Petrobras’s Best Solution for Markets May Be Worst for Politicians

(Dow Jones, 23.Jun.2022) — Privatizing Petroleo Brasileiro SA, or Petrobras, is likely the best solution to rid Brazil’s state-owned oil giant of political interference. It is also a longshot, according to analysts.

Petrobras has been stung by turmoil in recent months. Brazilian President Jair Bolsonaro has attacked the company’s fuel-pricing policy, which comes as gasoline and diesel prices soar ahead of the country’s October presidential election, where he trails his likely opponent in polls. Petrobras Chief Executive Officer Jose Mauro Ferreira Coelho on Monday resigned, after about two months in the job, as politicians railed against rising fuel prices.

Some analysts say the best solution to insulate the company from political interference, and to reduce uncertainty over Petrobras’s policy and governance, would be for the state to sell its controlling stake.

“As an investor, you could just look at its business activities in the oil sector, because when the government gets involved, it causes instability for the company and for markets,” said Alessandro Azzoni, an economics professor at Sao Paulo’s Nove de Julho University.

The Rio de Janeiro-based company’s preferred shares are down almost 5% from the start of this year through Wednesday’s close of 26.99 reais, the equivalent of $5.19, and they have dropped about 25% from their highest close this year. If the government were to make the decision to reduce or sell its Petrobras stake, the company and shares could benefit, said Pedro Galdi, an investment analyst at Mirae Asset Corretora.

Mr. Bolsonaro isn’t the first Brazilian president to try to keep fuel-price inflation low to protect approval ratings. Between 2011 and 2014, while Dilma Rousseff was president of Brazil, her government forced Petrobras to subsidize fuel prices, costing the company billions of dollars.

After Ms. Rousseff was impeached and removed from office in 2016, her successor oversaw a change in Petrobras’s governing statutes preventing direct government interference in the company’s price policy. Mr. Bolsonaro was elected in 2018 on a platform that included a plan to sell off state assets, and the government earlier this month completed the sale for power company Centrais Eletricas Brasileiras SA, or Eletrobras.

The history of privatizations in Brazil shows that ending state control of companies is better for the business, for shareholders and, by boosting tax revenue, for the government and for Brazilians, Mr. Galdi said. But it probably wouldn’t be a popular move with Petrobras.

“It wouldn’t be impossible to privatize, but it would be complicated from a political point of view,” he said. “It would be better for the company, for everyone, but Petrobras has a lot of political importance.”

Privatizing the company before the election is likely not doable, analysts say, and should Mr. Bolsonaro’s likely opponent, left-wing former President Luiz Inacio Lula da Silva, win, it almost certainly won’t happen.

Apart from the billions of reais the company contributes annually to the federal budget as dividends, many Brazilians view the oil producer with pride and oppose its sale, especially Mr. da Silva’s political base, Mr. Galdi said. According to a May opinion poll, 49% of the population is against privatization, with 38% in favor.

Selling the crown jewel in the state’s portfolio would be difficult for any government, according to Daniel Jose Oliveira, an economist and a deputy in the state of Sao Paulo’s legislature. An administration that tries to do so will have to do a lot of work to prepare the ground by educating the public about the benefits, and the timing of the process would also be important, he said.

“Privatization was never popular, and it would be hard for it to be. But if the government does it right, early in its term in office when there’s less electoral politics involved, it could happen and it would be best for the company,” Mr. Oliveira said.

By Jeffrey T. Lewis