The voracity for profits in the extractive sector – 03/21/2024 – André Roncaglia

In last week’s article, I showed how market logic disguises its extractive compulsions with an already outdated “technical rationality”.

By equating institutional quality with autonomy in relation to the government, the financial manual ignores the lasting and profound effects of the market distorting companies’ objectives.

The financialization of the country’s three main natural resource managers (Petrobras, Eletrobras and Vale) restricts their social utility to the ability to distribute profits to shareholders, in line with global commodity cycles. Petrobras (2022) and Vale (2021) were among the largest dividend payers on the planet.

Between 2019 and 2022, Petrobras’ “technical” management changed the shareholder remuneration formula and poured more than R$330 billion in the form of dividends, with large sales of assets, such as refineries, fertilizer factories and their distribution network.

On the other hand, the invisible hand of the market did not prevent Vale from producing the tragedies of Mariana (2015) and Brumadinho (2019), among other violations of environmental rules; did not guarantee our self-sufficiency in diesel or gasoline after the dismantling of the Petrobras production chain; Nor is it able to prevent recurring blackouts throughout Brazil, as a result of the increasing privatization of the electricity sector.

This is a serious problem, given the dependence of our economy on the direct and unsophisticated exploitation of our abundant natural resources.

Our exports list is dominated by agricultural and mineral commodities (70%). Public accounts also depend on them; According to calculations by my colleague Bráulio Borges (Ibre-FGV), the mineral-extractive bonanza will yield close to 2% of GDP in annual revenue to the Union by 2033.

An article by Lahitew and Wercker (2020) shows that, under the effect of this dependence, rentierism enters institutions to capture these extractive rents, inhibiting investments in infrastructure and public inputs (such as health and education). This is the “voracious effect” of economic and political elites on the “easy profit” from the rudimentary exploitation of natural resources.

In addition to revealing a wide network of corruption in Petrobras’ expansion plans —in the wake of the pre-salt discovery—, Operation Lava Jato left public companies with pressure in favor of privatization and barriers to increased investment (see the actions of the deputy attorney questioning government “interference” in Petrobras).

The State lost valuable assets to face the energy transition. We only have Petrobras left.

In 2020, a “CEO Open Letter” from the Oil and Gas Climate Initiative (OGCI) established its commitment to efforts to reduce emissions and create low-carbon solutions.

In light of these changes, the consultancy McKinsey (2021) outlined three archetypes of oil and gas companies in the world: the natural resources specialist, the integrated energy company and the clean energy company.

The study predicts widespread bankruptcies of companies positioned as resource specialists. To migrate from the specialized model to an integrated portfolio of energy sources, Petrobras must accelerate its pace. After all, the advantage for leading companies begins to materialize when more than 40% of total portfolios are low carbon; Today, Petrobras allocates around 5% of its investments to new energy.

Due to the low cost of pre-salt production, Petrobras is well positioned to become a leader in the energy transition. To achieve this, extraordinary profits need to be directed to the diversification of production, not to shareholders’ pockets.

Without this, what will we do when the pre-salt star goes out, starting in 2029?

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