On February 19, 2021, the President of the Republic, Jair Bolsonaro, resigned the president of Petrobras, Roberto Castello Branco, replacing him with General Joaquim Silva and Luna, current president of Itaipu and ex-minister of Defense.
Castello Branco was named by Bolsonaro himself a little less than two years ago and is considered a trusted man by Paulo Guedes, Minister of Economy. During his management, Castello Branco continued to use the IPP (International Parity Price) as a criterion for determining the price of fuels on the domestic market, a way of ensuring the profitability of Petrobras’ operations.
The recent rise in crude oil prices worldwide and the concomitant devaluation of the real have led to a significant increase in the price of petrol and diesel: +34% for petrol and +27% for diesel.
Due to this sharp increase, the truckers union (protagonist of a strike that in May 2018 brought Brazil to its knees) is threatening a national mobilization, which would represent a serious blow not only to the economy but also to the image of Bolsonaro, who has always considered himself an ally of truckers and who counts on their support in view of the elections in October 2022.
At a time of popularity crisis due to the disastrous management of the pandemic and with the economy struggling to take off, Bolsonaro is faced with a price hike that had long been forecast. The increase in the price of fuels, in addition to having a direct effect for motorists, causes a considerable increase in the costs of transporting goods and therefore can turn into the spark of an inflationary crisis.
By appointing a trusted military man as President of Petrobras, Bolsonaro wants to ensure that the pricing policy of the semi-state company (the Federal Government / BNDES controlling group owns 37.5% of the common stock) is based not only on technical elements (to maximize the company’s result) but also on political-social elements.
A move of very serious political interference for a listed company whose shares are 43% in the hands of foreign shareholders.
On Friday, February 18, 2021, before dismissing Castello Branco, Bolsonaro announced the decision to suspend federal taxes on the price of diesel for two months, starting from March, and “ad aeternum” those on gas, another major outbreak of inflation.
These are interventionist measures that can cause serious damage to the treasury at an already difficult time, in which the extension of the “auxilio emergencial” to families in need for at least another three months is being planned. Without adequate financial coverage there is the risk of a new widening of the public deficit, with serious consequences for the Brazilian economy.
When the Brazilian stock exchange (Bovespa) reopened on Monday 22 February 2021, the preferred stock Petrobras (PETR4) collapsed by 21%, going from a price of R $ 27 to one of R $ 21.4 in a single session. In a single day, Petrobras therefore lost 113 billion reais (about 21 billion dollars) of market value.
Petrobras (PETR4) stock performance – September 2020 / February 2021
The entire Brazilian stock market suffered a strong backlash, losing 4.7%. Foreign investors, but also Brazilian ones, certainly did not like Bolsonaro’s intervention, which also foreshadowed new interference in the electricity sector.
The Brazilian currency, already heavily weakened, also suffered a further depreciation of 1.27% against the dollar and 1.67% against the euro (which today are worth R$ 5.45 and R$ 6,63 respectively).
At the beginning of January 2021, Bolsonaro had also threatened to dismiss the President of Banco do Brasil, accused of wanting to take action to streamline the bank’s branch structure and reorganize the staff. In that case, Minister Paulo Guedes was able to change the President’s mind, but in the case of Petrobras this was not possible.
The economic liberalism defended by Guedes and part of Bolsonaro’s presidential program is now a thing of the past and many already think that Guedes himself may have his days numbered as Minister of the Economy.
Using a fitting metaphor, Bolsonaro is the unleashed striker of the team and Guedes the goalkeeper who must save Bolsonaro's penalties against his own goal.