Petrobras: Change or More of the Same?
Will new top management restore confidence in
Petrobras?
BY ENERGY ADVISOR
Inter-American Dialogue
Brazilian state oil company Petrobras named Banco do Brasil head Aldemir Bendine as its new CEO following the resignation of Maria das Graças Foster and five other senior company executives amid an ongoing corruption scandal. What does Bendine bring to the position? Will new top management be able turn things around and rebuild confidence in the oil giant? What should the new management team need to achieve in order to be considered successful?
Edmar Luiz Fagundes de Almeida,
professor and member of the Energy Economy Group at the Universidade Federal do
Rio de Janeiro: Aldemir Bendine
built his career as an executive at Banco do Brasil, the largest public bank in
Brazil. Bendine's selection is attributable to his close links with President
Dilma Rousseff and his good performance as CEO of Banco do Brasil. Being an
outsider in the oil industry also contributed. The political turmoil related to
the corruption scandals contaminated the former management and contributed to
decision-making paralysis at Petrobras. Therefore, President Rousseff was
looking for somebody with a lower risk of contamination from the political
debates regarding the corruption allegations. Bendine can contribute to
Petrobras his experience with corporate governance at Banco do Brasil. Recently,
he had an important role in the implementation of a stricter compliance
policy at the bank. Bendine's experience with the financial markets in Brazil and abroad is also an important skill for Petrobras at this moment. Petrobras' debt covenants call for 2014 results to be reported before the end of April, but the company is struggling to find a viable accounting methodology to estimate the impacts of the corruption. Therefore, Petrobras is facing important financial challenges due to the risk of acceleration in its debt payments. Bendine and the government still need to choose the company's new directors, as the current ones are interim. The ability of the new management to rebuild confidence will depend on the degree of its political independence. If Bendine and his directors show strong political association with the government, it will be difficult to shield the directors from the political battle associated with Petrobras. This fight will continue for a long time and could deepen the current paralysis in the company's decision-making process. However, it is still early to evaluate this risk.
Mauricio Canêdo Pinheiro, researcher at
the Brazilian Institute of Economics at the Fundação Getulio Vargas: Many
of the current problems facing Petrobras are the result of excessively political
management of the company. Inappropriate investment decisions, subsidies for
fuel prices and corruption episodes are some examples. The decline of
international oil prices only made the scenario even worse. Obviously, no one expected
a new CEO completely disconnected from the government. However, it would be
desirable to have someone with more independence. In addition, given the huge
challenges the company will face in the coming years, the new CEO should have
more experience in managing multinational companies such as Petrobras. In this
regard, the first major challenge of the new management team is to restore
market confidence in the company. This means investigating corruption
allegations, calculating and properly recording corruption losses on the company
balance sheet and improving corporate governance mechanisms to prevent such
events from happening again. The second major challenge is to carry out an
ambitious investment plan in a high indebtedness (and lower oil prices)
scenario. Finally, it is clear that, if Petrobras' problems are, in part, the result
of politically-motivated decisions, the same can be said about their solution. Thus,
a positive outcome not only depends on the new management team, but also on the
government that, ultimately, makes the important strategic decisions at
Petrobras.
Paulo Valois Pires, partner at L.O. Baptista,
Schmidt, Valois, Miranda, Ferreira & Agel in Rio de Janeiro: Despite
the fact that Mr. Bendine has built a solid career in the financial sector, the
market speculated that another professional with a different skill set and
background would be appointed as the CEO of Petrobras. In principle, it seems
that expectations were for someone to be appointed who had no
previous relation or ties with the government. The new team should conduct the decision-making process of the company solely based on the economics and reality of the market where the company operates instead of trying to accommodate a governmental and political agenda. The most important thing today is to balance the excessive interference of the state in the company's management. Petrobras is still a company with a strong portfolio of proven reserves and contingent resources. Despite current oil prices, the company has large opportunities in the pre-salt carried out by highly-qualified operational staff. To be successful, the new team should guide the company to improve the financial return to its shareholders and regain the trust of the investors in Brazil and elsewhere.
Francisco Ebeling Barros, independent
Rio de Janeiro- based energy consultant: Mr. Bendine took office with a mission that is
entirely different than the one Joaquim Levy, Dilma Rousseff 's current finance
minister, was charged with. Bendine's task is to measure the amount of money
that was stolen from Petrobras in the ongoing corruption scandal, to design new
governance procedures and to put Petrobras back on track, according to the
latest business plans, which were designed in order to steer the government's
more general development strategy. The market got frustrated with his nomination,
as it was expecting that the nomination of a new CEO would also point to the
equivalent of fiscal austerity in Brazil's oil and gas energy policy, with
accompanying measures such as: less harsh conditions for local content
policies, the sale of an even larger amount of Petrobras stock to the market,
Petrobras' retreat from the next bidding rounds and the abandonment of
production-sharing agreements, among other measures. Nevertheless, David Harvey
once wrote that capitalism faces the imperative of perpetual accumulation at
compound growth rates. It seems unlikely, thus, that the market will not be
satisfied should Mr. Bendine's intervention enable Petrobras to concretize its
original plan of producing between 4 and 5 million barrels of oil equivalent
per day in the next decade. Oddly enough, George Soros recently doubled the
amount of Petrobras stock that he holds in his investment portfolio.
Alex Agostini, chief economist at Austin
Rating in São Paulo: Petrobras is in an almost unparalleled situation in
the history of the Brazilian economy, with the need to recover its moral and financial
credibility at the international level. Investors were hoping that the Brazilian
government, the company's main shareholder, would recommend someone with a
technical background and who would be in good standing with his management
team. Unfortunately, the government chose to appoint someone with a greater
political alignment, hence arose the name of Aldemir Bendine, who had reached a
deal with securities regulator CVM in January to end an administrative sanction
process. On the other hand, it is also difficult for the government to find a
private-sector executive that would accept the position, as its largest and main
act will be to sign the company's balance sheet with a financial loss of huge
proportions (preliminary figures indicate something around 88 billion reais).
Given the above, with the tarnished image, it rests on Bendine, and his
management team, to elaborate a credible financial restructuring plan for the
company that aims to balance its accounts in the medium term as well as re-establish
its moral credibility by applying the highest degree of corporate governance,
with transparency of financial information on the balance sheet and clear
disclosure of procurement procedures.
Republished with permission from the Inter-American Dialogue's weekly Energy Advisor