Spotlight: The first impressions of Brazil’s new energy minister

The first indications from Brazil’s new mines and energy minister Adolfo Sachsida were, as expected, very much in line with federal economic policy.

Sachsida, who was leader of the special advisory board for strategic affairs at the economy ministry, asked economy minister Paulo Guedes to include Pré-Sal Petróleo (PPSA) in the federal privatization program and ordered a study into privatizing oil giant Petrobras. 

The new minister also said he intends to replace the production-sharing regime for exploration and production assets within the pre-salt polygon for the concession model and prioritize the capitalization process of federal power holding Eletrobras. 

Sachsida’s comments may initially please the market, but they will not be easily achieved, let alone in the current term of President Jair Bolsonaro. 

Right-winger Bolsonaro is running for a second term in October and has repeatedly attacked Petrobras in an attempt to distance himself from fuel price hikes. He is also polling a distant second to former left-wing president Luiz Inácio Lula de Silva. 

“The market does not consider the possibility of privatization of Petrobras during this mandate. Simply exchanging a state-owned company for one of the same size in the private sector may not be beneficial to competition,” Felipe Ruppenthal, an analyst at Eleven Financial Research, told BNamericas. 

Ruppenthal said privatization would be positive for Petrobras – which is already listed on the market – because it would take responsibility off its back. 

“It’s an extremely profitable company, but there is always the issue of the controller [the government] not following the best interests of the firm, generating discounts compared to its international peers,” he said. 

Despite the political pressure, Petrobras has maintained – although with a certain lag – its fuel import parity price policy, which indexes domestic prices to international oil prices and the exchange rate.   

“But we cannot rule out a stronger intervention given the proximity of the elections and the influence of fuel prices on inflation,” Ruppenthal said. 

Marcus D’Élia, a partner at consultancy Leggio Consultoria, believes that, as it has been put, Petrobras’ privatization would hinder the transition to a free market in the refining sector. 

“The implementation of the Petrobras divestment program agreed with [antitrust authority] Cade, selling off refinery assets to different investors, is the right way to generate competition in the sector,” he told BNamericas. 

D’Élia said Petrobras is a competitive company that should remain in the free refining market, after the divestment program, just as it is today in the oil production market in the country. 

“The sale of the company to a single player is the worst alternative for Brazilian society,” he said. 

In response to Sachsida's inaugural speech, senate president Rodrigo Pacheco ruled out any possibility of privatizing Petrobras in the short term.

“This is a measure that can be studied as much as necessary, but it’s not a quick measure to be taken. It will demand a lot of dialogue and participation from society and all instances because Petrobras is a national asset,” he told a press conference on Thursday. 

The privatization of PPSA and the end of the production-sharing regime would also demand approval from the national congress, since they were established by a federal law.

ELETROBRAS

Meanwhile, the capitalization process of Eletrobras has become stuck in federal audit court TCU, which has identified a possible underestimation of the values defined by the government regarding the company’s assets. 

“We believe that the clarifications have been provided and that the process is in a condition to be voted on definitively, but it's difficult to see this approval occurring in an election year,” Alexei Vivan, a partner at Schmidt Valois Advogados law firm, told BNamericas. 

He thinks the privatization of the company is welcome “so that it can maintain its relevance in the electric power sector, without political interference and with an investment capacity that today is restricted, because it depends on resources from the national treasury.”

Opponents to Eletrobras’ privatization claim the company must be under federal control since it is responsible for 30% of power generation in Brazil and has strategic transmission lines and hydro dams. 

Besides, industry representatives have claimed that there could be potential annual costs of 65bn reais (some US$13bn) for consumers due to the process.