PETROBRAS CHIEF QUITS; FURTHER SHAKEUP AHEAD

Oct. 29, 1990
The president of Brazil's state owned oil company has resigned after a dispute with the federal government, presaging more shakeups for Petroleos Brasileiro SA. His successor is an economist who promises to press government austerity measures and efforts to privatize Brazil's petroleum industry. The upshot likely will be a round of severe personnel cuts at Petrobras, slower increases in domestic petroleum prices, and a strengthened role for Petrobras' international arm, Braspetro.

The president of Brazil's state owned oil company has resigned after a dispute with the federal government, presaging more shakeups for Petroleos Brasileiro SA.

His successor is an economist who promises to press government austerity measures and efforts to privatize Brazil's petroleum industry.

The upshot likely will be a round of severe personnel cuts at Petrobras, slower increases in domestic petroleum prices, and a strengthened role for Petrobras' international arm, Braspetro.

Eventually, Petrobras could move toward losing its monopoly not only in refining and petrochemical operations, where it already is headed, but also in exploration, production, transportation, and marketing.

MOTTA VEIGA RESIGNS

Luis Octavio da Motta Veiga resigned as Petrobras president Oct. 20 after a clash with Brazil's controversial Minister of the Economy Zelia Cardoso de Mello.

The dispute centered on Cardoso's allegations made the previous week before a congressional committee that Petrobras did not provide her ministry all relevant data on the state oil company's financial condition.

The federal government also charged Petrobras under Motta Veiga paid excessive salaries to executives at a time when President Fernando Collor de Mello's administration was trying to implement austerity measures to bring Brazil's inflation-battered economy under control. Cardoso further accused Motta Veiga of jeopardizing government austerity measures by pushing for excessive increases in domestic petroleum products prices.

The government also alleged Motta Veiga engineered a debt renegotiation in New York last September wherein Petrobras purchased $600 million in Brazilian debt securities below par for only $150 million without consulting proper authorities.

Part of the proceeds from this transaction went to ease the company's worsening cash shortage caused by soaring oil prices, the government said. The former Petrobras president, previously head of Anglo American Mining Corp. in Brazil, also was charged with not cutting staff enough in line with Collor's policy of drastic cuts in federal employment to cut Brazil's massive public debt.

Essentially, the government claimed Motta Veiga failed in efforts to turn Petrobras into a more efficient, competitive, and growing enterprise to contribute to national economic development. He took office Mar. 15.

"Petrobras is not the government," said a government official, claiming Motta Veiga "acted in bad faith" in the debt renegotiation scheme by "trying to strengthen Petrobras with public money and by denying important information concerning the company's financial health."

The official also claimed the lack of data kept the government from more efficiently calculating rates for raising domestic prices.

MOTTA VEIGA'S REBUTTAL

Motta Veiga denied he held back financial information concerning the company.

He listed for the committee ministries and organizations he claimed were provided complete financial data on a regular basis.

In response to claims of excessive executive salaries, Motta Veiga said he was ,.sure I earn less than Pemex directors."

Further, Motta Veiga said he fired about 6,000 of Petrobras' 60,000 workers during his 7 months in office.

Regarding the debt renegotiation, Motta Veiga claimed the transaction was undertaken with the knowledge of Cardoso and the Brazilian Central Bank, which converted the dollars paid in the deal into cruzeiros.

As to Petrobras cash flow problems, Motta Veiga said, "Petrobras did not invade Kuwait, so we cannot be blamed for the extra $6 billion or more that will more than double this year's oil import bill."

He also pointed out the company's deficit was about $1.8 billion when he took office, compared with the present $1.1 billion.

Motta Veiga contends the key to his downfall is the controversy over oil products pricing. Oil industry officials point to a gap of about 50% between the price Petrobras pays for imported oil and what oil products are sold for on the domestic market.

In addition Petrobras must provide subsidies for such products as petrochemical naphtha of 43%, LPG 36%, and fuel oil 19%.

Unable to convince the federal government to set market prices for domestic petroleum products and saying it was "nonsense" to sell products for less than the cost of feedstocks, Motta Veiga said he had became politically isolated from the federally government after warning that the company's goals of oil self-sufficiency were being threatened by domestic pricing policies.

Petrobras' financial woes are so severe that in October it postponed paying suppliers for several weeks.

Before the Persian Gulf crisis, Brazil's oil import bill of about $3 billion/year was already a burden for Brazil's shaky economy. That figure is likely to double by yearend.

NEW PETROBRAS PRESIDENT

The new Petrobras president, Eduardo Freitas Teixeira, formerly was executive secretary general of the Ministry of Economy and is said to be a close ally of the economic minister.

Teixeira promised to implement severe austerity measures, including the dismissal of more employees.

Teixeira said, "The government will not subsidize oil products, but Petrobras cannot hike derivative prices in accordance with wildly swinging international market prices after the Persian Gulf crisis."

Further, Teixeira said he will replace some of the company's directors. Infrastructure Minister Ozires Silva said the new president has a free hand in naming new directors but suggested they should be chosen from within the company.

END TO MONOPOLY?

Teixeira, who took office Oct. 23, favors ending Petrobras' monopolies in exploration, production, and petroleum distribution.

He has committed himself to drafting an amendment to Brazil's constitution, to be voted upon by Congress in 1993, to privatize the company. Teixeira also said he will speed privatization in the company's petrochemical and fertilizers sectors, which does not require a constitutional amendment.

Teixeira further called for administrative reform and modernization in line with the government's directive on public sector employees, increasing oil production, technological modernization, restructuring of oil products prices, and environmental protection.

Perhaps most notably, Teixeira said he views with sympathy risk contracts with foreign companies, forbidden by the new constitution promulgated in 1988.

The new Petrobras president also wants to boost Braspetro's role in securing new oil supplies for Brazil and in improving domestic gas utilization via gas imports.

"Petrobras is fully able to compete with private companies and does not need to be a monopoly," Teixeira said.

The new Congress elected in early October has a conservative, pro-Collor majority, improving prospects for changing the monopoly clause in the constitution.

Foreign oil officials in Brazil reacted positively to the new president's speech but pointed out that Teixeira and the government will face a hard political battle in pushing privatization.

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