It’s time to solve the Petrobras problem | Nuno Vasconcellos

Daniel Castro Branco/O Dia Agency

Nuno Vasconcelos

Anyone who observes the reactions of Brazilian authorities in the face of frequent increases in fuel prices has the impression that all of Brazil’s problems begin and end in downtown Rio de Janeiro. More precisely, in the building on Av. Republic of Chile, 65 — where Petrobras’ headquarters are located. Last week, the state-owned company was once again at the center of the news after the resignation of its president. José Mauro Ferreira Coelho also could not resist the pressure he had been suffering and asked to leave even before his replacement Caio Mário Paes de Andrade, already nominated for the post, went through all the probationary stages and assumed command of the state-owned company.

The bombing was relentless and what is surprising is not the fact that Coelho is leaving now, just over two months after taking over, but that he has not left before. Targeted in the days before his departure by the criticism of President Jair Bolsonaro, he was also attacked by the president of the Chamber of Deputies, Arthur Lira (Progressistas/AL) — who, as far as is known, does not have or at least should not have authority to put the bedelho in the state.

In Bolsonaro’s case, the gesture only confirms the president’s zero tolerance for annoyance that he has shown since the beginning of his government. Any assistant who, in the name of technical arguments, does not follow his ideas about a given situation to the letter is thrown out. It doesn’t matter if he was a minister, a secretary or a state president. If you didn’t follow the president’s booklet to the letter, it’s out!

But what about Lyra? Why did he feel free to give an opinion about the command of the state-owned company at a time when the power he presides over does not seem to move a straw to solve the problems he has under his responsibility? Wouldn’t it have been more beneficial for the parliament’s image if the deputy had used the energy spent to ask for Coelho’s head to demand more agility from his peers in approving the administrative reform, the tax reform and so many other measures that are not working?


Petrobras has always been the target of the greed of politicians. In 2005, just to recall a folkloric episode, the recently elected president of the Chamber of Deputies, deputy Severino Cavalcanti, said that he had heard from President Luiz Inácio Lula da Silva himself the promise that it would be up to him to appoint a name to occupy “that directorate of the Petrobras that drills a well and finds oil”. This time, the situation is different and all the fuss around the company seems motivated by two reasons.

The first is the negative effect that the rise in fuel prices has had on the government’s image and on all the politicians linked to it. On the eve of an electoral dispute that promises to be fierce both for Bolsonaro and for most of his supporters, every cent more in the price of diesel and gasoline could mean a percentage point less in electoral chances.

The other reason is more worrying. The extraordinary profits obtained by Petrobras after it adopted, in 2016, the current price adjustment policy seems to have attracted the greed of many people. With fuel prices linked to the variation in the international price of a barrel of oil, this policy is known by the acronym PPI, which stands for Import Parity Price. With it, the profits of the state-owned company grew until reaching R$ 106 billion calculated in the last balance sheet. What is not lacking at the moment is people interested in taking advantage of this money.

One of the proposals underway in Congress is to increase taxation on the company’s profits. Those who defend the measure, if they tried, failed to explain how this could prevent the increase in fuel prices. The most visible practical effect of this surcharge would be to reduce the dividends paid to minority shareholders and to distribute to the states and municipalities part of the money that today remains entirely with the Union. This might even be defensible. But including the proposal in a discussion about prices is nothing more than an attempt to deceive the citizen.


Before proceeding, a warning! No one here is looking to reduce the impact of frequent increases in fuel prices on inflation and economic conditions. They are serious and affect everyone. The right of the president of the Chamber or any other parliamentarian to express his/her opinion on this or any other matter is also not being questioned. This, he can and even must do, in the name of democracy.

What Lira cannot do is act as if he had some power over the state-owned company. There is not! Even controlled by the Federal Government, Petrobras is a publicly-held company, with shares traded on the stock exchange and bonds on the international market. It therefore needs to submit to capital market rules. It was in the name of this, and out of respect for its minority shareholders, that the company has strengthened its governance procedures in recent years and they must be maintained as long as the company is state-owned.

The intention, by reinforcing the governance criteria, was precisely to reduce the possibility of the state-owned company suffering political interference. Interference that led it, in the recent past, to face the most serious crisis it has faced since it was founded by President Getúlio Vargas on October 3, 1953 — almost 70 years ago.

This happened, as is well known, during the government of President Dilma Rousseff — when the company lived with interference that kept fuel prices artificially low. Without going into the merits of the corruption cases that came to light at that time, the mechanisms used to insure fuel prices consumed all the resources that the company had available for investments, caused a hole in the balance sheet and almost brought the company to the ground.

It was precisely to protect Petrobras from this type of threat that the government of President Michel Temer established stricter governance criteria for it and for other government companies. In addition to enacting the State-Owned Companies Law — which began to impose a series of technical requirements on those appointed to direct public companies — he also determined that the president he put in charge of Petrobras, Pedro Parente, define criteria for the readjustment of fuels capable of protecting the state from populist interference.

That’s where the PPI came from. Justifiable at the time it was adopted, the automatic price readjustment mechanism based on the international price of a barrel of oil ceased to make sense some time ago and should have already been changed. But it still hasn’t.


Between January 2019 – the month of Bolsonaro’s inauguration as president – ​​and this year’s Corpus Christi holiday, when the state-owned company announced the most recent readjustment, diesel oil at refineries rose 203%. The increase in the price of gasoline was smaller, “only” 170%.

These numbers speak for themselves. Faced with them, the worst thing to do is to treat the president of the state-owned company – whoever he is – as club boards treat football coaches and replace him in the face of any adverse result. This can even ease the conscience of government officials and give the less enlightened electorate the impression that something is being done to stem the increases. But the practical effect of successive layoffs is and will continue to be null until a price adjustment formula is found that is not limited to the price of a barrel of oil.

Why not establish an average that takes into account, in addition to the international price of a barrel, domestic production costs and the addition of renewable fuels, such as biodiesel, in oil, and ethanol, in gasoline? This would be a first step towards alleviating the issue. More important than that, however, is to definitively resolve Petrobras’ identity crisis — which, in the current model, serves neither the government nor society, but only itself and the corporation that benefits from its monopoly status.

The country needs, once and for all, to decide whether the company should be public or private. If he chooses the first option, he would have to buy all the minority shares in cash and at market price, and then take the company private. This, at current prices, would consume far more resources than the company is able to generate for its parent.

For the second option, the transfer of the company to a private controller in a public auction and with transparent rules is fundamental, but insufficient to solve the problem. The crux of the matter is that, if the current structure is maintained, privatization would only mean the exchange of a state monopoly for a series of private regional monopolies that would not bring any benefit to society.

It is necessary that, together with the sale of the company, the government encourages, through a modern concession system, the implementation of new refineries. Only in this way, with the increase in internal competition, would the Brazilian consumer be freed from the suffocation of a monopoly that, despite having been extinguished on paper, remains intact in practice.

Whenever there is talk of selling Petrobras, opposing voices say that the company is efficient and that it belongs to the citizen. It doesn’t hurt to recall the old phrase and remember that, for efficient companies, monopoly is unnecessary. And for the inefficient, he is completely useless.