The three variables at play in the Petrobras dividend crisis – 03/11/2024 – Adriana Fernandes

Petrobras’ decision to retain the payment of extraordinary dividends in a reserve has at least three variables at play behind it.

Two of these variables directly impact the government’s Budget this year and in 2025 and go far beyond the extra revenue that the Union would have with extraordinary dividends, as the company’s majority shareholder.

The blockage in the payment of dividends makes any equation difficult for the company to accept an agreement to end disputes with the Federal Revenue Service based on the rules of the Carf law (Administrative Council of Tax Appeals).

Unlike the income from extraordinary dividends, which is not foreseen in the 2024 Budget (that’s right), Minister Fernando Haddad (Finance) counts on the money from the tax transaction agreement to meet the fiscal target of zeroing the deficit.

It is not known for sure how much the Treasury is counting on Petrobras’ revenue from the Carf law. But Haddad has already said that a third of the fiscal adjustment promised for this year would come from Carf. And the minister’s expectation was that a large part of this revenue would come from Petrobras.

How will the company now justify getting rid of cash to make a tax transaction in the face of withholding dividends for reasons of caution to face difficulties in the future that threaten the credibility of the investment plan?

If the company itself decided to create a large reserve for the future, it would make no sense to enter into an agreement that would take money out of its cash flow.

It is true that, without paying at least part of the dividends, it will be much more complex to move forward with negotiations with Carf.

Agreement that, in fact, would already be a difficult process under normal conditions, requiring an approval process that includes minority shareholders. Before the impasse with the dividends, I already knew that the values ​​would be much lower than the R$30 billion that Haddad counted on last year.

The second variable at play is reflected in the size of the fiscal space that the Lula government has to increase expenses in 2025 and make more public investments.

According to the rules of the new fiscal framework, if the resources from a possible agreement to end litigation enter the Treasury’s treasury in the first half of this year, this collection will be included in the calculation to define the size of the growth in expenses in the following year. Up to the real 2.5% increase limit allowed in the new tax rule.

The greater the revenue from the Carf law transaction, the closer the government can get to the 2.5% ceiling, expanding the space that Lula will have available to spend more in the penultimate year of his government.

It is worth highlighting: revenues from dividends from state-owned companies cannot be included in this account under the tax framework.

The third variable concerns the calibration of the size of the technical reserve that Petrobras needs to make in order not to reduce the level of confidence in the execution of the investment plan within its debt limit.

In other words, what percentage of dividend payments would mitigate the drop in the level of confidence in implementing the plan if there is an unforeseen shock in the future that leaves the company less resilient.

It is important to highlight that Petrobras has a robust cash flow and the technical dividend reserve cannot be used to expand investments.

If this technical caution is too great, as the advisors decided, there is nothing else to say: the state-owned company is seeing a high risk in the future. If this risk exists, the government cannot support the two previous variables.

Calibrating the size of the distribution of extraordinary dividends becomes essential to resolve the impasse from now on.

Apart from the political clash between the president of Petrobras, Jean Paul Prates, and the Minister of Mines and Energy, Alexandre Silveira, which could end in the downfall of one or the other, the crisis showed that not only was there a lack of professional communication from the company, but also more information for the Board of Directors’ decision-making.

The damage must be resolved quickly, which tarnishes not only Petrobras’ image, but also Haddad’s economic policy, which tries to guarantee security for investors to invest their resources in the country.

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