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Bolsonaro’s Petrobras Profit Rebuke Puts CEO on Defensive

Bolsonaro’s Petrobras Profit Rebuke Puts CEO on Defensive

President Jair Bolsonaro’s criticism of high fuel prices and too much profit at Petroleo Brasileiro SA is putting the CEO he named for the job in an unprecedented position of defense and raising investors’ fears of money-losing policies. 

Shares of the Brazilian state-controlled oil giant plunged as much as 4.7% on Friday despite record revenue and declining debt that allowed the company to offer shareholders $5.6 billion of extra payouts. In the lead-up to the results reported late Thursday, Bolsonaro intensified his pressure on the company to cap gasoline and diesel prices, joining a chorus of critics led by opposition lawmakers and his main contender in next year’s presidential election. 

“Petrobras doesn’t pursue profit for profit,” Chief Executive Officer Joaquim Silva e Luna, a former Army general appointed by Bolsonaro, said during an earnings call with analysts on Friday. “Our goal is to generate value for shareholders and society through taxes, dividends and job growth.”

The mounting political pressure on Luna is evoking the specter of Petrobras’s roughly $40 billion in losses related to populist fuel policies during the 2012-2014 oil price boom. While he has repeatedly reassured investors that the company will keep gasoline and diesel prices aligned with international markets, the public criticism from his de facto boss is making his position seem increasingly vulnerable. 

Bolsonaro, whose popularity has plummeted amid double digit inflation and his erratic response to the pandemic, said Thursday that Petrobras shouldn’t be too profitable and that studies were underway to alter its policy of tracking international fuel prices. 

“It’s a state company that, with all due respect, only gives me a headache,” Bolsonaro said in a raised voice during a Wednesday radio interview. “We’re going to break the monopoly.”

Bolsonaro’s Petrobras Profit Rebuke Puts CEO on Defensive

Petrobras would risk legal repercussions if it started fixing fuel prices because that would suppress competition with other importers, Luna said at a press conference Friday.

“We can’t act outside the law,” he said. 

While Bolsonaro’s government has so far let Petrobras operate with a great level of independence, the government holds the majority of the Rio de Janeiro-based oil producer’s voting shares and the president can ultimate decide who runs it. 

Bolsonaro said he’s tired of getting blamed for high fuel prices, echoing complaints from politicians of all stripes. 

Opposition politician and former presidential candidate Ciro Gomes said Petrobras’s flush profits are an insult to Brazilians who are struggling to fill their tanks. Senate head Rodrigo Pacheco said Thursday that Brazil needs to find a solution for high prices and said he will meet with Petrobras management next week. Even the president of the central bank has publicly expressed concern about high fuel prices. 

Bolsonaro’s main rival heading into the polls next year, former President Luiz Inacio Lula da Silva, has said there’s no reason a major producer like Brazil needs to follow international prices. It was under Lula’s Workers’ Party that Petrobras incurred tens of billions of dollars of losses for keeping fuel artificially cheaper.

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“Downstream pricing policy remains a concern,” Fernando Valle, an analyst who covers oil companies for Bloomberg Intelligence, said in a report. “Comments by Brazilian president Jair Bolsonaro about selling the government’s controlling stake in Petrobras have spurred stock performance, but we see it as highly unlikely. Bolsonaro also criticized the company’s elevated fuel prices, which may be the more pressing concern.”

Petrobras will continue with its policy of tracking international prices, which doesn’t immediately pass on all of the volatility to consumers, Claudio Mastella, the company’s head of sales and marketing, said during the earnings call.

Petrobras was down 3.7% at 27.89 reais as of 2:56 p.m. in Sao Paulo. 

©2021 Bloomberg L.P.