage foreign investment in the country. After being hit badly by the Covid-19 pandemic, this is a worrying prospect for the Brazilian economy.
James Gulbrandsen, head of investment for Latin America at NCH Capital declared moved“If Bolsonaro interferes with the pricing of electricity, it might end his ability to attract foreign capital,”.
Castello Blanco has won national and international support for Petrobras, reduced corporate debt, pushed for greater independence, and made the company attractive to a growing oil market such as India. We are yet to see if Silva e Luna will earn the same respect.
By Felicity Bradstock for Oilprice.com
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