Page 5 - LatAmOil Week 25 2022

LatAmOil COMMENTARY LatAmOil

Competing objectives Contribution on Net Income (CSLL) paid by oil
In other words, it is under a certain amount companies. The officials put the idea forward
of pressure to behave like a caretaker NOC with the aim of reducing the impact of higher
and simply hand the cash over to the treasury, fuel prices, but Economy Minister Paulo Guedes
even if it bears more resemblance to a privately made clear that he opposed tax hikes, on the
owned and vertically integrated oil company grounds that it might discourage investors from
in some respects. And it doesn’t have any easy participating in the eventual participation of
way to relieve this pressure – not least because Petrobras, the sources said.
Jair Bolsonaro, Brazil’s current president, has on Guedes, one of Bolsonaro’s main supporters
multiple occasions complained publicly about within the government, has said he does favour
Petrobras’ unwillingness to cut fuel prices at the the sale of the NOC. However, it is not clear
government’s behest while also choosing CEOs whether he addressed the question of the tim-
that support the company’s legal right to set its ing of the sell-off during the preliminary talks
own prices independently of the state. on CSLL rates.
This is a difficult balancing act, made even In the meantime, three of Reuters’ sources
more difficult by the fact that Brazil is gear- in the Economy Ministry noted that even if a
ing up for an election in October. Bolsonaro is tax hike were approved, it would not take effect Petrobras is also
seeking to remain in office, and as such he every for another 90 days, meaning that it would not
bit as eager to avoid being blamed for the infla- have much impact before the election, or even in caught up in a
tion and economic pain stemming from high 2022. Additionally, some of the sources said, the
oil prices, as he is determined to overcome his Brazilian government might not be able to use debate over how
own unpopularity in the polls. As such, he has a the proceeds of a CSLL rate increase to benefit
strong incentive to lambast the company for its low-income citizens because the country’s elec- the state can
pricing policy. toral laws bar it from spending more on social meet citizens’
He has had many opportunities to do so, as welfare programmes in the run-up to a presi-
Petrobras has raised fuel prices multiple times dential election. needs while
since the beginning of 2022. The most recent Even if this were not a factor, they added,
hike occurred on June 17, and the president Brasilia could not fit extra outlays into this year’s ensuring free and
responded by declaring on the following day budget without cutting expenses elsewhere fair elections
that he had secured authorisation from the or obtaining a waiver from the constitutional
National Congress for an investigation of the spending cap. Both of these options would be
NOC and its approach to fuel pricing. politically difficult, they said.
Given the bullishness of world oil mar-
kets, such an investigation probably would not Striking a balance
amount to much. However, Brazilian political In short, Petrobras remains in a difficult place.
circles have been abuzz over the last week over It is trying to establish a balance between its
the issue of rising fuel prices. The furore led functions as an upstream operator and its duties
Petrobras’ brand-new CEO, José Mauro Coelho, as an instrument of the state. At the same time, it
to resign less than six weeks after taking office, is caught up in a debate over how a government
while the NOC’s chief exploration and produc- can best meet the needs of impoverished citizens
tion officer Fernando Borges stepped up to serve while also upholding the principle of free and
as interim CEO. fair elections.
Thus far, the existing arrangement, which
Fight over CSLL involves majority state ownership and freedom
Meanwhile, Reuters quoted anonymous sources from state control with respect to pricing, has
inside Brazil’s Economy Ministry as saying that not allowed it to achieve equilibrium. It remains
ministry officials had begun debating a proposal to be seen whether plans for privatisation will
for raising the rate of a tax known as the Social serve it any better. ™

Bolsonaro’s Economy Minister Paulo Guedes supports plans for privatising the NOC (Photo: Petrobras)

Week 25 23•June•2022 www. NEWSBASE .com P5