RIO DE JANEIRO (Reuters) – Brazilian President Jair Bolsonaro has decided to replace the head of state oil company Petrobras, appointing a retired Army general with no experience in oil and gas as CEO after weeks of clashes with the current chief executive over price increases fuels.
In a statement on Friday from the Ministry of Mines and Energy, shared for the first time on Bolsonaro’s Facebook page, the government said it decided to appoint former Defense Minister Joaquim Silva e Luna to head Petróleo Brasileiro SA, as the company is formally known.
Current CEO Roberto Castello Branco, supported by investors for his efforts to sell underperforming assets and cut debt, would be Petrobras’ second leader in three years to fall into the political consequences of fuel prices. In 2018, then CEO Pedro Parente resigned when the government forced a reduction in fuel prices in a concession to striking truckers.
Parente promised to fix domestic prices in line with global markets, breaking with a policy that forced Petrobras to sell fuels below international parity, generating losses of around US $ 40 billion from 2011 to 2014.
Likewise, Bolsonaro became involved with Castello Branco because of his insistence on increasing prices for diesel and other fuels as the Brazilian currency weakened and global oil prices increased. Petrobras’ ADRs traded in New York fell 8.9% in Friday’s trading session, adding to the day’s almost 7% drop in its preferred shares listed in Brazil.
Petrobras has been raising fuel prices since a Reuters report on February 5 released details of the company’s pricing policy, prompting analysts to downgrade its stock on concerns of possible political interference.
Castello Branco’s resignation may force a broader change at Petrobras, which has turned to policies that are more favorable to the market and less politically oriented in recent years.
The company’s top management is considering resigning en masse to protest the replacement of the CEO, three people close to the executives told Reuters late on Friday.
Petrobras said in a statement that it had received notification from the Ministry of Mines and Energy about the proposed CEO change, adding that the ministry had requested an extraordinary general meeting.
The company’s board of directors is expected to meet on Tuesday at a regularly scheduled session.
Most of the council has so far been loyal to Castello Branco, although the majority is nominated by the government, which could create a complicated transition.
Castello Branco, whose current term officially expires on March 20, was appointed to head Petrobras when Bolsonaro took office in early 2019.
An economist with a degree from the University of Chicago and an ally of Economy Minister Paulo Guedes, he is a strong supporter of free market policies and has already rejected the president’s complaints about prices.
But investors have been concerned about possible political interference since the oil producer confirmed that it had been selling fuel in Brazil below international prices for longer periods than previously released, confirming a Reuters report.
The possible shake-up in top management also calls into question one of the CEO’s main goals: to end Petrobras’ quasi-monopoly on refining in Brazil, said three sources close to bidders.
Silva and Luna, who received frequent praise from Bolsonaro for his management of the huge Itaipu hydroelectric plant in Brazil, on the border with Paraguay and Argentina since 2019, is little known to investors.
He would be the third military figure to hold a key position in the energy sector: the chairman of Petrobras’ board and the country’s minister of Mines and Energy are admirals.
In April 2019, a few months after Bolsonaro’s inauguration, the president demanded explanations for Petrobras’ rise, which was quickly reversed. After the company’s stock plummeted, Petrobras and the government assured investors that there would be no political interference in fuel prices.
Tensions eased last year as oil prices fell, but truck drivers have renewed their complaints in recent months.
During an announcement on Thursday night about reducing fuel taxes, Bolsonaro made clear his dissatisfaction with Castello Branco, saying that there would be changes at Petrobras “in the next few days”.
Analysts and investors were shaken by the rapid succession of events on Thursday and Friday.
“It is a delicate situation and it happened in such a disorganized way,” said Edmar de Almeida, a specialist professor in energy at the Federal University of Rio de Janeiro.
Petrobras will turn 67 in 2021 and will have its 39th CEO – or about one boss every 18 months, said UBS analyst Luiz Carvalho.
The company’s problems will persist as long as its controlling shareholder – the government – does not understand that the problem is not with company executives, but with the lack of a coherent strategy from above, he said.
“While the world is moving towards an energy transition with a cleaner energy matrix, in Brazil we are discussing subsidies for diesel consumers,” said Carvalho.
Reporting by Rodrigo Viga Gaier, Gram Slattery and Sabrina Valle; Additional reporting by Marta Nogueira and Gabriel Araujo; Editing by Brad Haynes, Christian Plumb, Daniel Wallis and William Mallard