Change at Petrobras increases uncertainty

One day after the government’s decision to change Petrobras CEO – the third in little more than a year – the market’s perception of risk regarding the company’s pricing policy has increased even more. The oil company’s board of directors meets on Wednesday, and the meeting may be decisive to define how long its pricing policy will remain shielded from the pressures by President Jair Bolsonaro. Through the federal government, Petrobras’s controlling shareholder, Mr. Bolsonaro is trying to make changes in the company to hold back diesel and gasoline prices in a scenario of rising inflation and proximity to the presidential elections, in October.

Although Petrobras’s governance guarantees a certain protection, the successive attempts of government interference create uncertainty and instability around the company, in the view of sector specialists and financial market operators. On Tuesday, Petrobras’s common shares closed at R$34.40, down 2.85%, while the preferred stock stood at R$31.60, down 2.92%. The government’s measures to control prices at the state-owned company are expected to be the target of discussion in Petrobras’s board.

Caio Mario Paes de Andrade — Foto: Denio Simões/Valor

Caio Mario Paes de Andrade — Foto: Denio Simões/Valor

Valor has learned that, at Wednesday’s meeting, the oil company’s independent board members will try to postpone the extraordinary general meeting that will be called, at the request of the federal government, to replace the current CEO José Mauro Coelho, with the nominee by the controlling shareholder, Caio Paes de Andrade.

If successful, the effort will allow the company to gain up to 45 days of protection for its pricing policy. This is because, by not putting the extraordinary general meeting on the agenda at the board meeting, the burden of calling it would be shifted to the federal government, which would have to do it in the next few days.

The call for the extraordinary general meeting is one topic of the board meeting, which was scheduled even before Mr. Coelho’s dismissal. Sources linked to Petrobras acknowledge that postponing the call is not simple, especially because there is a perception that most directors are aligned with the federal government. Of the 11 seats on the board, six are nominated by the federal government, four are representatives of minority shareholders and one represents the employees.

In the ongoing changes within Petrobras, it is not yet clear whether the federal government may also change other names on the board at the extraordinary general meeting, in addition to Mr. Coelho. The government would also be interested in replacing Petrobras’s executives.

On Monday, it became clear that Mr. Coelho, the current CEO, will remain in office until the meeting is held, the date of which will only be known after it is called. There is a minimum period for holding the meeting, which is 30 days from the call. But this time can be even longer, which means that the extraordinary general meeting can take place between the end of June and mid-July, two and a half months before the first round of vote in the presidential elections. It is a shorter period than the 100 days-freeze in price hikes intended by the government.

Until the extraordinary general meeting, Mr. Coelho will remain at the head of the company, since he did not resign, but was the target of a dismissal request by the federal government. The 8.87% increase in the price of diesel on May 10 led to his dismissal. A day later, Mr. Bolsonaro fired the former minister of Mines and Energy Bento Albuquerque, to whom Mr. Coelho was linked. Without a close interlocutor in the ministry, Mr. Coelho was isolated in the government and distant from the new Mines and Energy minister, Adolfo Sachsida, who is linked to Economy Minister Paulo Guedes, as well as Mr. Paes.

Mr. Coelho couldn’t hold on to his job even in a scenario of less pressure for hikes in oil product prices. The difference between fuel prices in the domestic market and abroad has been near zero, reducing the gap, that has exceeded 20% about three weeks ago. Diesel prices at the state-run company’s refineries were negotiated Tuesday, on average, 0.4% below import parity price, according to Stonex calculations.

The Brazilian Association of Fuel Importers (Abicom) indicated an average gap of 1% in diesel oil prices. According to XP Investimentos, diesel prices are 6.7% above those seen abroad. As for gasoline, prices are, on average, 2.1% below parity, according to StoneX calculations. XP Investimentos sees, however, a discount of 11.4% in domestic prices compared to the import parity price. The last hike of gasoline prices occurred on March 11, when the state-owned company raised prices in refineries by 18.8%.

Despite Mr. Paes de Andrade’s nomination, there are doubts about whether he can fulfill the legal requirements for the position. It will be up to the People Committee, linked to the Petrobras board, to analyze his résumé. Mr. Paes de Andrade is secretary for Debureaucratization at the Economy Ministry. With a degree in Social Communication by Universidade Paulista, Mr. Paes de Andrade reports two post-graduate degrees from U.S. universities, Duke and Harvard. Before joining the government, he ran internet providers (PSTNET, Web Force Ventures and HPG) and a digital platform for the real estate market (Maber), as well as agribusiness investments. In the government, he was the CEO of Serpro, a state-owned IT company that manages government data, and secretary of privatization. Like Mr. Sachsida, who was secretary of strategic affairs at the Economy Ministry, Mr. Paes de Andrade also reported to Paulo Guedes, but was a Bolsonarist before joining the minister’s team.

The head of the Brazilian Petroleum and Gas Institute (IBP), Eberaldo de Almeida Neto, said that maintaining the fuel price policy is key to keep the market supplied and draw investments in the sector.

The executive-president of Abicom, Sérgio Araújo, said he expects Mr. Andrade, once approved, to keep the commitment with the company’s shareholders and with the market, following international prices. For consultancy Control Risks, the new change in the head of the company represents an escalation in the government’s strategy of interfering in Petrobras. Ettore Marchetti, head of investments at EQI Asset, says, however, that it is necessary to consider that many countries in the world have also made or are considering policies to cushion fuel price shocks, which is a global phenomenon. The chief economist at BV Bank, Roberto Padovani, says that the behavior of the markets suggests that they are not moving in tandem with the news. “Of course it has an impact on the stock market, but the reading is that this is another noise created in an environment of many uncertainties.”

Source: Valor International

https://valorinternational.globo.com