Brazilian President Lula urges new Petrobras CEO to ramp up refinery, gas investments

(Bloomberg) — Brazil President Luiz Inacio Lula da Silva will push the new head of Petroleo Brasileiro SA to speed the pace of investments into refineries and expand its natural gas supplies after ousting the state-run oil company’s chief executive officer, people familiar with his plans said.

Lula’s firing of Jean Paul Prates ended months of speculation that his days atop the company known as Petrobras were numbered. But Prates’s replacement with incoming CEO Magda Chambriard also kicked off new concerns that the oil giant will wind up bankrolling Lula’s broader industrial policy at the expense of shareholders.

The leftist Lula had grown increasingly dissatisfied with Prates’s leadership and his handling of the company’s $102 billion five-year strategic plan in particular, the people said, requesting anonymity to discuss internal matters. 

With Latin America’s largest economy poised for only sluggish growth this year, he views the $17 billion the plan earmarks for refinery investments and $9 billion it foresees for natural gas and alternative energy as key opportunities to give Brazil a shot in the arm. 

Mines and Energy Minister Alexandre Silveira, a frequent critic of Prates, relayed the mission to Chambriard in a Wednesday morning meeting, the people said.

“The president understood that it was time to speed up some aspects, including Petrobras’s investments, that we believe can be accelerated,” Chief of Staff Rui Costa, another Prates adversary, said in a Wednesday night local TV interview. 

Silveira and Chambriard also discussed Petrobras’s fuel pricing policy — another point of contention between Lula and Prates — and the company’s plans to explore for oil in the Equatorial Margin, a sensitive environmental region near the mouth of the Amazon River, according to the people.

The appointment of a CEO seen as closely aligned with Lula’s administration has deepened concerns among investors, who were already fearful of increased government intervention in state-run firms.

Chambriard led the country’s oil regulator under former President Dilma Rousseff, Lula’s chosen successor after his first presidency ended in 2010. Costa and Silveira favored her selection, and were present when Lula fired Prates, according to the people familiar, suggesting that their influence over the company is growing.

Lula also dismissed chief financial officer, Sergio Caetano Leite, and there is a broad expectation that Chambriard will make further changes to the executive board, although it is unclear how much independence she will have over appointments.

Major challenges

Despite her closeness to the government, Chambriard is likely to face significant hurdles in the job. While Petrobras is controlled by the government, it also has private shareholders, and balancing the desires of both — along with the needs of consumers sensitive to changes in fuel prices — puts its CEO in a perpetual hot seat.

Meeting Lula’s demands to speed up investments will prove difficult in a region where refinery expansions regularly encounter delays and exceed cost estimates. And an investment budget as large as Petrobras’s involves bureaucratic challenges that can slow down the disbursement of funds.

Chambriard’s to do list also include pending deals involving Petrobras. The trickiest is the company’s role in the future of petrochemicals producer Braskem, which counts Petrobras as its second-largest shareholder. 

Lula wants the oil giant to build up its petrochemical business. Novonor, Braskem’s troubled controlling shareholder, has struggled to find a buyer for its stake, and Petrobras hasn’t ruled out purchasing it to avoid the asset’s deterioration.

Latin America’s biggest oil producer is simultaneously negotiating its return to the management of the Acelen refinery, formerly known as RLAM, in the northeastern state of Bahia. The company was sold to Abu Dhabi’s Mubadala in 2021. The groups are in talks, with Petrobras expecting to have a new business model defined by the end of the first half of 2024.

Petrobras also remains a major source of controversy within a government that is both attempting to increase oil production and prioritize its environmental agenda, including attempts to foster a green transition of Brazil’s economy. 

Its plans to explore for oil in the Equatorial Margin, in particular, have sparked internal disputes between drilling advocates and Environment Minister Marina Silva, the face of Lula’s climate push.

Chambriard, an engineer by training who began working at Petrobras in the 1980s, has aligned herself with those in the government who see increased production in the region as essential to finance Lula’s energy transition efforts, the people said.