RIO DE JANEIRO (Reuters) – Brazilian President Jair Bolsonaro has replaced the head of state-owned oil company Petrobras, appointing a retired army general without oil and gas experience as chief executive after weeks of clashes with the current chief executive over fuel price increases.
In a statement late Friday from the Ministry of Mines and Energy, first shared on Bolsonaro’s Facebook page, the government decided to appoint former Defense Minister Joaquim Silva e Luna to replace Petroleo Brasileiro To manage SA, as the firm is formally known.
Current CEO Roberto Castello Branco, backed by investors for his efforts to sell underperforming assets and cut debt, would be the second Petrobras leader in three years to fall due to the political consequences of fuel prices. In 2018, Pedro Parente, then CEO, resigned when the government forced fuel prices lower in a concession to striking truck drivers.
Parente promised to bring domestic prices in line with world markets, which violated a policy that allowed Petrobras to sell fuel under international parity, which lost about $ 40 billion from 2011 to 2014.
Similarly, Bolsonaro quarreled with Castello Branco over its insistence on raising prices for diesel and other fuels as the Brazilian currency weakened and global crude prices rose. ADRs in Petrobras, which traded in New York, traded 8.9% in the after-hours trade on Friday, noting the drop of nearly 7% in its preference shares in Brazil.
Petrobras has been raising fuel prices since a Reuters report was released on February 5 on the company’s pricing policy, prompting analysts to downgrade its shares over concerns about possible political interference.
The abolition of Castello Branco could force a broader upheaval at Petrobras, which has led to more market-friendly and less politically driven policies in recent years.
The company’s management is considering resigning en masse to replace the CEO, three people close to the executives told Reuters on Friday night.
Petrobras said in a statement that the Ministry of Mines and Energy had taken note of the proposed change of CEO, adding that the ministry had requested an extraordinary shareholders’ meeting.
The company’s board meets in a regular session on Tuesday.
Most of the boards have so far been loyal to Castello Branco, although the majority have been appointed by the government, which could create a messy transition.
Castello Branco, whose current mandate officially expires on March 20, was appointed leader of Petrobras when Bolsonaro took office in early 2019.
He is a trained economist and ally of Economy Minister Paulo Guedes, and is a strong supporter of free market policy and has previously dismissed the president’s complaints about prices.
However, investors have been upset about possible political interference since the oil producer confirmed that it had been selling fuel in Brazil for longer periods than previously announced, at international prices, according to a Reuters report.
The possible upheaval of senior management also casts doubt on one of the CEO’s main goals: ending Petrobras’ almost monopolistic refinement in Brazil, three of the closest bidders said.
Silva e Luna, who has regularly received praise from Bolsonaro for his management of Brazil’s massive Itaipu hydroelectric dam since 2019, is little known to investors.
He would be the third military figure to hold an important energy post: the president of the Petrobras council and the minister of mining and energy are both admirals.
In April 2019, a few months after Bolsonaro took office, the president asked for explanations for the price increase of Petrobras, which was quickly reversed. After the company’s shares tumbled, Petrobras and the government assured investors that there would be no political interference in the price of fuel.
Tensions eased last year as crude prices tumbled, but truck drivers have renewed their complaints in recent months.
During a late Thursday announcement about lower fuel taxes, Bolsonaro made clear his dissatisfaction with Castello Branco and said that there would be a change ‘in the coming days’ at Petrobras. ‘
Analysts and investors are worried about the rapid sequence of events on Thursday and Friday.
“It’s a delicate situation and it’s happening in such a disorganized way,” said Edmar de Almeida, a professor of energy at the Federal University of Rio de Janeiro.
Petrobras will complete 67 years in 2021 and have its 39th CEO – or about one head every 18 months, said Luiz Carvalho, an analyst at UBS.
The company’s issues will continue as long as its controlling shareholder – the government – does not understand that the problem is not with the company’s executives, but with the lack of a coherent strategy from above.
“As the world moves towards an energy transition with a cleaner energy mix, we are discussing subsidies for diesel consumers in Brazil,” Carvalho said.
Reporting by Rodrigo Viga Gaier, Gram Slattery and Sabrina Valle; Additional reporting by Marta Nogueira and Gabriel Araujo; Edited by Brad Haynes, Christian Plumb, Daniel Wallis and William Mallard