Brazil-Related News
Brazil's Petrobras: Self-Reliant or Pliant?
Published: 04/21/2006 – ME –US
THE WALL STREET JOURNAL – EUA – AUTO-SUFICIÊNCIA EM PETRÓLEO
As Da Silva Celebrates Energy Milestone, Critics
Rip Company's Politicization and Practices
By GERALDO SAMOR
RIO DE JANEIRO -- President Luiz Inácio Lula da Silva is scheduled today to visit an offshore oil rig for an elaborate ceremony to commemorate Brazil having finally achieved its decades-long goal of self-sufficiency on the oil front.
But even as Mr. da Silva reaps the benefits of previous administrations' policies to promote deepwater oil exploration and greater use of ethanol as a gasoline substitute in automobiles, some analysts worry that his government's interventionist policies are spoiling a winning energy formula.
They say pricing, contracting and personnel policies at the state-controlled oil company, Petroleo Brasileiro SA, or Petrobras, have become increasingly politicized under Mr. da Silva. And that could erode the competitive edge that allowed Petrobras to greatly increase oil production during the 1990s.
"Petrobras management is not fully geared toward results," said Regis Abreu, a portfolio manager at Mercatto Gestão de Recursos, an asset-management firm here. "Decisions are not driven only by technical considerations, and often have a political slant." Despite that, Mr. Abreu, whose fund owns Petrobras shares, says the company is "very efficient and very cheap, compared to peers."
Like almost every oil company, Petrobras, which has 55.7% of voting shares in government hands, is making money hand over fist amid high prices. Profits were up 40% last year to a record 23.7 billion reals, some $11 billion at current exchange rates. Petrobras's nonvoting shares, the company's most widely held class of stock, have soared nearly sevenfold in dollar terms in the past three years, making Petrobras Latin America's largest publicly traded company with a market value of $96.9 billion as of yesterday. By comparison, Chevron Corp. of San Ramon, Calif., is valued at about $130 billion.
Petrobras is spending millions of dollars in advertising to tout the nation's self-sufficiency. The company this year will produce an average 1.9 million barrels a day, which slightly surpasses Brazil's expected consumption level for this year of 1.85 million barrels a day. And as he girds for a re-election bid in October, Mr. da Silva is only too happy to identify himself with this achievement.
But today's self-sufficiency has roots that precede Mr. da Silva's administration by many decades. Brazil started using sugar-cane ethanol as fuel on a large scale back in the 1980s, and buses and taxicabs have recently adopted natural gas. As a result, demand for oil byproducts remains at 1999 levels. On the output front, much of Petrobras's recent growth has to do with policies implemented by Mr. da Silva's predecessor and political foe, Fernando Henrique Cardoso.
Mr. Cardoso woke up a sleepy state monopoly, once nicknamed "Petrosaurus," by pushing through a constitutional amendment that paved the way for foreign companies to compete against Petrobras. He also installed investment bankers at the helm of the company, which became leaner and more agile. Bolstered by deepwater drilling, oil output grew at an average 12% a year between 1997 and 2002, the last year of Mr. Cardoso's administration; in the first three years of Mr. da Silva, output is up an average of 5% a year, according to the Brazilian Center for Infrastructure, an energy-consulting firm here.
After having been nudged by Mr. Cardoso to operate more like a private-sector company, Petrobras is being used to further broader economic and political ends under Mr. da Silva, analysts say. For instance, Petrobras has delayed passing on higher global gas prices to consumers. While Petrobras makes monthly readjustments in prices of aviation fuel and petrochemical naphtha -- oil byproducts used by industrial customers -- it waits several months before boosting the prices of gasoline, diesel oil and cooking gas. Those latter products are more politically sensitive, because price rises make for bad headlines.
Petrobras officials say that the company's pricing policy helps to avoid excessive fluctuations, and that this approach hasn't stood in the way of its boosting production and posting record profits.
While benchmark Gulf of Mexico gasoline prices have risen threefold since Mr. da Silva took office in January 2003, Petrobras has raised gasoline prices by twofold, notes Rafael Schechtman, a director at the Center for Infrastructure. The company is "missing opportunities to cash in at a time oil prices are high," says Mr. Schechtman, who calculates Petrobras has foregone revenues of 7.8 billion reals by limiting prices in the period. The price Petrobras charges for cooking gas, a big budget item for the poor, is 30% below international prices, and it hasn't been raised since December 2002 -- the month before Mr. da Silva took office.
Mr. da Silva has also pushed Petrobras to buy from local suppliers, even when their prices aren't as competitive as foreigners'. One of Mr. da Silva's campaign pledges four years ago was to give preference to Brazilian shipyards over Asian ones for Petrobras orders. A top Petrobras executive recently said the company is "willing to pay a little more than international prices" for the first of 26 new oil tankers it is about to order. But even company officials said they were taken aback when local companies submitted bids that were 40% above international prices.
Petrobras says it is now trying to negotiate lower prices. It also notes that the runup in oil prices has created a backlog at Asian shipyards, so the company looked to domestic manufacturers as an alternative. "Even if in this initial phase the prices charged are higher than international prices, Petrobras hopes the modernization of Brazilian shipyards will allow competitive prices in the medium and long term," the company said in a statement.
Oil-industry professionals also note that the main criterion for senior management appointments has been affiliation with Mr. da Silva's leftist Workers Party, known as the PT. Petrobras's first chief executive officer under Mr. da Silva, José Eduardo Dutra, was a PT politician who got the job after losing a gubernatorial race. He was later succeeded by the company's chief financial officer, José Gabrielli, a professor with no previous executive experience and an early member of the PT in his home state of Bahia. In the key area of exploration and production, the party brought back from retirement Guilherme Estrella, a member of the PT's directorate in a small town near Rio.
Petrobras says that all but two of its top executives have made their careers at the company. It pointed out that Mr. Gabrielli has a Ph.D. in economics from Boston University, and that, on his watch, Petrobras has posted record profits.
The da Silva government has also done little to encourage foreign competition against Petrobras. Although Brazilian law allows outsiders to compete against Petrobras in oil exploration, the push to open up the industry lost momentum as local units of foreign companies either found it difficult to import gasoline or decided it was in their best interest not to pick a fight with Petrobras, which they want to have as a partner. The national petroleum agency, which regulates the sector, failed to establish clear rules to allow access to Petrobras's pipelines and ports, analysts say.
Write to Geraldo Samor at
