RIO DE JANEIRO: Members of the board of directors of Brazilian oil giant Petrobras on Tuesday paved the way for the approval of a retired general with no industry experience to take charge of the state-controlled company, sparking fears of government interference in pricing.
President Jair Bolsonaro announced last week that former Defense Minister Joaquim Silva e Luna would take over the company, seeking to appeal to truck drivers who have threatened to strike over recent fuel price hikes and whose 2018 strikes paralyzed the country.
In accordance with standard procedure, the board of directors of Petrobras voted on Tuesday to call an extraordinary general meeting to elect Silva e Luna as a member of the board of directors, replacing Roberto Castello Branco, the company said. in a press release. Once elected, Silva e Luna can be appointed general manager.
Analysts said the appointment signaled investors that political interests would take precedence over the financial health of one of Brazil’s most iconic companies, and that Petrobras’ stock has been crushed. It has also fueled markets with fear that his administration’s free-market economic agenda, which includes ambitious privatization plans, could be compromised, at least until the end of his re-election campaign in 2022.
If he (Bolsonaro) had treated him in a different way, it would have been a more natural path. The way Bolsonaro has used his power … has generated tension in the market, said Lucas de Arago, partner at Brasilia-based political consultancy Arko Advice. It is a matter of broken expectations.
Petrobras, a company wrapped in national identity, is also a major sponsor of artistic and cultural events in Brazil. It is one of the main players tapping offshore pre-salt oil reserves, which former President Luiz Incio Lula da Silva called in 2008 Brazil’s passport to the future.
Over the weekend, as Petrobras shares fell about 20%, Bolsonaro warned there was more to come. We were going to put our finger on the electricity sector, which is another problem, he said.
During her administration, which ended in impeachment, President Dilma Rousseff artificially suppressed fuel and energy prices. When it finally calmed down in 2015, inflation surged, which contributed to a drop in popularity.
During the 2018 election campaign, Bolsonaro openly spoke of his disinterest in economic policy, referring all questions to University of Chicago-trained free market economist Paulo Guedes, whom he chose as his minister of the Economy.
The current CEO of Petrobras, Castello Branco, studied at the same university and Guedes chose him to lead the company. In recent years, executives have worked to restructure the company through the sale of non-core assets, using the proceeds to pay off debts and make investments. Castello Brancos’ mandate ends at the end of March.
Bolsonaros’ decision shows a weakening of the economy minister and his influence over the president, said Gilberto Braga, finance professor at Ibmec University in Rio de Janeiro. In a way, the market sees it as the end of liberal economics.
There are even fears that Guedes may step down, some analysts have said, and that another general or someone aligned with Bolsonaros’ interventionist instincts may take his place. That, from a market perspective, would be disastrous, Braga added.
Arago said Bolsonaro chose Luna someone he could trust. But Luna may not be able to prevent fuel price readjustments on his own, he said.
We must remember that Petrobras has a board of directors, which is responsible for many of the key decisions, including pricing.
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