Lula Urges Petrobras' New CEO to Boost Refining and Gas Investments - Latest Global News

Lula Urges Petrobras’ New CEO to Boost Refining and Gas Investments

(Bloomberg) — Brazil President Luiz Inacio Lula da Silva will push the new chief of Petroleo Brasileiro SA to speed up the pace of investment in refineries and expand its natural gas supplies after ousting the state oil company’s chief executive, people with knowledge of his Plans said.

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Lula’s firing of Jean Paul Prates ended months of speculation that his days at the helm of the company known as Petrobras were numbered. But replacing Prates with new CEO Magda Chambriard also sparked new concerns that the oil giant will end up funding Lula’s broader industrial policies at the expense of shareholders.

The left-wing Lula has become increasingly dissatisfied with Prates’ leadership and his handling of the company’s $102 billion five-year strategic plan, the people said, requesting anonymity to discuss internal matters.

With Latin America’s largest economy expected to see sluggish growth this year, he sees the $17 billion the plan sets aside for refining investments and the $9 billion it earmarks for natural gas and alternative energy as important opportunities to give Brazil a chance.

Mines and Energy Minister Alexandre Silveira, a frequent critic of Prates, relayed the mission to Chambriard in a meeting Wednesday morning, people said.

“The president has understood that it is time to accelerate some aspects, including Petrobras’ investments, which we believe can be accelerated,” chief of staff Rui Costa, another Prates opponent, said in a local TV interview on Wednesday evening.

Read more: Petrobras taps exploration champion to join Lula as new CEO

Silveira and Chambriard also discussed Petrobras’ fuel pricing policies – another point of contention between Lula and Prates – and the company’s plans to explore for oil in the Equatorial Region, a sensitive environmental region near the mouth of the Amazon, according to those interviewed.

The appointment of a CEO seen as closely linked to Lula’s government has heightened concerns among investors who were already fearful of increased government intervention in state-owned companies.

Read more: Brazilian markets rocked as Petrobras CEO ouster sparks fears

Chambriard led the country’s oil regulator under former President Dilma Rousseff, Lula’s chosen successor after his first presidency ended in 2010. Costa and Silveira supported her election and were present when Lula fired Prates, people familiar suggest that their influence on the company is growing.

Lula also fired chief financial officer Sergio Caetano Leite, and there is widespread expectation that Chambriard will make further changes to the board, although it is unclear how much independence she will have in making appointments.

Big challenges

Despite her proximity to the government, Chambriard is likely to face significant hurdles in her office. While Petrobras is controlled by the government, it also has private shareholders, and balancing the desires of both — along with the needs of consumers responding to changes in fuel prices — puts the CEO in constant distress.

Meeting Lula’s demands to speed up investment will prove difficult in a region where refinery expansions are regularly delayed and cost estimates exceeded. And an investment budget as large as Petrobras’s brings with it bureaucratic challenges that can slow the disbursement of funds.

Chambriard’s to-do list also includes upcoming deals with Petrobras. Most difficult is the company’s role in the future of petrochemical producer Braskem, which counts Petrobras as its second-largest shareholder.

Lula wants the oil giant to develop its petrochemical business. Novonor, Braskem’s troubled majority shareholder, has had difficulty finding a buyer for its stake and Petrobras has not ruled out the purchase to prevent deterioration in the asset’s value.

At the same time, Latin America’s largest oil producer is negotiating to return to management of the Acelene refinery, formerly known as RLAM, in the northeastern state of Bahia. The company was sold to Abu Dhabi-based Mubadala in 2021. The groups are in discussions, with Petrobras expecting to have defined a new business model by the end of the first half of 2024.

Petrobras also remains a major source of controversy within a government that is trying to both increase oil production and prioritize its environmental agenda, including attempts to promote a green transition of Brazil’s economy.

Read more: Brazil’s bet on oil growth suffers setback amid climate crisis

In particular, his plans to explore for oil on the edge of the equator have sparked internal disputes between drilling advocates and Environment Minister Marina Silva, the face of Lula’s climate efforts.

Chambriard, a trained engineer who began working at Petrobras in the 1980s, joins those in the government who see increased production in the region as essential to financing Lula’s energy transition efforts, the people said.

– With support from Bruna Lessa and Peter Millard.

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