Brazil’s Bolsonaro to fire CEO Petrobras after spitting on fuel prices

RIO DE JANEIRO (Reuters) – Brazilian President Jair Bolsonaro has moved to replace oil chief Petrobras, appointing a retired army general with no oil and gas experience as CEO after weeks of clashes with the current chief executive over price increases to fuel.

In a statement late Friday by the Ministry of Mines and Energy, first published on Bolsonaro’s Facebook page, the government said it had decided to appoint former Defense Minister Joaquim Silva e Luna to lead Petroleo Brasileiro SA, as the company is officially known.

Current CEO Roberto Castello Branco, backed by investors for his efforts to sell non-performing assets and reduce debt, would be the second Petrobras leader in three years to fall over the political consequences of fuel prices. In 2018, then-CEO Pedro Parente resigned when the government forced lower fuel prices in a concession for striking trucks.

Parente has promised to set domestic prices in line with global markets, in violation of a policy that has caused Petrobras to sell fuel below international equality, causing losses of about $ 40 billion in 2011-2014.

Similarly, Bolsonaro became entangled with Castello Branco because of his insistence on rising prices for diesel and other fuels, as Brazil’s currency weakened and global crude oil prices rose. Petrobras ADRs traded in New York fell 8.9% on Friday after-hours trading, adding to the nearly 7% drop in preferred shares listed in Brazil.

Petrobras has raised fuel prices since a February 5 Reuters report revealed details of the company’s pricing policy, prompting analysts to downgrade their shares due to concerns about possible political interference.

The dismissal of Castello Branco could force a wider shake-up in Petrobras, which has moved towards more market-friendly and less politically oriented policies in recent years.

The company’s top management plans to resign en masse to protest the CEO’s replacement, three people close to executives said on Friday night.

Petrobras said in a statement that it had received a notification from the Ministry of Mines and Energy about the change proposed by the CEO, adding that the ministry had requested an extraordinary shareholders’ meeting.

The company’s board of directors will meet on Tuesday in a regularly scheduled session.

Most of the board has so far proved loyal to Castello Branco, although most are appointed by the government, which could create a messy transition.

Castello Branco, whose current term officially expires on March 20, was appointed to lead Petrobras when Bolsonaro took office in early 2019.

A trained economist at the University of Chicago and an ally of Economy Minister Paulo Guedes, he is a strong supporter of free market policies and has previously rejected the president’s complaints about prices.

But investors have been nervous about possible political interference since the oil producer confirmed that it has been selling fuel in Brazil below international prices for longer periods than previously revealed, a Reuters report confirmed.

The possible shake-up of senior management also calls into question one of the CEO’s main goals: the near termination of Petrobras’ monopoly on refining in Brazil, three sources close to the bidders said.

Silva and Luna, who has frequently won praise from Bolsonaro for managing the massive Itaipu hydroelectric dam in Brazil on the border with Paraguay and Argentina in 2019, is little known to investors.

He would be the third military figure to hold a key position in the energy field: the chairman of Petrobras’ board of directors and the national minister of mines and energy are both.

In April 2019, just a few months after Bolsonaro took office, the president demanded an explanation for the Petrobras price increase, which was quickly reversed. After the company’s shares collapsed, Petrobras and the government assured investors that there would be no political interference in setting fuel prices.

Tensions eased last year as oil prices fell, but trucks renewed their claims in recent months.

In a late Thursday announcement of lower fuel taxes, Bolsonaro made clear his dissatisfaction with Castello Branco, saying there would be changes at Petrobras “in the coming days.”

Analysts and investors were disturbed by the rapid succession of events on Thursday and Friday.

“It’s a delicate situation and it happened in such a disorganized way,” said Edmar de Almeida, a professor of 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 the company’s directors, but with the lack of a coherent strategy from above, he said.

“As the world moves toward an energy transition with a cleaner energy mix, in Brazil we are discussing subsidies for diesel consumers,” Carvalho said.