Former union leader to head Petrobras

Jan 4 Michael Smith in Rio de Janeiro, Bloomberg

Jose Eduardo Dutra, a Workers' Party senator and former union leader, has been picked to head Petroleo Brasileiro SA, in a signal that Brazil's state oil company may focus more on the government's economic goals than on profit.

Andre Singer, spokesman for President Luiz Inacio Lula da Silva, confirmed the appointment, which Mr da Silva's aides said earlier in the week was imminent.

Mr Dutra, 43, will likely carry out Mr da Silva's promises to have Petrobras build oil platforms in Brazil and use the country's biggest company to create jobs. Mr da Silva's energy minister this week said the government might restore price controls and fuel subsidies to stem inflation.

More government intervention may hurt profits, and would mark a retreat from President Fernando Henrique Cardoso's effort to make Latin America's largest publicly traded company more accountable to investors, analysts said. President Cardoso sold $US5billion ($9billion) of Petrobras' shares since 2000, in part by pledging to let executives base decisions on profitability, not politics.

"The hope that this will be a new company, which sold investors into several share sales, has evaporated," said Bill Rudman, who helps manage about $US600million in bonds and stocks, including Petrobras, at Westdeutsche Landesbank asset management.

A geologist, Mr Dutra worked seven years at Petrobras in a mining unit that was transferred to then state-controlled iron-ore miner Cia Vale do Rio Doce. He was a union leader, and soon became a leader of Mr da Silva's Workers' party. In 1994, he was elected senator in Brazil's state of Sergipe and last year made an unsuccessful bid for state governor.

Mr da Silva likely chose Mr Dutra to have a strong advocate for greater government involvement, especially in trying to head off inflation by holding down fuel price increases, said Christopher Garman, a political analyst at Sao Paulo-based consultancy Tendencia Consultoria.

"He may be more swayed to lower gasoline prices than someone who has more experience in the sector and would be more interested in increasing profits for Petrobras," said Mr Garman.

Mr Dutra fought against President Cardoso's efforts to sell state-run industry, sponsoring a bill to block the sale of Rio Doce. After he failed, Mr Dutra tried unsuccessfully to have the Rio Doce sale investigated. Inflation is rising at the fastest annual pace since 1996, partly because of higher oil prices.