The privatization of Petrobras and the future of its fuel prices promise to be recurrent issues in this year’s political agenda. The reactions of the main presidential hopefuls to the increase announced by the state-owned company in the prices of diesel and gasoline this month give the tone of what to expect in the debate — which will probably go beyond the presidential race and contaminate campaigns for governor.

Jair Bolsonaro (Liberal Party, PL) enters 2022 in campaign for reelection, but under pressure from fuel inflation — an issue that is dear to truck drivers, the government’s base of support, but which affects society in general. After facing increases of 46.5% in the price of gasoline, 45.6% in diesel and 35.8% in bottled gas in 2021, according to data from the National Petroleum Agency (ANP), the Brazilian consumer deals, again, with the prospect of more expensive products this year.

The appreciation of oil — tied to the depreciation of the Real against the dollar — is expected to help keep the debate about fuel prices in evidence. In 2018, the truckers strike had already put the issue in the spotlight and agitated the electoral race that year. This time, the inflation of oil products emerges as a trump card to be exploited by Mr. Bolsonaro’s opposition. During his first three years in office, the president created a gas subsidy for low-income families, but was unable to find a solution to stop the increase in diesel and gasoline prices in Brazil.

The discussion about prices is followed by the debate about the social role and potential privatization of Petrobras. Mr. Bolsonaro often tries to dodge the political cost of higher fuel prices by claiming he has no control over the state-owned company’s prices. When reacting to the 8% increase in diesel and 4.85% increase in gasoline announced by the company this month, the president said: “If I could, I would get rid of Petrobras.” It was not the first time he signaled his interest in privatizing the company. In November, he called the state-owned oil company a “monster” and spoke openly of his interest in privatizing it. The agenda is welcomed by the government’s economic team but has never advanced in practice, just as it never did in other administrations that considered it.

Mr. Bolsonaro’s favorable position towards the sale of the company contrasts with the nationalist discourse that the president himself came to assume in the first half of 2021. Unhappy then with the prices practiced by the state-owned company, he interfered by removing the CEO of the company. To justify the change and the demand for a “more social look” at the oil behemoth, he resorted to a famous slogan: “O Petróleo é nosso” (Oil is ours) — which goes back to the marketing campaign for the creation of Petrobras, in the 1950s.

The privatization of the oil company promises to be polarized: former judge Sérgio Moro (Podemos) has already taken a stand in favor of deepening the privatization agenda, although he has already said, at the end of 2021, that the Petrobras case requires studies. João Doria (Brazilian Social Democratic Party, PSDB), governor of São Paulo, advocates for a model in which the state-owned company is divided and privatized, in sequence, in slices, in order to avoid the formation of a private monopoly in the country.

On the other side of the debate, Luiz Inácio Lula da Silva (Workers Party, PT) said last week that privatizations such as those of Eletrobras and Petrobras assets may be reviewed if he is elected. According to him, it is important that “serious people, when trying to buy Brazilian state-run companies that have been privatized, take into account that we will change governments and we [a hypothetical PT government] will rediscuss this.”

The state-owned Petrobras is also a topic dear to Ciro Gomes (Democratic Labor Party, PDT), who has even aired on social media a series of videos with his plans for the company and, like Mr. Lula da Silva, sees the oil giant as an inducer of the country’s economic development. He has even promised to buy back shares from private investors, in order to give the company a more state-oriented profile.

Petrobras is 68 years old and has been managed, throughout its history, by groups with different economic thoughts. It is a mixed economy company, controlled by the federal government, but 63.25% of its capital is in the hands of investors. The dichotomy between pursuing profitability and serving public interests is reflected in the company’s own bylaws, which state that it is governed by the rules of private law, but may, provided it is reimbursed for it, assume commitments “under conditions different from those of the private sector.”

In the debate about the social role of Petrobras, the company (under the administration of General Joaquim Silva e Luna) responded to criticism about the high fuel prices with a significant increase in dividends, under the justification that the greatest contribution that the state-owned company can give to society is to remain financially healthy and pay taxes and dividends to the state, so that it can then execute public policies with the money received. In total, Petrobras paid $27 billion in dividends to the federal government in 2021.

Even after President Bolsonaro’s intervention in the command of Petrobras, in 2021, the company – under the administration of Mr. Silva e Luna, a general handpicked by the president, reduced the frequency of hikes, but without changing, in essence, the alignment to international prices. The risks regarding changes in the governance of the oil company – under the current or future administrations – have never left the radar of the financial market, even though, due to the high dividends paid, the company now enjoys prestige among investors.

The fact that Messrs. Lula da Silva and Moro are candidates this year may put Petrobras’s corruption scandals brought to the fore by Operation Car Wash at the center of the campaigns. Mr. Lula da Silva was convicted precisely by Mr. Moro, then a judge, for passive corruption and money laundering. Mr. Lula da Silva was imprisoned for 580 days, between 2018 and 2019. The convictions were later overturned by the Federal Supreme Court (STF) in 2021, and the former president regained his political rights. In a preview of this debate, in December, Mr. Lula da Silva said that Car Wash “almost broke Petrobras.” Mr. Moro stroke back, saying that “what damaged Petrobras and the country was the stealing during the PT government.”

Messrs. Gomes and Doria also try to position themselves in the so-called third way and took advantage of Petrobras’s recent price adjustment to share their plans. Mr. Gomes said he intends to end the “criminal” price policy of the state-owned company, based on the alignment to the import parity price. In the case of diesel, for example, he proposes replacing the current model with a pricing policy that reflects Petrobras’s average production costs, the price of diesel in the Gulf of Mexico and the export price of Brazilian diesel. Mr. Lula da Silva has also said, by the end of 2021, that he intends to end the international parity of oil products.

Mr. Doria is in favor of creating a stabilization fund to dampen the upward movements. The mechanism would be financed with resources from the private sector. The creation of a fund of this type (financed with a tax on oil exports, in this case) is currently being considered in the Senate. The bill provides for taxing oil exports and displeases the sector.

Chamber of Deputies Speaker Rodrigo Pacheco (Democrats, DEM), who also intends to run for president, has promised to put the project on the agenda in February. In 2021, Mr. Pacheco was a central character in talks with governors in the decision of the states to freeze in November, for 90 days, the sales tax ICMS rate on oil products.

During the last few years, Mr. Bolsonaro has fought with the governors about who is to blame for the inflation of oil products. The president often blames state taxes for the rise.

The ICMS accounts, on average, for 26% of the final price of gasoline and 15% of diesel. Petrobras prices, in the refineries, correspond to 34% of the final price of gasoline and 55% of diesel. The current form of ICMS collection acts in a pro-cyclical manner as it helps to make oil products more expensive at times when they are skyrocketing at the pumps. The Chamber passed a law in 2021 according to which, in practice, the ICMS tax would no longer have this pro-cyclical character, but the bill has stalled in the Senate.

The dispute between Mr. Bolsonaro and the governors will continue in 2022. The states announced their intention to unfreeze the ICMS rate after Petrobras announced the hike earlier this month. The president reacted and pressured the governors again by defending a constitutional amendment that would allow the government to zero federal taxes on fuel, temporarily, without the need to present a source of compensation, as provided in the Fiscal Responsibility Law. The idea is that the states would also be authorized to do the same with the ICMS.

The proposal, however, is encountering resistance among governors, given the fiscal crisis in the states. In addition, there are doubts about the effectiveness of the measure — which has already been tested between March and April 2021, when Mr. Bolsonaro zeroed federal taxes on diesel, but saw prices rise anyway.

Source: Valor international

https://valorinternational.globo.com/