What’s behind the Petrobras political crisis?

The political crisis that Brazil’s Petrobras is going through is fundamentally related to the federal government's discomfort over a certain misalignment between the state-owned oil company's CEO, Jean Prates, and some of the guidelines of its controlling shareholder, namely the government. 

The discord has been made evident by public clashes between Prates and the country’s mines and energy minister, Alexandre Silveira, who advocates for a Petrobras that is more socially active and invests more. 

At the same time as reflecting President Luiz Inácio Lula da Silva's own vision of the oil company's role as a vector for national development, Silveira is acting politically on this point, pleasing allies in the national congress. 

After all, more public spending on works around the country usually produces positive electoral dividends.  

The relationship between Silveira and Prates has been a troubled one since the first names were selected for the Petrobras board of directors in early 2023. The CEO wanted to take part in that process and even nominated engineer Wagner Victer, but Silveira and the chief of staff, Rui Costa, removed him from the list and replaced him with economist Bruno Moretti.  

But there are other factors behind the disagreements between the government and Prates, whose future at the head of the firm remains undefined. They are described below by BNamericas: 

Dividends 

The conflict emerged after the Petrobras board, led by government-appointed directors, decided to completely withhold the payment of extraordinary dividends to shareholders, that is, those paid in excess of the stipulated minimum. Consequently, only ordinary, mandatory payments were disbursed, amounting to 14bn reais (US$2.8bn). 

Prates disagreed with the government's directive and wanted to pay out 50% of the extraordinary dividends, leading him to abstain in the board’s vote, which was not well received by certain sectors of the government, including the mines and energy ministry (MME). 

Silveira has stated that Petrobras cannot have the sole objective of making “exorbitant profits” to distribute to its shareholders since it needs to fulfill its social role and meet the guidelines drawn up by the government, which include expanding its investments in refining and fertilizers.

On the other hand, economy minister Fernando Haddad's team supported the payment of the extraordinary dividends, viewing it as contributing to the government’s goal of eliminating the fiscal deficit by 2025, bearing in mind that the government is Petrobras' biggest shareholder. 

Renewable diesel versus biodiesel

Silveira is opposed to including diesel co-processed with vegetable oil in the mandatory blend with fossil fuel diesel, while the Petrobras CEO wants a mandate for so-called renewable diesel (diesel-R or ‘green diesel’). 

The so-called fuels of the future bill, which is currently being debated in the senate, gave priority to biodiesel through the efforts of the federal government, on the grounds that it would benefit family farming. But Prates is said to be acting to change the text of the bill. 

Fuel prices

Silveira has criticized Petrobras’ fuel pricing policy, claiming that the company has taken longer than needed intervals to reduce prices for Brazilian consumers. 

Natural gas reinjection

More than half of the gas produced in Brazil is reinjected to recover more oil and due to the lack of offloading infrastructure and guaranteed gas demand. 

Petrobras, which accounts for most output, defends the reinjection rates, arguing that compromising oil production in favor of gas has a negative balance for the country in terms of tax revenues, royalties and foreign currency.

However, Silveira, who is committed to increasing gas supply to further industrialize the country, accuses the oil company's leadership of negligence.