It remains to be seen how Petrobras will use the rule, says entrepreneur – 05/19/2023 – Market

Businessman Pedro Wongtschowski, shareholder of the Ultra group, owner of the Ipiranga, Ultragaz and Ultracargo brands, says he has made a positive reading of the future after the end of the PPI (import parity price) at Petrobras.

He claims to believe that the objective of the state-owned company in abandoning the model is not to use the new rule to hold price increases for political reasons, but to balance the volatilities.

“It remains to be seen whether they are going to apply it wisely or whether they are going to apply it with some political intention. In my expectation, Petrobras, with its degree of professionalism in the board, directors, etc., will apply it wisely”, he says.

The businessman, who left the presidency of Ultra’s board of directors last month and heads Fiesp’s top innovation and competitiveness board, is today one of the main spokespersons for a series of suggestions from the industry, already taken to the Lula government, to encourage long-term financing with a focus on the BNDES.

The list includes proposals defended by the president of the bank, Aloizio Mercadante, such as the idea of ​​eliminating the levy of IOF (Financial Operations Tax) on the institution’s financing and reducing the payment of dividends in an attempt to increase the capacity to grant credit, with counterparts such as the prohibition of direct financing from the Treasury to the BNDES.

Although it represents tax exemption for the government, the businessman defends the measures as a priority.

“If you want an ambitious and aggressive program to modernize the industry, to encourage innovation, to export, to serve small and medium-sized companies, you will also need money. It is, ultimately, a matter of defining priorities”, affirm.

Fiesp sent the government a series of proposals to encourage investment. What are the ideas? Do they go through the subsidy return defense? We studied some horizontal themes that affect the sectors of industry, innovation, advanced manufacturing, BNDES and the capital market. And critical supply chains such as food, defence, energy and health. The focus is productivity, competitiveness and growth of the national industry. In each of these topics, we have suggestions.

In innovation, for example, the central suggestion was to reestablish the FNDCT [Fundo Nacional de Desenvolvimento Científico e Tecnológico, administrado pela Finep], which is approximately R$ 10 billion a year, and which, as is known, was being contingency. The problem has been solved and it is available for application in science and technology and innovation. For Brazilian standards, it’s a lot of money.

We defend, also in this area of ​​innovation, a certain concentration, and at least a portion of the money be applied in a concentrated manner in a small number of large projects that have reach, so as not to let that money turn into thousands of small projects that may be relevant for the university, but do not necessarily have national relevance. So, set aside part of that money for large, long-term projects that have an impact on national, economic, environmental, social, technological and industrial issues.

And the BNDES? We take each of these themes. For example, at the BNDES, what our document basically says is that the TLP [Taxa de Longo Prazo] it is not an appropriate interest rate for long-term financing, because it is extremely volatile, uncertain, in addition to being very high. It is way above Selic most of the time.

The TLP has to be replaced with a more predictable, more stable and lower rate. We do not advocate any specific formula.

What about the issue of IOF on BNDES financing? We propose that IOF be excluded from the cost of BNDES financing.

But doesn’t that generate tax waiver? IOF was not levied until 2015. As far as I know, CRIs [Certificados de Recebíveis Imobiliários]CRAs [do agronegócio] etc also do not pay IOF.

The expectation is that the BNDES will focus on financing innovation, infrastructure, modernization of the Brazilian industrial park, especially in terms of decarbonization and digitization. And export, which is obviously central, and financing for small and medium-sized companies, because in recent years private markets for other sectors have already developed. Large industrial projects today have a reasonable possibility of financing in the market.

So, the BNDES can leave these sectors a little and focus on these more general issues.

This focus on small and medium-sized companies due to their innovation potential, in his opinion, removes the risk of falling into the controversy of the champions national? I don’t want to refer to that figure that was created in the past. I think that the big Brazilian companies, today, are largely internationalized, with operations outside Brazil. And even when they are not, they have access to the international market and the domestic market.

A large market for debentures has developed in Brazil, for example, for debt securities. And the foreign market is absolutely available to Brazilian companies. This obviously includes an exchange rate risk, but companies that have large exports or products indexed in dollars, which is the case with all major commodities, have a kind of natural hedge for this type of financing.

So, the BNDES focusing on these sectors that I mentioned, I think it makes more sense and is where there is a demand.

It is along these lines that we took each of these sectors, food, defense, energy, health, etc., and made recommendations. It is a valuable document. the Joshua [Gomes, presidente da Fiesp] and I had the pleasure of hand-delivering this set of documents to the Minister of Industry and Commerce, Geraldo Alckmin, who was very interested, and I hope it will be used as a basis for defining the industrial policy of the Lula government.

What about the discussion about limiting BNDES dividends to return to funding? We made a recommendation that the BNDES distribute 25% of its profit in the form of dividends, which is the bylaw definition. And that’s what most Brazilian companies do precisely to retain resources in the company to make investments. For the BNDES, the same thing applies. In the previous government, there was, I think, an exaggerated demand for investments to cover the public deficit.

I think that, now, these institutions like the BNDES have to allow them to apply their resources, including a part of their profit, in their final objectives.

Wouldn’t that be necessary for the government at a time like the current one? If you want an ambitious and aggressive program to modernize the industry, to encourage innovation, to export, to serve small and medium-sized companies, you will also need money. Ultimately, it’s about setting priorities. I think that if the money stays with the BNDES, it will be very well spent.

About Petrobras, what do you Did you think of the end of the PPI? Make room for intervention policy? I found the definition to be very vague and it seemed to me that it is purposefully vague. It leaves a degree of discretion to Petrobras’ management to set prices, which it did not have before, as it was rigidly tied to the international price parity model.

I think this previous model was good in itself. Parity always seemed to me a reasonable principle. Now, they should have adopted some kind of moving average, in such a way as not to transfer the enormous volatility in the price of oil, derivatives and the exchange rate to the domestic market.

So, I believe that, in the end, what Petrobras will do, perhaps without making it explicit, is to maintain a policy very close to international price parity, however, without an immediate transfer of price volatility from the international market to the Brazilian market.

This means that it will be able to hold price increases when it is interesting. politically? In theory yes. But I have the expectation that this is not the objective. The objective is precisely not to transfer enormous volatility, which is the nature of oil prices and the exchange rate, immediately to the domestic market, subject to ups and downs.

Remember that there were times when the price changed every two or three days. This messes up the whole chain. Imagine a gas station owner receiving each load at a different price. It created a very high level of complexity in the system.

My expectation is that this new policy aims to maintain, without saying so explicitly, a policy of international price parity, however, attenuated with the degree of freedom that Petrobras did not have before and now has. My reading is positive.

Won’t it disturb the price reference in the country? It remains to be seen whether they will apply it wisely or whether they will apply it with some political intent. In my expectation, Petrobras, with its degree of professionalism in the council, management, etc., will apply it wisely, precisely with this objective of maintaining the parity, but attenuated, so as not to transfer the external volatility to the domestic market.

Mr. Did you feel that Petrobras’ message came across differently, with a request for the chain, of service stations and distributors, to pass on the reduction in prices to the consumer? I didn’t understand like that. Brazil has more than 200 fuel distributors, 40,000 service stations, almost perfect competition.

The market moves not only because of Petrobras’ price movement, but also because of the amount that is imported. Somewhere between 20% and 30% of fuels will continue to be imported because demand is greater than Petrobras’ supply. So these two factors influence price dynamics.

Now, Petrobras adopting a more cautious policy precisely in this sense of mitigating excessive volatility, I think it’s good for the market. It brings a little more predictability, stability to the market. I think it’s good.

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X-ray | Pedro Wongtschowski

Graduated in chemical engineering, with a master’s and doctorate from USP, Wongtschowski became director of Ultrapar in 1985 and was the company’s CEO between 2007 and 2012. Last month, he left the presidency of the company’s board of directors. Currently, he is president of the superior council of Innovation and Competitiveness of Fiesp