RIO DE JANEIRO (Reuters) – Brazilian President Jair Bolsonaro has replaced the head of state oil company Petrobras and named a retired army general with no oil and gas experience as CEO after weeks of clashes with the current CEO over fuel price hikes.
In a statement from the Ministry of Mines and Energy on Friday, first shared 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 formally known.
Current CEO Roberto Castello Branco, backed by investors for his efforts to sell underperforming assets and reduce debt, would be the second Petrobras leader in three years to fall due to the political fallout from fuel prices. In 2018, then-CEO Pedro Parente resigned when the government forced fuel prices to be cut in a concession to truck drivers on strike.
Parente pledged to align domestic prices with global markets, breaking a policy that led Petrobras to sell fuel below international parity, leading to approximately $ 40 billion in losses between 2011 and 2014.
Likewise, Bolsonaro became confused with Castello Branco over his push to raise diesel and other fuel prices as the Brazilian currency weakened and global crude oil prices soared. Petrobras’ ADRs traded in New York fell 8.9% in off-hours trading on Friday, contributing to the close of 7% day-to-day decline of its Brazil-listed preferred stock.
Petrobras has been raising fuel prices since a Reuters report on Feb. 5 revealed details of the company’s pricing policy, which prompted analysts to cut their shares over concerns about possible political interference.
The impeachment of Castello Branco could force a wider shake-up at Petrobras, which in recent years has led to more market-friendly and less politically driven policies.
The company’s senior management is considering resigning en masse in protest at the CEO’s replacement, three people close to executives told Reuters Friday night.
Petrobras said in a statement that it had received notice from the Ministry of Mines and Energy regarding the proposed change of CEO, adding that the ministry had requested an extraordinary shareholders’ meeting.
The company’s board of directors will meet in a regularly scheduled session on Tuesday.
Most of the administration so far has proven loyalty to Castello Branco, although the majority have been appointed by the government, which could cause a messy transition.
Castello Branco, whose current term of office officially expires on March 20, was appointed to lead Petrobras when Bolsonaro took office in early 2019.
As an economist at the University of Chicago and an ally of Economics Secretary Paulo Guedes, he is a strong supporter of free-market policies and has previously dismissed the president’s complaints about prices.
But investors have been nervous about possible political interference since the oil producer confirmed it was selling fuel in Brazil below international prices for longer periods than previously announced, a Reuters report confirms.
The potential shake-up of senior management also casts doubt on one of the CEO’s main goals: to end Petrobras’ near-monopoly on refining in Brazil, three sources close to bidders said.
Silva e Luna, widely praised by Bolsonaro since 2019 for managing Brazil’s massive Itaipu hydroelectric power station on the borders of Paraguay and Argentina, is little known to investors.
He would be the third military figure to hold a major energy post: the chairman of the Petrobras administration and the country’s minister of Mines and Energy are both admirals.
In April 2019, just months after Bolsonaro took office, the president demanded explanations for Petrobras’ price hike, which was quickly reversed. After the company’s stock fell, Petrobras and the government assured investors that there would be no political interference in fuel prices.
Tensions eased last year as crude oil prices plummeted, but truckers have renewed their complaints in recent months.
In a recent announcement on Thursday about lower fuel taxes, Bolsonaro made clear his dissatisfaction with Castello Branco and said changes would take place at Petrobras “in the coming days”.
Analysts and investors were shocked by the rapid sequence 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 complete 67 years in 2021 and will have its 39th CEO – or about one head every 18 months, said UBS analyst Luiz Carvalho.
The company’s problems will continue as long as the controlling shareholder – the government – does not understand that the problem is not with the company’s executives, but in the absence of a coherent top-down strategy, he said.
“As the world moves towards an energy transition with a cleaner energy mix, we are discussing subsidies for diesel consumers in Brazil,” said Carvalho.
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