Petrobras investors tank shares as Lula makes populist strategy shift
BRAZILIAN President Luiz Inacio Lula da Silva has pledged to steer the state-controlled oil giant Petroleo Brasileiro (Petrobras) in a more populist direction, and investors are not happy.
Petrobras will shield consumers from sharp fuel-price swings and increase investments in refining projects to curb fuel imports, as indicated by initial comments from Lula and his economic team. Petrobras fell 11 per cent in New York on Tuesday (Jan 3), as investors gauged just how much the policy shift will erode profits and dividends.
One of Lula’s first executive decisions was to extend a fuel-tax holiday, reversing a move by his finance minister to let the tax breaks expire. Petrobras’ incoming chief executive officer Jean Paul Prates said that the tax break will give Petrobras enough time to review its own pricing policy.
The move raises the spectre of a return to policies that previously drained the oil giant’s account balances. Petrobras spent an estimated US$40 billion in subsidising motor fuels the last time Lula’s Workers’ Party was in power, causing it to become the world’s most indebted oil company. After the party was voted out, aggressive cost cuts and asset sales improved the company’s balance sheet.
Prates supports having the government set a national reference price for petrol and other refined products, which would serve as a guideline for the prices Petrobras charges its customers. While the company is likely to alter its internal formula for setting prices, investors should not be too frightened, he told reporters in Brasilia on Dec 30 after his nomination.
Investors also fear that Lula’s promise to revamp the refining sector – ostensibly to cut down on costly fuel imports – could further drain the company’s coffers, pointing to Mexico as a cautionary tale. Petroleos Mexicanos had gone billions of dollars over budget at a new facility that was supposed to improve the nation’s fuel-making capacity.
Petrobras would focus on expanding existing facilities, but investors said that the money would be better spent on producing oil from giant deepwater fields.
Prates will be appointed chief executive officer of Petrobras and a member of its board, the Energy Ministry said on Tuesday. Financial services company Itau expects Petrobras to finish electing a new board by the end of February. BLOOMBERG
Share with us your feedback on BT's products and services
