Bolsonaro Raises Pressure on Petrobras After Firing CEO

The prospect of having Petrobras subsidize gasoline and diesel in Latin America’s largest economy puts its robust profits and dividends in doubt

The prospect of having Petrobras subsidize gasoline and diesel in Latin America’s largest economy puts its robust profits and dividends in doubt.
By Mariana Durao and Peter Millard
May 24, 2022 | 09:26 AM

Bloomberg — Brazilian President Jair Bolsonaro sacked his third chief executive officer at Petroleo Brasileiro SA (PETR4) in a clear sign that the state-controlled oil giant will come under pressure to combat fuel inflation in an election year.

The prospect of having Petrobras subsidize gasoline and diesel in Latin America’s largest economy puts its robust profits and dividends in doubt. The Rio de Janeiro-based producer lost an estimated $40 billion during the previous decade when then-President Dilma Rousseff pursued price controls and state intervention in Brazil’s economy.

Petrobras’s dollar-denominated bonds due in 2030 fell the most in a month and touched a record low in early trading. Shares fell as much as 4.9% in Sao Paulo.

“We are turning back the clock to the Dilma days,” said Marcelo de Assis, the head of Latin American upstream research at consultant Wood Mackenzie Ltd. “They may stop paying dividends because of fuel price policy.”


The Bolsonaro administration did little to ease subsidy fears on Tuesday. The president’s biggest concern is the recurring fuel price increases, said Chief of Staff Ciro Nogueira. Bolsonaro, along with other world leaders including US President Joe Biden, is getting hammered at the polls by double-digit inflation.

“Let’s find legal means inside and accordingly to Petrobras’s compliance, for a way to avoid fuel increases getting transferred to the population,” Nogueira said on local television.

Shareholders Meeting

The government thanked Jose Mauro Ferreira Coelho, who it nominated in April to lead state-controlled Petrobras, but said Brazil is living through “challenging times” amid intense volatility of oil prices globally. The administration appointed Caio Mario Paes de Andrade to replace him, according to late Monday note from the Energy Ministry.


O Estado de S.Paulo reported that Bolsonaro will overhaul Petrobras’s board and change its fuel-price policy, without saying where it got the information.

Petrobras said it will hold an extraordinary shareholders meeting to name Paes de Andrade to the board. It is unclear if the government will present more new candidates for the 11-member board. Only three board members who were appointed by company employees and minority investors can’t be replaced by the Bolsonaro administration.

“We think the new CEO faces a tough dilemma: how to preserve his own job while following the company’s policies and without jeopardizing Brazil’s fuel availability?” BTG Pactual analysts Pedro Soares and Thiago Duarte wrote in a note. “The real test is yet to come.”

Coelho is the third Petrobras CEO to be fired by Bolsonaro amid disagreements over fuel prices. His predecessor Joaquim Silva e Luna was dismissed after about a year on the job, while Roberto Castello Branco was ousted in 2021.


The announcement follows weeks of speculation that Coelho would be ousted after his ally Bento Albuquerque was replaced at the helm of the Energy Ministry -- a dismissal that came just days after Petrobras raised diesel prices, ignoring the president’s plea.

Both new chiefs -- Energy Minister Adolfo Sachsida and Paes de Andrade -- had stints at Brazil’s economic team, the former as special adviser to Economy Minister Paulo Guedes and the latter as special secretary for de-bureaucratization.

Dollar bonds due 2030 are trading at the lowest price since they were issueddfd

The fact that Petrobras’s business plan and operations haven’t suffered more from turmoil at the top shows how the company is run more by middle management than the C-suite, said Schreiner Parker, Latin America head for Rystad Energy, a consultancy. Petrobras has a history of naming CEOs with little experience in the oil industry or at the company itself. The last chief executive who rose up through the ranks was Maria das Gracas Foster who left in 2015.


Increasingly Frustrated

Bolsonaro, who’s up for re-election in October, has grown increasingly frustrated with the company’s insistence on keeping fuel prices in line with global levels when Russia’s invasion of Ukraine and subsequent sanctions have upended the energy market. Annual inflation is running above 12% and Bolsonaro trails ex-President Luiz Inacio Lula da Silva in all opinion polls, with economic issues at the forefront of voters’ minds.

Lawmakers are set to vote Tuesday on a bill dealing with state taxes on fuels, known as ICMS, as the government pushes measures to ease pressure on consumer prices.