Analysis. Petrobras will remain at the center of Brazilian economics and politics, especially now that Lula is back on the scene.

Bolsonaro’s shakeup at Petrobras raises the prospect of further privatizations

The pandemic has not halted the maneuvers around Petrobras, the largest company in Latin America and an emblem of Brazilian nationalism. In recent years, important games have been played on the oil field which, amidst successes and scandals, have changed the political equilibrium of Brazil.

At the end of February this year, it was Bolsonaro who took the initiative, appointing former army general Joaquim Silva and Luna to the top of the company, replacing Roberto Castello Branco, who was in office since 2019. We’d have to look back to 1989 to find another military man at the helm of the oil company, a legacy of the old regime. The change championed by Bolsonaro took economists and politicians by surprise and came in the aftermath of the announcement of a 10% increase in the price of gasoline and 15% increase in the price of diesel. It would be the fifth hike since the beginning of 2021, with truckers poised to block the country. Bolsonaro, after having declared that he did not want to intervene in the dynamics of the market, accused the management of the oil company of “cowardice” for the increases and for catering to investors rather than Brazilians.

The Bolsonaro initiative produced a 25% collapse in Petrobras shares, that partially recovered in the following days, sparking a discussion on the strategic role of the oil company in the country’s economy and on fuel pricing policies.

The privatization of large publicly owned sectors are the flagship of this government: companies, airports, highways, ports, banks, national parks. There are 115 projects, including concessions and privatizations, which represent the largest dismantling program in the history of the Latin American continent.

Petrobras has never officially entered the list of companies to be privatized, but the share of public capital has progressively reduced since the Temer government. If in 1995 the share held by the state was 75%, at the Temer settlement it was 68%. The coup president put gas stations and part of the pipeline network on the market, reducing the state share to 62.7%. In just over two years, the Bolsonaro government further weakened the oil company, putting 8 of the 13 refineries operating in Brazil on the market, and selling the activities related to the petrochemical sector, with the result of reducing the share held by the state to 50.2%, just enough to control the company. An underground dismantling work.

Now, after justifying privatizations as “a necessity after the mismanagement of left-wing governments,” we are concerned about the loss of consensus that can provoke an unscrupulous policy of dismantling publicly owned companies. There are also large sectors of the armed forces, which are Bolsonaro’s “party” of reference, that hinder the privatization of strategic companies such as Petrobras. Moving forward in the work of dismantling, but doing so judiciously, seems to be the new posture of government. Furthermore, a survey by the Datafolha Institute shows that 65% of Brazilians want public control over the oil company.

After the divestment of numerous assets, Petrobras is essentially engaged in the extraction of crude oil, no longer operating the entire chain from well to pump. Refining takes place in other countries, with the paradox that Brazil must import petrol and diesel, subjecting itself to the dynamics of the international market. During the Lula and Dilma governments, a system of administered prices was put in place and adjustments took into account the internal market and inflation, avoiding strong fluctuations and limiting the impact on the cost of living.

The new extraction techniques have allowed the Brazilian company to reach record levels of production at the beginning of 2020, with 4 million barrels per day and even during this pandemic, production levels remain high. The insatiable demand from Asian refineries drives exports of Brazilian oil which, due to its low sulfur content, lends itself to being refined more easily and economically.

The crude oil comes from the vast submarine fields identified in 2000 which have made Brazil an oil powerhouse. When, in 2007, the Tupi field, also called the Lula field, was identified 250 km off the coast of Rio, the president defined that discovery as “the second independence of Brazil” and Petrobras was seen as an engine for the country’s economic development. That project was abruptly interrupted starting from 2016 by the political-judicial events that overwhelmed Dilma and Lula and paved the way for Bolsonaro.

But Petrobras will continue to be at the center of Brazilian economy and politics, even more so after Lula’s return to the political scene. The role that public enterprises must have, their ability to foster development, but also the degenerations they often face, are issues that will animate the debate in Brazil.

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