How Petrobras became the central theme of the elections

With soaring fuel prices weighing on Brazilians’ pockets, the future of Petrobras has returned to the center of the electoral debate, repeating 2018, when the Lava Jato operation shed light on corruption in the state-owned company.

This time, while President Jair Bolsonaro (PL) is hurriedly trying to get off the ground a series of measures to contain the rising cost of cooking gas, gasoline and diesel ahead of the October election, his main opponents are reinforcing the artillery against the how the state-owned company has been managed in its government.

At the center of the electoral debate is the company’s pricing policy, which since the Michel Temer government (2016-2018) has aligned the price charged for fuel in Brazil with international market prices. The problem is that these values ​​have risen a lot with the global economic recovery after the most critical phase of the Covid-19 pandemic and the invasion of Ukraine by Russia, important producers.

As a result, the prices of gasoline and bottled gas have risen by almost 30% on average in Brazil in the last year, according to the IPCA, the main price index of the IBGE (Brazilian Institute of Geography and Statistics). Diesel, on the other hand, became 52% more expensive in the same period and the average price practiced in the country is close to R$ 7.00 per liter, according to a survey by the ANP (National Petroleum Agency).

As much of the country’s freight and urban transport is powered by diesel, its increase also puts pressure on the inflation of other essential items in the population’s life, such as food and bus fares.

Research leaders want intervention

Supporters of aligning the state’s prices with international quotations say that this maximizes the company’s profits, favoring more investments and the return of resources to the public coffers through taxes and dividends paid by the state-owned company. They also allege that the price control practiced in the PT governments, added to deviations due to corruption and wrong decisions (such as poorly managed investments in refineries), would have “broke” Petrobras.

Critics of the alignment of prices to the foreign market say that it serves the interests of the financial market (minority shareholders of the company) to the detriment of the pockets of most Brazilians. They also argue that the amounts charged to Petrobras must be in line with the state-owned company’s domestic production costs, which are lower than the international value of oil.

Former president Luiz Inácio Lula da Silva (PT), who is now handily leading the polls for the presidential election, argues that the state-owned company should once again control fuel prices and increase investments in refineries, to reduce the need for imports. Ciro Gomes, the PDT pre-candidate who appears third in the polls, behind Bolsonaro, also proposes these changes.

Bolsonaro was elected in 2018 with the promise of a very liberal economic agenda, represented by the Minister of Economy Paulo Guedes, who defends the alignment of prices with the foreign market. However, since the first year of government, when the fuels sold by the state-owned company already suffered unpopular readjustments, he began to pressure the company to hold the increases – and now acts openly for intervention in prices.

Bolsonaro also started to defend the privatization of the company. The government’s argument is that this would increase competition in the sector, favoring lower prices. According to a note from the Ministry of Mines and Energy at the end of May about the intention to “destatize” the company, this “process is fundamental for attracting investments to the country and for the creation of a plural, dynamic and competitive market, which will promote efficiency gains in the energy sector and a vigorous generation of jobs for Brazilians”.

Critics of the proposal say that selling the state-owned company would actually keep prices tied to the international market. They also argue that the company is strategic for the country and therefore must remain under state control. Lula and Ciro are against the measure.

Bolsonaro himself has already acknowledged, however, that the sale of Petrobras would be a “very difficult” process, which would take years.

Faced with this, he tries to get around the problem of high prices by changing the company’s command. The arm wrestling with the state-owned company led to the first change of president in February 2021, with the resignation of economist Roberto Castello Branco. In his place, General Joaquim Silva e Luna took over, but he ended up being fired for the same reason in March of that year, when the rise in international prices worsened with the invasion of Ukraine by Russia.

Now, with less than two months in office, Luna’s replacement, engineer José Mauro Coelho, resigned last week after Bolsonaro and the mayor, Arthur Lira, defended a CPI (Parliamentary Commission of Inquiry) to investigate the command. of the state.

Bolsonaro’s new nominee is publicist Caio Mario Paes de Andrade, who was part of Guedes’ team, but his name still needs to be confirmed by the company’s Board of Directors.

In parallel with the change of directors to try to stop further increases until October, Bolsonaro is studying mitigating the increase in fuel with more social benefits, such as the creation of direct aid to self-employed truck drivers in the amount of R$ 1,000, the expansion of aid for the purchase of cooking gas for poorer families and the temporary increase in the value of Auxílio Brasil from R$400 to R$600.

According to a report by the newspaper O Globo, these new social expenditures would cost around R$ 30 billion and should replace the cut in the ICMS (state tax) on diesel oil, which was announced by the government. The measures, however, collide with electoral legislation, which prohibits the creation of new social benefits before the election, precisely to prevent the government from using the public machine in its favor in the elections. The government wants Congress to approve a state of emergency in the country due to the increase in fuel prices, so that the electoral restriction can be circumvented, but the measure is the subject of legal controversy and may be barred in the Judiciary.

Polls show voters worried about inflation

For Rafael Cortez, political scientist and partner at the consultancy Tendências, the movement of the Bolsonaro government reflects the increase in voter concern about inflation, revealed in different polls.

In a survey carried out in May by Ipespe, the rise in prices was identified as the most important issue to be addressed by the next president by 23% of respondents, ranking first on the list of concerns alongside education. In November 2021, education alone led as the most important topic (30%) and inflation was cited by 15% of respondents.

Another survey by Ipespe in May also showed that 45% of the population rated Bolsonaro as being very responsible for the increase in fuel prices and 25% as not being very responsible. The PT governments (Lula and Dilma Rousseff) are seen as very responsible for 37% and little responsible for 23%.

A Datafolha poll from the same month also revealed that three out of ten voters say they can change their vote if inflation continues to rise until the October race.

In Cortez’s view, Petrobras would already stand out in this year’s electoral clash for the privatization and corruption debates – the latter as a theme “to help President Lula’s rivals”, due to the scandal investigated by the Lava Jato operation in the PT government of Dilma Rousseff.

“And now it should have an even more privileged space due to the inflationary debate, a debate that is very focused on fuel prices. Even with the strong rise in food prices, the fuel issue is what generates the most political noise, because gasoline directly impacts higher income people who also have more voice in the debate”, he points out.

For Cortez, the inflationary issue brings the Petrobras issue into a more difficult field for Bolsonaro.

“The economic debate has become almost synonymous with inflation, and there is no prospect of reversal (before the election). Prices will not fall. At best, they will rise with less intensity”, he analyzes.

“So, the economy will not generate political dividends for reelection. What the president can eventually achieve is to minimize this perception that he is responsible for this scenario, but it seems unlikely to me that he will be successful in this process to the point of becoming favorite in the 2022 dispute”, he adds.

What can happen after the election?

With the most competitive candidates advocating the end of international parity, the most likely scenario today is that the next government will seek a new pricing policy. However, industry experts see factors that can make control difficult.

Former ANP director David Zylbersztajn says that to control prices the government would have to take Petrobras private. Today, he points out, the company is subject to market rules and the supervision of regulatory bodies in Brazil and the United States, such as the CVM (Securities and Exchange Commission) and the SEC (Securities and Exchange Commission).

“With almost 800 thousand shareholders that the company has, (these shareholders) will no longer accept what happened in the past. The government controls the management of Petrobras, but it is subject to the CVM, to the American SEC. company, directors can be prosecuted”, emphasizes Zylbersztajn.

UFRJ professor, energy specialist Adílson de Oliveira, on the other hand, defends an intermediate solution: to smooth the rise in prices, but preserve the company’s profitability. For him, prices could follow Petrobras’ internal production costs and a percentage of international variations.

“The current scenario [de alta constante dos combustíveis] is unsustainable, paralyzes the economy and creates social conflicts”, he says.

He points out, however, that the problem requires structuring, long-term solutions, which also involve increasing fuel refining in the country, with the construction of new refineries. Today, Petrobras is reducing investments in the sector and focusing on oil extraction, which offers greater returns. For Oliveira, the government needs to create a strategic plan that encourages private investment in refineries.

“The idea of ​​reducing Petrobras’ monopoly power is also a good idea, but it cannot be achieved in the short term. These are all ideas that require long planning, a long period of execution. It is not a project for just one government” , analyze.

This text was originally published here.