Petrobras shake-up seen under deregulation

A top official of the Brazilian government has told Oil & Gas Journal that the Petroleo Brasileiro SA board of directors and Petrobras Pres. Joel Mendes Renno will be replaced by May.

The new executives will be more in tune with the government's deregulation policies for the sector, said the official, who requested anonymity.

Renno was appointed in November 1992 by former Brazilian President Itamar Franco, a nationalist who was not sympathetic to deregulation. President Fernando Henrique Cardoso, who took office on January 1, 1995, is widely considered to be a much more pro-market chief executive than his predecessor.

Renno's fate uncertain

There are conflicting reports as to whether Renno will continue as Petrobras president.

Sergio Amaral, the chief press aide to President Cardoso, confirmed that "the government intends to change Petrobras's board of directors so that the company adapts itself to the new competitive environment created by the constitutional amendment that ended the Petrobras monopoly and by the deregulation law passed by Congress in August of last year."

However, Amaral did not say whether Renno would be replaced.

Also, the local press, notably the respected newspaper O Estado de Sao Paulo, reported earlier that Renno is expected to continue as Petrobras president.

But the same newspaper later reported that Minister Clovis Carvalho, the president's civilian chief of staff, will oversee "radically changing the management of the largest company in Latin America. Petrobras's board of directors will be totally replaced, including Renno."

The new directors will be representatives of ministries and government organizations that already work with Petrobras, the newspaper reported.

Deregulation push

Brazil's congress passed a petroleum deregulation law in August 1997, which established a new regulatory body, the National Petroleum Agency (ANP), and is designed to spur investment in the country's petroleum sector, including that by private domestic and foreign multinational companies.

The law effectively ended Petrobras's 43-year monopoly in petroleum exploration, production, refining, marketing, exports, and imports (OGJ, July 28, 1997, p. 37).

According to the law, Petrobras has to provide ANP with all of its technical and financial data. This will enable ANP to issue tenders and grant concessions to private domestic and foreign companies, establishing rights to explore for and develop oil and gas in Brazil.

ANP started working this year, with its headquarters in Rio de Janeiro.

'Black box' dispute

David Zylbersztajn, ANP's general director and former energy secretary of the Sao Paulo state government, told OGJ that "ANP and Petrobras are working smoothly" together.

However, the local press has often reported that there are political conflicts between Renno and Zylbersztajn, who is also Cardoso's son-in-law. The disputes have reportedly centered on, as some analysts have speculated, the existence of a Petrobras "black box," wherein vital data have been purportedly hidden from ANP.

Such data ostensibly would be made available following an audit to be conducted by the consulting group Booz Allen, which is charged with implementing the sale of Petrobras stock, said the government official. The law determines that the federal government can own at most 51% of Petrobras stock. Sale of the remaining stock is expected to yield proceeds of about $6 billion to government coffers, the official added.

Petrobras, the world's 17th largest crude oil producer with a current output of 1 million b/d, will remain a state-owned company but will have to face competition for the first time.

ANP's role

Zylbersztajn told OGJ that ANP's task in this first stage of deregulation is to evaluate all the technical data provided by Petrobras about Brazil's sedimentary basins to determine whether Petrobras has the financial resources to explore and develop all the prospects to which it has laid claim.

Petrobras is obliged by law to hand over to ANP all information about the remaining sites.

"Petrobras has preferential rights to work in 240 of the 390 sites it is claiming, because it is already producing in those sites," said the ANP director. He added that "there is no need for foreign operators to be concerned that Petrobras will not hand over prime acreage to foreign companies, keeping the best stuff for itself, because we at ANP are the judges and we make the rules. According to the law, with the exception of the 240 areas mentioned, Petrobras will have to abide by our decision."

In theory, that means that even the recent Roncador giant oil field discovery, in the Campos basin off Rio de Janeiro state, could be exploited by foreign companies, because Petrobras has not started commercial production there yet. The 1.3 billion bbl-reserve Roncador has better quality oil (around 30° gravity) than does giant Marlim field, a major Campos basin producer. The offshore Campos basin accounts for about 70% of Brazil's total oil output of 1 million b/d.

Zylbersztajn pointed out that Brazil has 6,436,000 sq km of sedimentary basins and that Petrobras is operating in only 4.7% of this area. Most of the basins are underexplored, which is a key reason why ANP is courting foreign investors.

Consumers and deregulation

When asked about the prospect for plans under deregulation to lower refined product prices to bolster competition within Brazil's downstream sector, Zylbersztajn noted that "if compared to the U.S., our gasoline is expensive, but not if compared with European prices.

"However, the U.S. is not a good exampleellipseThe American way of life is heavily car-oriented. Hydrocarbon (emissions) contaminate the air and cause diseases that translate into health costs for the government. These expenditures are not accounted for at the gas stations but are paid in some way by American society as environmental costs.

"It would be a disaster to lower Brazil's gasoline prices, as it would create more traffic jams and increase pollution."