Risk of shortages and fear of legalization triggered Petrobras mega-increase

Pressure from Petrobras shareholders for readjustments and the fear of shortages expressed by company members and politicians in the Northeast triggered the state-owned company’s decision to announce a mega-increase in fuel prices.

The readjustment was granted after almost two months without passing on to the pumps the rise in international oil prices.

Members of the state-owned board of directors deny having suffered any type of pressure from shareholders. But sheet found that the collegiate itself warned that Petrobras’ board could be questioned in court by minority shareholders, if the company continued to postpone the readjustments for so long.

With the increase in the cost of inputs, the maintenance of prices would lead to reduced revenues and profits. According to a source linked to the company, Petrobras’ governance structure “was ready to charge” the board for the price gap.

Amec (Association of Capital Market Investors), which represents minority shareholders, even issued a public warning about Petrobras’ delay in readjusting fuel. The letter warned about the possibility of the government and Petrobras being sued.

In the recent past, the company has already been judicially charged by minority shareholders in the United States for the losses with the acts investigated in Operation Lava Jato.

Government members say that President Jair Bolsonaro (PL) was upset with the state-owned company’s decision to announce the adjustment on Thursday, the date of the vote on the project that was the government’s bet to contain prices at pumps. The idea of ​​the Chief Executive was to approve the proposal that would reduce taxes on diesel before the increase was announced.

Bolsonaro wanted to show in advance an answer to the problem that would be created. The government tried to approve the project on Wednesday (9), but the vote ended up being postponed to the next day due to pressure from the governors.

Petrobras is such a large company that the pricing policy for its products –oil derivatives such as gasoline, diesel and gas– can affect inflation because fuels are linked to the production of many consumer items.

After the management of former president Dilma Rousseff (PT), when Petrobras had losses for insuring fuel prices, the company inserted in its bylaws a clause providing that the implementation of policies such as the freezing of readjustments must be compensated by the controlling shareholder – in this case, the government.

With this new framework, the state-owned company also formulated its import parity pricing policy, in effect until today and which is criticized by politicians and even within the government’s economic team.

Under the command of Roberto Castello Branco, appointed by Minister Paulo Guedes (Economy), Petrobras tried to calibrate the frequency of readjustments. Even so, the executive was fired in February 2021, after the company announced the fourth increase in diesel and gasoline prices that year.

Although the decision on pricing and adjustment policy is the responsibility of the executive board (president and directors), it needs to be aligned with the strategic plan approved by the members of the board of directors.

After suffering pressure from Bolsonaro to reassess the policy of full pass-through of costs, Castello Branco even submitted the price policy to the council’s evaluation. Even so, he ended up leaving the company.

Right now, his replacement, General Joaquim Silva e Luna, faces similar pressure.

The pandemic caused global oil production to fall and, with the resumption of consumption, the main producers were no longer able to meet demand, which made the price of a barrel of Brent oil soar to US$ 90 last year.

With the invasion of Ukraine by Russia, which culminated in the US ban on imports of oil and gas from Russia, there was more restriction on the supply side, and the barrel reached the US$ 140 mark.

The rise in prices put a damper on Petrobras, which had been holding back fuel prices as a way of slowing down a chain reaction in various products in the economy.

This policy harmed even the importers who acquired the input abroad at market prices and, internally, were unable to compete with Petrobras, which practiced lower prices.

Faced with this scenario, many stopped serving the domestic market, especially in Bahia and Pernambuco, and began to export, as a way of obtaining better financial results. Petrobras itself focused more efforts on this type of business, which helps explain the record profit of BRL 106.6 billion in 2021.

The side effect of this situation was a potential risk of shortages in more distant markets, especially in the Northeast and North.

Concerned about this situation, politicians from these states sought out direct advisors to Bolsonaro and the Minister of Mines and Energy, Bento Albuquerque, to ask for changes in the readjustment policy as a way to normalize the market.

In conversations, they said that Petrobras itself had been importing to serve these markets, but that, even so, the price was too high and the product took a long time to reach its final destination.

According to Abicom (Brazilian Association of Fuel Importers), the lag in Petrobras transfers reached 40% for diesel and, on average, 30% for gasoline. During the war in Ukraine alone, the difference tripled – reaching the level of BRL 1.30 for gasoline A and BRL 1.80 for diesel this week.