RIO DE JANEIRO (Reuters) – Brazilian President Jair Bolsonaro has moved to replace the head of state oil company Petrobras, appointing a retired army general with no experience in oil and gas as chief executive after weeks of clashes with the current chief executive for fuel price hikes.
In a statement on Friday afternoon from the Ministry of Mines and Energy, shared for the first time on Bolsonaro’s Facebook page, the government said it had decided to appoint former Defense Minister Joaquim Silva e Luna to head Petroleo Brasileiro SA, as the signature is formally known.
The current CEO, Roberto Castello Branco, backed by investors for his efforts to sell insufficient assets and reduce debt, would be Petrobras ’second leader in three years to fall on the political consequences of fuel prices. In 2018, then-CEO Pedro Parente resigned when the government forced fuel prices to fall in a concession to striking truckers.
Parente pledged to set domestic prices in line with world markets, breaking with a policy that caused Petrobras to sell fuel below international parity, causing losses of about $ 40 billion between 2011 and 2014. .
Similarly, Bolsonaro became entangled with Castello Branco for his insistence on raising the prices of diesel and other fuels as Brazil’s currency weakened and world crude oil prices rose. New York-listed Petrobras ADR sales fell 8.9% in off-hours trading on Friday, adding to the day’s drop of nearly 7% in its preferred shares listed in Brazil.
Petrobras has raised fuel prices since a Reuters report on February 5 disclosed details of the company’s pricing policy, which led analysts to downgrade their shares out of concerns about possible political interference.
The dismissal of Castello Branco could force a wider shake-up in Petrobras, which has moved towards more market-friendly and less politically driven policies in recent years.
The company’s senior management is considering massively resigning to protest the CEO’s replacement, three people close to executives said on Friday evening.
Petrobras reported in a statement that it had received a notice from the Ministry of Mines and Energy about the proposed change of CEO, adding that the ministry had requested an extraordinary shareholders meeting.
The company’s board of directors will meet Tuesday in a regularly scheduled session.
The majority of the board of directors has so far been loyal to Castello Branco, although most are appointed by the government, which could create a messy transition.
Castello Branco, whose current term officially expires on March 20, was appointed to lead Petrobras when Bolsonaro took office in early 2019.
An economist trained by the University of Chicago and an ally of Economy Minister Paulo Guedes, he is a staunch supporter of free market policies and has previously rejected the president’s complaints about prices.
But investors have been upset about possible political interference since the oil producer confirmed it was selling fuel in Brazil below international prices for longer periods than previously reported, confirming a Reuters report.
The possible shake-up of senior management also calls into question one of the CEO’s main goals: to end Petrobras ’near-monopoly on refining in Brazil, three sources close to the bidders said.
Silva and Luna, which has frequently won praise from Bolsonaro for its management of Brazil’s massive Itaipu hydroelectric dam on the border with Paraguay and Argentina since 2019, is little known to investors.
He would be the third military figure to occupy a key position in energy matters: the chairman of the Petrobras board and the nation’s Minister of Mines and Energy are both admirals.
In April 2019, a few months after Bolsonaro took office, the president called for explanations about Petrobras ’price hike, which quickly reversed. Following the fall in the company’s shares, Petrobras and the government assured investors that there would be no political interference in fuel prices.
Tensions eased last year due to falling crude oil prices, but truckers have renewed their grievances in recent months.
During a Thursday afternoon announcement about the reduction in fuel taxes, Bolsonaro made clear his dissatisfaction with Castello Branco, saying there will be changes at Petrobras “in the coming days.”
Analysts and investors were upset by the rapid succession of events on Thursday and Friday.
“It’s a delicate situation and it happened in such a disorganized way,” said Edmar de Almeida, a professor of energy at the Federal University of Rio de Janeiro.
Petrobras will turn 67 in 2021 and will have its 39th CEO, or about one boss every 18 months, said Luiz Carvalho, UBS analyst.
The company’s issues will persist as long as its controlling shareholder, the government, does not understand that the problem does not lie with company executives, but the lack of a coherent strategy from above, he said.
“As the world moves toward an energy transition with a cleaner energy mix, in Brazil we are discussing subsidies for diesel consumers,” Carvalho said.
Report by Rodrigo Viga Gaier, Gram Slattery and Sabrina Valle; Additional reports by Marta Nogueira and Gabriel Araujo; Edited by Brad Haynes, Christian Plumb, Daniel Wallis and William Mallard