Brazil’s president-elect, Jair Bolsonaro, and his economic transition team selected Roberto Castello Branco to be chief executive at state-led Petrobras.
According to a statement released Monday, Castello Branco will replace current CEO Ivan Monteiro, who appears to be headed back to state-owned Banco do Brasil.
Castello Branco’s appointment is in the first of several energy policy decisions expected this week amid the transition to the new administration.
Monteiro took over as CEO after Pedro Parente was ousted in the wake of a truckers’ strike earlier this year.
Petrobras confirmed Monteiro’s term will end January 1 in a separate statement filed with local stock regulators.
Bolsonaro will be sworn in as Brazil’s president on January 1, with Castello Branco likely installed with other ministers and institutional appointments during government inauguration ceremonies.
The selection of Castello Branco is expected to ease market concerns about the future direction of Petrobras after initial forecasts that Bolsonaro, a former military officer, would appoint someone from Brazil’s army to head the country’s dominant oil producer and refiner. Castello Branco briefly served on Petrobras’ board at the height of the Car Wash corruption scandal in 2015, but left the company and criticized the speed of change at the scandal-ridden giant.
The University of Chicago-trained economist also served in high-ranking positions at the Brazilian Central Bank and mining heavyweight Vale. He currently serves as the director of the Economic Growth and Development Studies Center at Brazil’s private Getulio Vargas Foundation, which is active in promoting the opening up of Brazil’s oil and gas industry to greater competition.
The appointment of Castello Branco underscores Bolsonaro’s commitment to election promises to end Petrobras’ de facto monopoly in areas such as refining, fuel distribution, logistics and transportation. Bolsonaro has pledged to take steps toward opening up Brazil’s economy, with measures likely aimed at ending barriers to asset sales by state-led companies.
Petrobras will fall short of its $21 billion target for asset sales during the 2017-2018 period after several promising deals were undermined by lawsuits. The company planned to sell natural gas pipeline operator Transportadora Asociada de Gas, or TAG, as well as fertilizer plants and stakes in four refineries representing about 25% of the country’s installed processing capacity before a Supreme Court judge handed down an injunction blocking the sales without congressional approval.
Castello Branco, meanwhile, has previously supported the privatization of Brazil’s many state-led entities, arguing the government locks up key resources needed for ailing public services in areas that should be led by the private sector.
While Bolsonaro has supported privatizations of key parts of Petrobras, the president-elect has said he will not privatize the entire company. Petrobras is considered a national icon, so a full privatization would face massive public and political resistance.
Castello Branco takes over the top spot with Petrobras on better footing after Monteiro kept the company from defaulting during the corruption scandal and the collapse in oil prices. Monteiro pieced together several major financing deals, including several oil-for-cash swaps with state-owned Chinese banks while the company was cut off from global capital markets after failing to submit financial statements.
Monteiro arrived at Petrobras in 2015 as chief financial officer along with former Banco do Brasil CEO Aldemir Bendine, who was named to head Petrobras at the same time. Bendine has since been arrested and implicated in the scandal. Monteiro then stayed on when Parente was named Petrobras CEO in 2016. He took the top job in May after Parente was ousted following a 10-day strike by independent truckers protesting high diesel prices.
Despite his dismissal from Petrobras, Monteiro was recognized by Bolsonaro. Monteiro is expected to be named CEO at Banco do Brasil.
Bolsonaro and Castello Branco, meanwhile, still need to deal with vestiges of the truckers’ strike, which caused widespread shortages of food, fuel and medical supplies. The government implemented a diesel subsidy to settle the strike that expires on December 31, which represents one of the first issues that the two will need to address.
Bolsonaro wants Petrobras to implement a hedge to minimize the impact of foreign exchange and international price volatility on prices at the pump. The company did make a slight change to the way it adjusts gasoline prices in the third quarter that could be tweaked and used for diesel while still maintaining parity with import prices.
Castello Branco will also take over as Petrobras’ crude output is set to jump over the next 12 months. Petrobras is in the process of bringing 1.4 million b/d worth of production onstream at offshore fields in the prolific subsalt region, with nine additional floating production, storage and offloading vessels coming onstream by mid-2019.
Bolsonaro’s appointment of a new Petrobras CEO has, however, raised eyebrows among government and industry officials as it came before a mines and energy minister was named. That was considered a sign that the recent shift toward greater freedom from government interference at Petrobras will likely continue, officials said.
Several market-friendly names, however, have been mentioned as potential top dogs at the ministry, including Adriano Pires, head of local consultancy the Brazilian Infrastructure Center, and former ministry executive secretary Paulo Pedrosa.
Bolsonaro’s transition team is expected to announce the appointment this week.
Source: S&P Global Platts