Petrobras’ changes creates economic confusion after Bolsonaro’s interference

by | Mar 10, 2021 | International

RIO DE JANEIRO — Amid the COVID-19 crisis, Brazil’s president Jair Bolsonaro named a former military general as the leader of a company that has a direct impact on the country’s value in the financial market.

Petrobras, the state-owned Brazilian multinational corporation in the petroleum industry and the largest company in Latin America, will now be commanded by Joaquim Silva e Luna, a retired army general.

Silva e Luna was the Minister of Defence between 2018 and ’19, when he became the general director of Itaipu Binacional, a huge hydroelectric dam on the Paraná River, between Brazil and Paraguay.

Silva e Luna’s nomination has yet to pass the approval of Petrobras’ board of directors, as Bolsonaro has no formal power to dismiss the current CEO, Roberto Castello Branco. The change at Petrobras comes after recent increases in fuel prices and was responsible for an immediate effect on the financial market.

The corporation is responsible for around 15 per cent of the Bovespa Index — also known as Ibovespa — the benchmark index of 67 stocks that are the majority of trading and market capitalization in the Brazilian stock market.

“The Ibovespa is made up of the 67 largest companies, they have some criteria to be there, they need not only be bigger in size, but they also have to be the largest companies and the most traded,” said Andréa Amaral de Paiva, a financial adviser from Rio de Janeiro.

Petrobras has gone through a restructuring process, the command was changed in 2016 and it was created with the Law of State-Owned Companies to protect large companies, preventing intervention by governments. All of these changes were made during the leadership of economist Roberto Castello Branco.

“The new CEO at Petrobras started selling assets that were not profitable, reducing costs and focusing only on what Petrobras (made) a lot of profit in, which was the extraction of the pre-salt layer,” Paiva said.

At the beginning of 2020, the price of oil fell but has since gone back to the level it was before COVID-19. As prices rose, truck drivers became discontent with the government, which caused a commotion, because a number of them are supportive of the current president.

“As a result, Petrobras has already lost more than $11 billion in four days,” said Paiva. “Because the biggest investors they have, the big sharks in the market, are foreign investors and institutional investors who are in the big investment funds, and everyone lost trust.”

For Bruno Vanzan, a public sector employee and investor, the problem is not just changing the leadership, is exchanging it “for a person that we do not know if has the same vibe.”

When a president intervenes, he or she will affect the price policy, making investors lose confidence in the financial market. It is not the first time that the government has interfered in the leadership of Petrobras, and it always brings a negative impact on the corporation.

“Political nomination for executive directors within Petrobras, in general, is very bad for the company, for the company’s management,” Vanzan said. “Because the political leader can enter there with self-interest, and they are generally not the best.”

Pablo Amorim, Vanzan’s coworker who is also an investor, said the situation is not entirely negative, because when prices fall he can buy more assets at a lower price. Nevertheless, he understands the cons of this situation.

“I see as an investor that the market always tends to react to this impactful news with a certain caution, which comes from the fear of losing money,” Amorim said. “Petrobras, being a state-owned company, is not the type of company that I usually invest in, precisely because of these interferences that they are all subject to.”