Lula's Ambitions for Petrobras Hemmed in by New Rules

© Giampaolo / Adobe Stock
© Giampaolo / Adobe Stock

Brazilian President Luiz Inacio Lula da Silva may soon discover that swapping the CEO of Petrobras PETR4.SA is not enough to turn the state-run oil company into the engine for job creation and development it was during his first 2002-2010 terms.

Lula last week tasked incoming CEO Magda Chambriard with speeding up investments in shipyards, fertilizer plants, refineries and natural gas lines to boost the Brazilian economy, according to sources familiar with their talks.

In her first public statement since appointed as CEO, Chambriard said in a post on LinkedIn on Monday that she was committed to the "continuing growth of our industry."

There are, however, factors far beyond her willpower that could slow things down, the sources said.

After a major corruption scandal revealed in 2014 by a probe known as Operation Car Wash, reformers set up internal and external checks and balances on business decisions at Petrobras.

Those new processes "somewhat lessen" the power of the government, the firm's controlling shareholder, to steer corporate policy as it likes, said Florival Carvalho, former director of Brazilian oil and gas regulatory agency ANP.

New governance mechanisms make it harder to approve projects at Petrobras that are not clearly profitable, for instance, or to sell fuel at a loss to tamp down inflation – both common practices when Lula's Workers Party was last in charge.

"The current laws and Petrobras bylaws in place would make it challenging for a new management to meaningfully change the capital allocation and fuel pricing policies," Goldman Sachs analysts told clients in a note after the CEO swap last week.

"It will be important for investors to monitor if any aspect of governance will be changed," the analysts added.

Increased public-sector oversight by independent organs may also weigh on Chambriard's efforts to speed up a $102 billion investment plan for the 2024-2028 period.

For one thing, she could meet resistance from Brazil's federal audit court (TCU), which has the power to probe public-sector business including Petrobras contracts.

The TCU intervened this year when Petrobras tried to keep two private-sector fertilizer plants operating in Brazil. Unions lobbied the government to help keep the lines running, but the court warned it could trigger losses for the company of up to 487 million reais ($95 million) in eight months.

"In general, the TCU and Petrobras have been at odds, fighting, for a long time," said Jose Augusto Dias de Castro, a partner at TozziniFreire Advogados, a law firm in Brazil.

"One of (Chambriard's) big challenges will be to handle diplomacy with the TCU," he added. "It could become a problem if the TCU decides to put all contracts under a microscope."

The new CEO's ambitions could also face headwinds from Brazilian environmental agency Ibama, which has independent licensing authority.

Petrobras has been slow to get licenses from Ibama for exploring its top offshore prospects along Brazil's northern coast, in a region called the Equatorial Margin.

One promising basin, Foz de Amazonas, near the mouth of the Amazon River, has been especially tricky, with Ibama demanding studies on the impact of drilling on Indigenous communities before deciding whether to issue a license.

Petrobras has refused to carry out the studies, but it may have little choice if it wants to proceed with licensing, said former Ibama chief Suely Araujo, now public policy coordinator at Brazilian advocacy group Climate Observatory.

"The final word belongs to the president of Ibama, with no possibility of appeal to the environment minister – or any minister, not even to the president," said Araujo.

If Lula tried to push Environment Minister Marina Silva to defang Ibama, it could hurt his standing abroad and risk a blowup with Silva, a respected environmentalist, said Delcio Rodrigues, CEO at non-profit Instituto Climainfo.

"He is using Marina's international prestige ... as one of the foundations of his foreign policy," Rodrigues said.


($1 = 5.1055 reais)

(Reuters - Reporting by Fabio Teixeira and Marta Nogueira; Editing by Marguerita Choy)

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