It was a rollercoaster of a week at Brazilian oil giant Petrobras with the federal government raising the spectre of interventionism by openly clashing with the state-controlled company’s long-established fuel pricing policy and replacing a market-friendly chief executive for a retired Army general.

President Jair Bolsonaro caught investors off guard when on 19 February he unveiled plans to replace Petrobras chief executive Roberto Castello Branco with Joaquim Silva e Luna, a man with whom he shares military ties.


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The move signalled a return to past interventionist practices and government-imposed controls on fuel prices that were adopted for many years when the leftist Workers’ Party was ruling the country, which ultimately led to massive losses in Petrobras’ downstream division.

Analysts reacted negatively to the news, viewing Bolsonaro’s replacement as a textbook populist move in a bid to secure re-election next year by easing popular unrest, especially among truck drivers who had been threatening to organise a new nationwide strike in protest over rising fuel prices.

Petrobras’ stock took a beating on 22 February, with the company losing close to a fifth of its market capitalisation in a single day, following multiple downgrades from banks and brokerages on concerns over further increases in government interventionism.

Bolsonaro tried to calm the markets by saying he is not looking for a fight with Petrobras, but is instead aiming for more transparency and predictability on fuel price swings and its impact on consumers.

However, while talking to supporters earlier this week in federal capital Brasilia, he was openly critical of Castello Branco over his handling of the fuel crisis.

“The current Petrobras president has been at home for 11 months without working. He works remotely. The boss has to be on the frontline, as well as his directors. That is unacceptable. I have only found out about this weeks ago,” he said, while also suggesting Castello Branco is overpaid.

Risk consultancy Verisk Maplecroft believes that, while fuel price intervention could prevent another major strike in Brazil, the implied cost in investor confidence of such a course of action will be long lasting.

“Politically, price interventionism has proved successful in the short-term but a driver of political instability in the longer term,” Jimena Blanco, head of Americas research at Verisk Maplecroft, said in a report.

Former Brazilian president Dilma Rousseff used this same tool during her tenure, only to see inflation skyrocket when her administration no longer had the firepower to continue freezing fuel prices.

Populist appeal: Brazilian President Jair Bolsonaro changed command at Petrobras Photo: AP/SCANPIX

“The move will reduce the revenue the government and Petrobras intended to raise through their respective divestment programmes by hitting investor confidence and the price of assets due to be sold,” Verisk Maplecroft added.

In a note to investors, Santander bank analyst Christian Audi highlighted that “uncertainty has increased” at Petrobras, while brokerage XP Investimentos said Bolsonaro’s sudden decision poses risks to the company’s independence and ability to continue its fuel pricing policy in line with international crude rates.

Petrobras’ supervisory board met on 23 February and called an extraordinary general shareholders meeting — at a date yet to be decided — to oust Castello Branco and approve Silva e Luna as the new chief executive.

If confirmed, Silva e Luna will be the 39th chief executive in the company’s 68-year-old history, and the first military man to take the reins of Petrobras since 1989.

“Having a change in command so frequently can lead to changes in strategy, culture, direction and can undermine credibility with long-term investors,” wrote UBS bank analyst Luiz Carvalho.

Castello Branco is expected to remain as Petrobras boss until his two-year term expires on 20 March, but by federal law his ousting means that, along with him, seven of the 11 supervisory board members that were elected last July will also have to be replaced.

On top of replacing Castello Branco at Petrobras, Bolsonaro hinted that he is wiling to make further changes in the energy sector, which was perceived by market analysts as a potential intervention on electricity prices and another populist move to garner support for his re-election plans in 2022.

Verisk Maplecroft expects potential cabinet changes to happen in the coming months as a direct consequence, with Finance Minister Paulo Guedes — whose presence in the government was intended to showcase Bolsonaro’s commitment to pro-market policies — at the top of the list.

“If it materialises, Guedes’ departure would threaten a definitive economic policy U-turn into full-fledged populism,” the consultancy said.