Page 5 - LatAmOil Week 10 2023

LatAmOil COMMENTARY LatAmOil

Lula has made his preferences clear. In the past, been unreasonable in light of recent events.
he has been a strong advocate of proposals for For example, after the company announced
using Petrobras as an instrument of state policy last week that its board had approved plans to
and a source of revenue for the federal budget. pay out record-high dividend payments for the
(Indeed, it was during his previous presidential fourth quarter of 2022, Lula blasted the NOC
terms – that is, between 2003 and 2010 – that for its fiscal policies, saying that half of the sum
the NOC racked up much of its huge debt load, allotted for dividends ought to be invested in
including the loans assumed to finance the public-sector projects. Gleisi Hoffman, the
$40bn domestic fuel price subsidy programme.) leader of the president’s Workers’ Party, went
More recently, he spoke out (both during his further, saying in a post on Twitter that the com-
campaign and after the election) against Bolson- pany ought to end its “indecent distribution of
aro’s push to continue with the sale of Petrobras’ dividends” and introduce a “fair” domestic fuel
non-core – that is, non-upstream and non-pre- pricing regime.
salt – assets. Instead, he has urged the company
to draw up plans for developing its renewable “Social purpose”
energy capacity, to commit to building up its Also last week, Bloomberg quoted a source
downstream capacity and perhaps even to familiar with the matter as saying that the gov-
regain control over some of the refineries it has ernment was preparing to change Petrobras’
already sold. dividend policy to ensure that a portion of
Additionally, the new president has criticised the NOC’s dividends be set aside for a “social
Petrobras’ existing practice of setting the price purpose.”
of fuel in line with global prices, saying that the That is, explained the source, who asked to
NOC ought to cut domestic rates in order to speak anonymously, as the information has not
help disadvantaged Brazilian consumers. Bol- yet been made public, Brasilia’s plan is to reserve
sonaro had shown a general preference for mar- dividend money for its own goals, including the
ket-driven pricing options in the first part of his energy transition and fuel price supports.
term, though he frequently griped in the run-up Petrobras has not yet commented on
to the 2022 election about Petrobras managers’ Bloomberg’s report, but Prates indicated during
reluctance to accede to the government’s calls for his first earnings call with investors and analysts
lower fuel prices. last week that the NOC was gearing up to make
In short, the ideological differences between some changes in its dividend distribution pol- Petrobras
Lula and Bolsonaro were abundantly clear by the icy. Specifically, he said that the company had
time the former took office on January 1, 2023. It already started depositing a portion of the sum has also been
was not clear at that time, though, just how those designated for dividends into a separate fund. asked by the
differences might play out in practice. He did not provide an exact breakdown of
the total but said that Petrobras was consider- government
Signs of the times ing returning to the production of fertiliser and
Since then, Petrobras’ new management team petrochemicals. The NOC will continue to be a to impose a
has given some indication of how it intends to source of robust dividends for its shareholders
approach the matter – and of how the company but will also seek to uphold its own best interests, temporary
may fare under the Lula administration. he declared. hold on asset
With respect to fuel pricing, Jean Paul Prates, In the meantime, Petrobras has also been
the former senator who was selected by the pres- asked by the government to put a 90-day hold privatisation
ident to serve as the NOC’s new CEO, said in on privatisation sales. On March 1, the company
January that he was looking to change policy on confirmed in a statement that it had received a
this front but would not intervene directly in letter from the Ministry of Mines and Energy
domestic markets. Specifically, he talked about (MME) requesting that uncompleted asset sales
decoupling fuel prices from import parity in be put on hold while Brazilian authorities reas-
order to ensure that foreign suppliers did not sessed the country’s existing energy policy and
have an edge over their domestic counterparts. drew up a replacement.
Current policies disadvantage consumers In short, Petrobras already seems to be
and companies that produce oil within Brazil changing course and moving in a direction that
by taking into account the extra costs stemming is somewhat different from the one it followed
from transportation and other considerations, during the Bolsonaro years. Prates and his team
Prates told reporters on January 5. “Today you are not blind to the advantages of the previous
are simulating a diesel made in Rotterdam plus administration’s approach and appear to be
freight, plus expenses and putting that price in hopeful that they can somehow keep the com-
the refineries that are producing here,” Reuters pany functioning as a strong source of revenue
quoted him as saying. “So we will simply try to and upstream production.
balance this – without forcing, without impos- Nevertheless, they also seem to be deter-
ing a tariff, with absolutely no direct interven- mined to force the NOC to serve as more of
tion in the market.” an instrument of public policy than it has
Despite these reassurances, concerns about been doing in recent years. The question now
the possibility that Lula’s administration will is whether (and how) that effort will affect the
take a much less hands-off approach to Petro- company’s operational performance – or its fis-
bras than Bolsonaro’s team ever did have per- cal standing, as it did the last time Lula held the
sisted. These concerns do not appear to have presidency. ™

Week 10 08•March•2023 www. NEWSBASE .com P5