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Brazil Energy Minister Sachsida submits request to privatize Petrobras, PPSA

Adolfo Sachsida, Brazil’s new Mines and Energy Minister, fulfilled his controversial pledge to push for the privatization of state-led oil company Petrobras and government subsalt management company Pre-Sal Petroleo SA, or PPSA, submitting May 12 a request to Economy Minister Paulo Guedes to start studies aimed at selling the government’s stake in both companies.

“I hope that in the shortest time possible, a resolution will be ready for President Jair Bolsonaro to sign,” Sachsida said after meeting Guedes at the Economy Ministry.

Sachsida held key roles at the ministry under Guedes and has been an important voice in the government’s recent wave of privatizations. “We are going to liberate the Brazilian people from monopolies.”

The privatizations represent a shift in the Bolsonaro administration’s strategy to rein in inflation in Latin America’s largest economy, including repeated promises to wash his hands off the company’s policies.

Bolsonaro, who has been blamed by many Brazilians for elevated fuel prices in recent opinion polls, has often said that if he is powerless to influence Petrobras’ policies but has to take responsibility for them, he would rather sell off the company.

Petrobras is required to maintain import-price parity, first implemented in 2016 after years of government meddling, through a November 2019 agreement with antitrust regulators.

Fuel prices have become an important theme in the run-up to Brazil’s presidential elections in October. Bolsonaro faces a tough re-election fight against former president Luiz Inacio Lula da Silva, or Lula, and currently trails by double-digits in early campaign polls.

The row over fuel prices led Bolsonaro to shake up management across Brazil’s energy industry, including relieving former minister Bento Albuquerque of his duties on May 10.

In addition, Bolsonaro swapped out top management at Petrobras for the second time in less than a year in April, installing Jose Mauro as CEO.

Santos ULSD import parity prices averaged $189.05/b in April, up from $78.81/b in April 2021, according to Platts assessments from S&P Global Commodity Insights.

Mauro, however, has pledged to maintain fuel prices at the refinery gate at import parity, including an 8.9% increase to diesel prices that went into effect May 10.
The price hike followed the company’s first-quarter earnings release, which featured a record net profit for the quarter.
Bolsonaro, Lula and other politicians blasted Petrobras for the profits, saying that the company was abusing the Brazilian people. The sharp criticism came despite about $9.5 billion in dividend payments to be paid in 2022, with about 30% of the total headed for government coffers. Brazil is Petrobras’ leading shareholder and controls the company’s board.

The latest moves also appeared to be an attempt to appease independent truckers, a key support group for Bolsonaro. Truckers have held a series of strikes to protest Petrobras’ pricing policy, including three attempts at walkouts in 2021 that failed due to little public support. A new strike has been called for May 21.

Bolsonaro is wary of the movement after a brutal walkout in May 2018 left many of the country’s main cities with temporary shortages of food, fuel and medicines. Bolsonaro supported truckers during the strike, and many voted for him during elections later that year.

Old, and controversial, issue

Privatizing Petrobras, however, may face resistance from lawmakers and is unlikely to garner much public support, according to a local opinion poll.

Petrobras is seen as a symbol of national pride, created in 1953 under the much-repeated rallying cry that “The Oil is Ours!” Many politicians, including Bolsonaro, have cited the slogan during political campaigns.

Several congressional officials and presidential candidates, including Lula, have said they oppose the privatization. A local opinion poll from early April indicated 50% of Brazilians think the government should maintain control of the company.

The proposal also is unlikely to progress much in 2022 due to a shorter legislative calendar linked to the election cycle. Lawsuits could also likely tie up efforts in Brazil’s court system for years.

Congress shuts down for recess in by early July until after the October elections, and not much is expected to happen until the new group is seated in January.

Previous attempts, including several dating to the late 1980s and early 1990s, failed to advance. A 1997 oil law, however, ended Petrobras’ monopoly over oil and natural gas exploration and production, including a sale of shares that were listed on Sao Paulo’s B3 stock exchange and American depositary receipts listed on the New York Stock Exchange.

Petrobras also remains the dominant player in many segments of Brazil’s energy industry and is the country’s leading oil and gas producer.

PPSA, meanwhile, may face less opposition to privatization and need fewer legislative changes to complete. The umbrella company was created in 2010 under the country’s production sharing regulatory regime.

PPSA represents the government in production sharing, unitization and co-participation contracts, where it has been lauded for creating contract models and quickly adapting terms to market conditions that have accelerated the process and unlocked development of important subsalt deposits.

PPSA also is tasked with selling the government’s share of profit oil from production sharing contracts.
Source: Platts

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