Government evaluates project to privatize Petrobras through share conversion

Amid the announcement of yet another fuel price adjustment by Petrobras, members of the Jair Bolsonaro (PL) government are working on a draft bill to try to advance the discussion of the company’s privatization.

The assessment among supporters of the measure is that the increases announced by the company are creating a favorable political environment for the issue in the Legislature. Sending the project could also fuel the government’s discourse that it is taking action to solve the problem.

According to government sources heard by the Sheetone of the models analyzed for the operation is the conversion of the company’s preferred shares (prioritized in the distribution of dividends, but without voting rights) into common shares (with voting rights at the shareholders’ meeting).

This transaction alone would be enough to dilute the Union’s stake in the company. With that, the control of the company would pass into the hands of the private initiative.

The draft law says that Petrobras is “authorized to convert all of its preferred shares into common shares, pursuant to corporate law.”

The approval of the National Congress is necessary because the Petroleum Law of 1997 prohibits the government from getting rid of control over Petrobras.

However, there are those who see difficulties in Congress being able to advance on such a controversial issue in an election year. Bolsonaro himself has already publicly admitted that the privatization of the company could take up to four years.

In addition, the first place in the voting intention polls for the Planalto Palace, former president Luiz Inácio Lula da Silva (PT), is against any attempt to privatize Petrobras.

The company was included in the PPI (Investment Partnership Program) by the government in early June, after the new Minister of Mines and Energy, Adolfo Sachsida, promised, in his first speech, to carry out studies for the privatization of the company.

The first announcement was made at a time of strong criticism by Bolsonaro of the company’s pricing policy, a context that is now repeated in the face of the new adjustment applied by the oil company. The rise in fuel prices is seen by the president’s allies as the biggest obstacle to his re-election.

The conversion of shares is considered the main option for the company’s privatization proposal, but there has not yet been a final decision. Other alternatives would be for the Federal Government to sell part of its common shares, or even carry out a capitalization, with the issuance of new shares, as was done in the case of Eletrobras.

Any model will need to be scrutinized by the government’s legal areas and also by the TCU (Union Court of Auditors).

In addition to the bill authorizing the conversion of shares, the measure would also require a change in Petrobras’ bylaws. Both the Petroleum Law and the bylaws provide for the division of the company’s capital stock into common and preferred shares.

Petrobras currently has 13 million shares traded on the market, of which 7.4 million are common and 5.6 million are preferred.

In the case of shares with voting rights, the Union has control, with a 50.26% stake. In the preferred shares, the federal government’s share is smaller, at 18.48% — these shares are in the BNDES (National Bank for Economic and Social Development) portfolio.

As a result, the Federal Government’s share in the company’s total capital is 36.61%, which illustrates the loss of control in the event of a full conversion of shares.

According to one of the sources heard, the bill being drafted by the government should also bring some antidotes so that the operation does not mean a mere exchange of state control for a private monopoly.

The details of these measures are still under discussion among technicians, but the diagnosis is that Petrobras is practically a monopolist in the refining market, harming competition and allowing higher prices for fuel sales.

Although Cade (Administrative Council for Economic Defense) has already acted on the subject, with an agreement in 2019 for the company to dispose of eight refineries, the schedule for the sale of these assets is delayed.

In the midst of discussions on the bill, there is a concern within the government to make it clear to all those involved that this privatization model will not, at first, generate new revenues for the Union.

This apprehension exists because the Minister of Economy, Paulo Guedes, has already expressed on different occasions the desire to use the values ​​obtained from the operation to supply a fund to combat poverty.

The only way for the government to raise funds with privatization would be through the sale of its shares, which, according to people participating in the negotiations, should not be part of the plan at first.

In the future, however, the bet is that the shares of the privatized company will appreciate in relation to current prices, favoring the Union in a possible sale.