Shielding increased and improved results, but did not prevent political interference
12/27/2022
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Brazil’s postal service will close this year with R$3 billion in cash — Foto: Valor
Correios, Brazil’s postal service, will close this year with R$3 billion in cash, not counting debts, six times more than at the end of 2019. Oil giant Petrobras made almost the same profit in the nine months of this year alone as in the previous four years combined. Banco do Brasil paid R$11 billion in taxes and R$21.8 billion to its shareholders.
These are some of the numbers in the survey conducted by Valor Data with six of the largest federal state-owned companies – Petrobras, Banco do Brasil (BB), Caixa Econômica Federal, Brazilian National Bank of Social Development (BNDES), Correios and Eletrobras, the latter privatized in June. The data show the result of a financial clean-up process of these companies after a period marked by the misappropriation of public resources.
Together, these companies earned R$213.6 billion from January to September of this year – R$145 billion from Petrobras alone. Anyway, all of them improved in the period and the number represents a leap compared to the R$69.2 billion that the set profited in 2018, still under the government of Michel Temer (Brazilian Democratic Movement, MDB).
Much of these results, which reversed years of losses for shareholders and citizens, can be credited to a law, passed in 2016 in the wake of the corruption scandal involving several state-owned and private companies.
Not even these factors, however, have prevented the political interference of President Jair Bolsonaro (Liberal Party, PL) in state-owned companies. The successive interference in Petrobras amid high fuel prices and the use of funds from Caixa in the electoral campaign machine are the most notorious cases.
Now, on the eve of the new Lula administration, the law of state-owned companies itself is in jeopardy. In the middle of December, the Chamber of Deputies passed in a blink of an eye changes in the law to allow Aloizio Mercadante to be appointed by the elected Workers’ Party administration to run the Brazilian Development Bank (BNDES). It was even considered that the text would be passed in the Senate the following day, but the idea ended up not succeeding after the strong reaction to the maneuver.
In addition to reducing from three years to 30 days the quarantine of nominees who have occupied party decision-making structures or participated in electoral campaigns to leading positions of state-owned companies, the document passed in the Chamber provides for an increase in the advertising spending limit to 2% from 0.5% of gross revenue. In the case of Petrobras, for example, this means an increase of R$8.5 billion.
These changes put at risk, according to analysts, lawyers and governance experts consulted by Valor, the advances achieved in recent years. The share price of Petrobras, the largest Brazilian company and the hardest hit during the years of mismanagement, fell 10% the next day and has accumulated a loss of R$100 billion in market capitalization since November.
The change in the law of state-owned companies is “alarming” and has questionable outlines by the manner and speed with which it was approved, according to a manifesto signed by the Association of Capital Markets Investors (AMEC) and the Brazilian Institute of Corporate Governance (IBGC).
Banks and brokerage firms had already been correcting their target prices for state-owned companies, especially Petrobras, foreseeing a reduction in dividends and more expenses outside what is currently considered the company’s main business: deep-water exploration. The change in the law was another blow to the valuation of the company, whose investment thesis, according to the Citi report, is anchored in its bylaws, in the Brazilian Corporate Law, and in the law of state-owned companies.
Since the second round of the elections, out of 15 banks and brokerage companies monitored by Valor, seven have downgraded their recommendation for Petrobras’ shares, mostly from buy to neutral, and nine have cut their target prices.
With all the turbulence and interference attempts during the Bolsonaro administration, mainly motivated by fuel prices, the professionalization of Petrobras’ management has brought record yields for its shareholders and for society, in the form of taxes. Compared to 2018, sales revenue is 50% higher, profit has grown 300% and debt shows a downward trend. The skyrocketing oil prices found the company adjusted, which allowed unprecedented levels of profitability while internal controls prevented deviations in governance.
There has been criticism of the record distribution of dividends and the allocation of resources, which could, hypothetically, have financed more investments. What the current transparency guarantees is that these criticisms are based on reliable figures, which is a much better situation than the one in which funds leaked off the financial statement.
The financial yields were accompanied by huge tax expenditures. At the end of 2021, Petrobras paid R$203 billion in taxes, fees and contributions, more than double compared to the previous year, the year of the pandemic, and 11% more than in 2018.
A point in common among the companies in the survey, besides the general improvement of indicators – and part of the explanation for this advance – is the process of downsizing the workforce, mainly through the use of buyout plans.
Eletrobras, which went through a restructuring process for privatization, which occurred in June, and Petrobras cut about 30% of their workforce between 2018 and 2021. At Correios, the cut totaled 15% of the workforce, and at Banco do Brasil, 13%. The exception was Caixa, which was practically stable: there is a slight decrease in the four years, with an increase of 5% in 2022 until September.
This movement is not restricted to this group of state-owned companies most exposed to public scrutiny. The survey conducted by the Secretariat of Coordination and Governance of State-Owned Enterprises (Sest), linked to the Special Secretariat of Privatization, Disinvestment and Markets of the Ministry of Economy, with 47 companies under the direct control of the federal government, shows a reduction of 4.4%, or 20,550 employees, in 2021, compared to the previous year.
The consolidated performance of this group was also largely positive, with the significant influence of the largest companies, such as Petrobras and Banco do Brasil. Together, the 47 companies earned R$187.7 billion last year, three times more than in 2020, which resulted in a payment of dividends to shareholders of R$101 billion, 535% higher. The companies’ net equity grew 18%, to R$903.7 billion.
The overhaul of the state-owned companies also fits in with the Bolsonaro administration’s policy of reducing the presence of the government in the economy, which had its most successful example in the dilution of Eletrobras’ control. The privatization of Petrobras was already seen as a more difficult undertaking and is now definitively buried. Correios was a more viable option in the privatization queue but will most likely be shelved by the new government. This week, the president-elect, Luiz Inácio Lula da Silva, said that there will be no more privatizations in the country.
In the long list of hijackings of state-owned companies by politicians, Correios has a particular symbolism. A leaked video of a company employee in 2005 started the crisis with the so-called “Mensalão”, the scheme of payments to politicians that almost put an end to Mr. Lula’s first term in office. Later, the Federal Police’s anti-corruption task force Car Wash would reveal even bigger schemes in large listed companies such as Petrobras and Eletrobras.
The final report of the Joint Parliamentary Inquiry Commission installed in 2005 to investigate the Correios’ scandal revealed the use of R$2 billion in bribes and called for the indictment of more than 100 people. In that year, the company was healthy, with a net worth of R$2.26 billion. Ten years later, when the state-owned companies law was passed, it was practically bankrupt, with R$3.42 billion in accumulated losses.
*By Nelson Niero — São Paulo
Source: Valor International