What challenges and decisions will Jean Paul Prates have ahead of Petrobras

This Thursday (26), Petrobras’ Board of Directors approved the nomination of former Senator Jean Paul Prates (PT) for the presidency of the state-owned company, as expected by the market since the announcement made by President Luiz Inácio Lula da Silva ( PT) in the last days of the government transition period. The name is viewed with distrust by investors, so much so that the company’s shares plummeted shortly after the decision and closed the day down 2.75% on B3, the São Paulo Stock Exchange.

That’s because Prates has been giving dubious statements about how his management will be, according to analysts and market specialists. Investors’ biggest fear is that the federal government will again intervene in internal decisions, as occurred during Dilma Rousseff’s (PT) management with the company’s pricing policy, which caused a loss of more than R$ 90 billion.

Although he says that there will be no interference in this regard, Prates’ statements have not convinced investors. In one of them, the former senator said that prices will not be unlinked from fluctuations in the international market, but from the import parity. Investors expected a consistent speech after his name was approved, which did not happen.

For financial market analysts, any certainty about the company’s new policies should only become clearer in April, when the current directors and members of the Board of Directors will be replaced. Until then, Prates should continue making more pragmatic decisions, so as not to affect investors’ pockets, as reported by Empiricus and Ativa and Goldmann Sachs.

“The statements given by him have been confusing, such as the question of prices and the distribution of dividends to shareholders. With the new information on who will be the directors and the new members of the Board, the market will start to better visualize where the company should go”, explains Adriano Pires, co-founder of the Brazilian Center for Infrastructure (CBIE) and former superintendent of import and export of oil from the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

According to Pires, the financial market was already convinced of Prates’ choice to preside over the state-owned company, even going against the main item of the State-Owned Companies Law, which prohibits the appointment of politicians to high management positions in order to avoid governmental rigging in the companies. This is because the former senator – he resigned on Wednesday (25th) already with a view to approval by the Council – is also a specialist in the oil and gas area with more than 30 years of experience in the market, experience that confers a kind of vote of approval. confidence.

Investors estimate that the new president of Petrobras will have the challenge of running the company with professional management in balance under pressure from the Planalto on issues such as fuel prices – which should rise in the coming months – and investments to supply public policies to promote the economy , something characteristic of PT governments.

“However, even though it is a state-owned company with a private investor, with a mixed economy, Petrobras is monitored by control bodies such as the Comptroller General of the Union (CGU) and the Federal Court of Accounts (TCU)”, completes Felipe Kury , an independent oil and gas consultant and former director of the National Petroleum, Natural Gas and Biofuels Agency (ANP) between 2016 and 2021.

Fuel prices: the most immediate challenge to be faced by Prates

The first test by fire that Prates will be put through is the control of fuel prices, which skyrocketed in the country after the start of Russia’s war against Ukraine, almost a year ago. Since then, several alternatives have been discussed, and even an intervention in the state-owned company was considered with successive changes in command by former president Jair Bolsonaro (PL).

Unsuccessfully, the government managed to change the taxes on fuel, lowering prices and causing fights with governors. Allied to this, the international market again stabilized the price of oil from the middle of the second half of the year, which brought fuels to levels more acceptable to the population. In addition, Petrobras’ presidency still held back the transfer to the population a little, in a lag that reached 11% for diesel and 14% for gasoline, according to a report by the CBIE.

However, the calm did not last long, and Petrobras returned to readjust the fuel this week after almost two months without increases. The rise narrowed the gap in relation to international prices to 7.87% and 12.58%, respectively.

Parity with the international market, however, is not the only problem in the way of the new pricing policy that should be formulated by Prates. The Brazilian government itself, to whom it must align itself in the speech, will increase fuel prices with the re-encumberation of taxes such as PIS/Pasep and Cofins as of March 1, when Provisional Measure 1157/2023 expires, which extended the reduction of rates.

With that, the market is already projecting an increase of 0.57% in inflation for the month, according to the most recent Focus report, by the Central Bank, compared to 0.46% predicted at the end of last year, when the reenonment was still being discussed by Lula’s team.

There is still expectation for the new rules for charging ICMS on gasoline which, after the establishment of a rate of 17% to 18% over the second half of last year, was to be renegotiated this year with the finance secretaries of the states . Depending on the negotiation, the tax could weigh even more on the final price of the fuel, which would again put pressure on Petrobras and the government to create some mechanism for controlling or smoothing the account.

“This could be an advantage for Prates, who is a specialist in this market and also a politician with good transit in Congress. With this articulation, it may be easier for the government to pass bills on price policy. If he is lucky during his term, and the international price of oil does not rise, he will have some relief to reduce the gap”, says Adriano Pires.

The vision is shared by the Brazilian Institute of Petroleum and Gas (IBP), which states that “the new President of Petrobras has extensive consolidated experience in the sector and a solid academic background, as well as a broad capacity for dialogue, demonstrated as a Senator of the Republic representing the State of Rio Grande do Norte”, in a note to the People’s Gazette.

The former senator himself was the rapporteur for bill 1472/2021, authored by PT senator Rogério Carvalho, which provides for the creation of a fuel price stabilization fund in the domestic market, fueled by dividends, royalties and bonuses that the government receives from Petrobras. The legislation, however, stalled in the Chamber of Deputies.

On the other hand, Pires believes that the reencumbrance of taxes scheduled to take effect from March can be extended once more, as occurred at the end of the year, when Bolsonaro’s reenactment would end.

He explains that the government can issue yet another provisional measure to extend the exemption “until the end of the vote on the tax reform promised by the minister [da Fazenda] Fernando Haddad for this first semester, which should change all these taxes.”

Divestment policy is already being changed even before taking office

In addition to the challenge of equating the issue of fuel prices at values ​​acceptable to the market – that is, without putting further pressure on inflation – Prates will have an important decision to take ahead: follow the investment and divestment plan already proposed and approved by the Board of Directors or change parts according to the interests of the government.

The second option is already being taken even before he takes office, with the withdrawal of selling the fertilizer factories that Petrobras owns in Brazil. The state-owned company’s strategic plan from 2023 to 2027 established the full exit from the “participation in the fertilizer business”, which was changed with the withdrawal of the sale of the Araucária (PR) and Três Lagoas (MS) plants, in addition to the construction of other three in the country according to Minister Carlos Fávaro, of Agriculture, Livestock and Supply.

Felipe Kury explains that this will be a very sensitive challenge to be faced by Prates and by the federal government itself. For him, any change beyond what had been planned “will be priced by the market”.

The vision is similar to that of Adriano Pires, who says it is natural for the new president, directors and members of the Board to change what was planned and approved by the previous management. “From what we are seeing in the speech, Petrobras is going to change this plan to put money in fertilizers, as already announced, and also in the generation of offshore wind energy. For this, he will have to be careful, analyzing issues such as the rate of risk and economic return. The world is different now, different from what it was in previous PT governments”, he analyzes.

The change in the divestment of the fertilizer area to reduce dependence on the external market brings back the ghost of investing in more robust assets, such as the refineries proposed during the Dilma government that caused a hole in public accounts. Premium 1, in Maranhão, and Premium 2, in Ceará, generated a loss of BRL 2.7 billion and did not get off the ground, while Abreu e Lima, in Pernambuco, cost seven more than expected, according to an analysis by the Getúlio Foundation Vargas, and was later offered for sale.

Negotiations, however, did not go ahead, and Petrobras itself changed the view it had and today classifies it as the “most modern refinery” built. “Petrobras’ strategic plan foresees BRL 9 billion in investments for refining, including the expansion and adaptation of existing refineries for new products, such as S10 diesel. [menos poluente]but without actually building new plants. [Se decidir construir] the market will price it, because investment in refineries is high, time-consuming, and the sector is migrating from that, it would be a setback”, says the former director of the ANP.

According to him, there is this doubt due to the need that Brazil still has to import diesel and LPG (cooking gas), and that can begin to be supplied by works already planned in existing refineries in Paraná, Rio Grande do Sul, São Paulo, Rio de Janeiro, Minas Gerais and Pernambuco.

“Currently, 20 to 25% of all diesel consumed in Brazil is imported, therefore, for the government to change the price issue, a change must first be made in that sense, and I do not believe this is a priority. If it were, to make these changes, it would take time, and that should not happen now”, explains Antônio Wrobleski, specialist in logistics and president of the Board of Directors of BBM Logística.

He recalls that the agreement made in 2019 with the Administrative Council for Economic Defense (Cade), for disinvestment in less priority areas, was made for the state-owned company to prioritize sectors that private companies could have difficulty in operating. It was when some assets such as BR Distribuidora and Gaspetro, in addition to fields with low operating capacity, were auctioned.

On the other hand, investments in oil and gas exploration in the Southeast basins and on the Equatorial Margin should not be altered, and will go hand in hand with the energy transition and decarbonization plans for the chain, following the strategic planning in line with the government’s plans , of a more sustainable economy.