Credit, Getty Images
As the majority shareholder of Petrobras, the Brazilian government has the prerogative to appoint the majority of the members of the board of directors who dictate the course of the business
The resignation of José Mauro Coelho as president of Petrobras, announced on Monday (20/6), raised many doubts about how the company’s management works and how far the federal government’s influence on fuel price policy goes.
In summary, Petrobras has a board of directors, whose members are elected by the shareholders.
The federal government, as it owns 50.3% of the company’s shares (that is, it is the majority shareholder), has the power to appoint most of the directors – who, in turn, have the prerogative to choose who will be the president of Petrobras and the company’s seven executive directors.
It is precisely this group of professionals — most of whom are directly or indirectly appointed by the government itself — who define the fuel price policy and eventual adjustments.
It is worth remembering that, since 2016, the company has followed a series of rules and calculations that link the price of fuel in the country to the international market and take into account the dollar exchange rate, the value of diesel and gasoline abroad and even the cost of transport it to the country.
Understand below how this process of choosing the company’s administrators is and how it may affect (or not) the price of fuel in the coming months.
board composition
According to Petrobras’ bylaws, shareholders are responsible for defining who will be part of the company’s board of directors.
The function of this council, according to the document that governs the company, is to provide guidance and suggest the paths for the company’s business.
The body is also responsible for defining and approving strategic planning, electing the president and the executive board, overseeing management and accounts and approving any operation that has a long-term impact.
“As in the entire company, the boards have the function of ratifying and monitoring decisions”, summarizes Sérgio Lazzarini, a professor at Insper, in São Paulo.
The board of directors is composed of a minimum of seven and a maximum of 11 members. They are elected for terms of up to two years and can be re-elected three times.
The Brazilian state, which owns 50.3% of Petrobras’ common shares (a type of share that gives the right to vote at meetings), appoints up to seven directors to the body.
Minority shareholders who own common shares also nominate a member.
Minority shareholders of preferred shares (who do not have the right to vote at meetings, but receive dividends) can choose a representative for the board.
Finally, the last participant is chosen by Petrobras employees themselves, through a direct election.
This system allows the government, as the company’s controller, to always have a majority and to be able to make the most important decisions about the direction of the business — such as fuel price policy.
The board of directors, which meets at least once a month, chooses the company’s president.
The body also appoints the executive directors, who are responsible for managing the seven key areas of the business: production development, exploration and production, refining and natural gas, marketing and logistics, finance and investor relations, governance and compliance, institutional relations and sustainability and, finally, digital transformation and innovation.
“These individuals, who are part of the management, have the role of proposing and implementing initiatives for the progress of the business”, adds Lazzarini.
Constitution as a major guide
Alessandro Octaviani, professor of economic law at the University of São Paulo (USP), draws attention to the fact that, above investors, shareholders and bylaws, state-owned companies such as Petrobras are guided by what is written in the Federal Constitution.
“The state-owned company is a public administration body. Even in cases such as Petrobras, which is a mixed economy, the State is the controller, and only a smaller part of the shares is in the hands of private actors”, he differentiates.
“And just like any other public administration entity, these companies only have one function: to comply with the constitution.”
“And our Constitution organizes the economic order and brings some main objectives, such as overcoming underdevelopment, creating dignified and adequate conditions to develop productive forces, master the highest technologies, and promote socio-economic and cultural well-being”, he lists.
transition crisis
This set of rules and management instances, by the way, helps to understand the current context: José Mauro Coelho assumed the presidency of Petrobras on April 14 this year.
About 40 days later, on May 23, the federal government announced its intention to change the company’s command, due to growing dissatisfaction with the price policy and the increase in the value of diesel and gasoline in an election year.
The intention was to replace Coelho with Caio Paes de Andrade, current secretary for the reduction of bureaucracy at the Ministry of Economy.
Credit, Valter Campanato/Agência Brasil
José Mauro Coelho was president of Petrobras for less than two months
A quicker change also ran into bureaucratic issues: Andrade would need to be included in Petrobras’ board of directors to, then, be nominated for the presidency.
Your name also needs to go through a series of background checks, as per the laws and company rules, which usually takes a few weeks.
“These mechanisms were created to assess the qualifications of people nominated by the government. This even helps to avoid indications of political patrons who do not have the necessary training to fulfill that function”, explains Lazzarini.
The pressure on Coelho, however, increased a lot from Friday (17/6), when Petrobras announced a new adjustment in the price of fuel.
The news generated strong reactions from Arthur Lira (PP-AL), president of the Chamber of Deputies, and from President Jair Bolsonaro (PL).
Bolsonaro even classified the increase in gasoline and diesel as “a betrayal of the Brazilian people” and suggested the opening of a Parliamentary Commission of Inquiry (CPI) to investigate the company’s profit.
Lira, on the other hand, directly asked for Coelho’s departure from the presidency of Petrobras. “Not because of my personal will, but because [ele] does not represent the company’s majority shareholder — Brazil — and, worse, works systematically against the Brazilian people in the country’s worst crisis,” wrote the federal deputy on Twitter.
The president of the Chamber of Deputies called the company’s CEO’s decisions “an act of corporate terrorism”.
Under pressure, Coelho resigned on Monday, June 20.
constant exchanges
Coelho is the third to hold the presidency of Petrobras since the beginning of the Bolsonaro government.
Between January 2019 and February 2021, the company was led by Roberto Castello Branco.
He was replaced by General Joaquim Silva e Luna, who remained in office until March this year.
The two also ended up being exchanged after the government’s dissatisfaction with announcements followed by readjustments in fuel prices.
For Octaviani, the government, as Petrobras’ controller, has not only the right, but the duty to change the company’s president “to correct the paths that do not conform to what is established in the Constitution”.
“When the policy practiced by a state-owned company links the decision on prices to an international cartel and whose practical result is inflation, something needs to be modified in the management so that it readjusts to the terms of the Constitution”, he points out.
To define the value of the fuel, Petrobras uses a calculation instituted since 2016, under the presidency of Michel Temer (MBD), called Import Parity Price (PPI).
In short, it links the value of fuel in Brazil to prices abroad, to the cost of transporting the product to the country and to the dollar exchange rate.
Octaviani makes it clear that Petrobras is free to set the price of fuel down or up, depending on the economic and geopolitical context. In the expert’s view, these policy changes are necessary to respond to the challenges of each moment.
The question, from his point of view, is the consequences of these current policies over a long period of time — such as the increase in inflation and all the consequences of this in the country’s economy and in the Brazilian pocketbook.
“In the specific context, however, the fact that President Bolsonaro has defended the current price policy for a long time, even saying that it would be deepened”, observes the professor.
“And the change only happens when one realizes the electoral damage it can bring. So this change of attitude does not seem to happen only with the objective of readjusting the company to the constitutional purposes, but the search for reelection itself”, he adds.
Will price go down or up?
Specialists heard by BBC News Brasil understand that Petrobras’ new command will not significantly change the company’s pricing policy: this change would be risky and extremely costly for the company’s president in legal terms.
“In the event of the replacement of the president of Petrobras, the new nominee may even adopt a pricing policy different from the current one, but will be subject to legal questions for failing to meet the interests of shareholders to the detriment of meeting political issues”, evaluated Rafael Schiozer, professor at FGV-EAESP, in a report published by BBC News Brasil on June 17.
“We have seen that President Bolsonaro has tried to use a similar strategy on two occasions in the past, by putting Roberto Castello Branco and [posteriormente] General Joaquim Silva in charge, but it didn’t work out.”
Credit, Marina Ramos/Chamber of Deputies
Lira classified Petrobras’ new price increase as an ‘act of corporate terrorism’
“The President of the Republic runs a great risk of making a new exchange and, when the CEO is in fact in power, refusing to make any major changes for fear of hurting the interests of shareholders”, completes Schiozer.
The company’s directors may be legally questioned by minority shareholders about changes in the pricing policy that harm the state-owned company’s accounts. They are protected by two laws that govern this issue: the Lei das SAs (Brazilian Corporation Law), of 1976, and the Law of Responsibility for State-Owned Companies, of 2016.
The laws determine that state-owned companies are operated in accordance with governance criteria and establish a series of obligations to partners, to the distribution of dividends and to minority partners.
The State-Owned Companies Law also prohibits the participation of members of the government or political parties in the council. And it requires experience in companies in the same area of activity or similar size, such as teaching in the company’s area of activity or in a position of trust in the public administration.
Petrobras’ statute, on the other hand, determines compensation by the Federal Government if the state-owned company is urged to fulfill its public interest and there are differences “between the defined market conditions and the operating result or economic return of the obligation assumed”.
“It is known that the extension of internal governance instruments to assign responsibility is very well done. And what follows from this is that anyone who tries to ‘find a way’ to circumvent the laws will certainly be prosecuted outside the company”, says the economist. head of the Fator bank, José Francisco de Lima Gonçalves.
Octaviani counters by saying that, as a state-owned company, Petrobras can promote public policies that involve the value of fuels.
“The strength of the financial market is so powerful to take over the income of Brazilian state-owned companies that the idea is produced that the company only needs to provide security to the minority shareholder and cannot promote public policies. This is absurd”, he comments.
“Petrobras cannot carry out an act harmful to the national economy. And there is nothing more harmful than inflation”, concludes the specialist.
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