State tones down its rhetoric on Petrobras

news.ft.com By Raymond Colitt Published: January 12 2003 17:03 | Last Updated: January 12 2003 17:03

After several months of the threat of increased government intervention in Petrobras, Latin America's largest listed company in terms of sales, investors are beginning to shed their worst fears.

The left-wing government of Luiz Inácio Lula da Silva, who took office as president on January 1, last week began toning down its nationalist and interventionist pre-election rhetoric to suggest the state-controlled oil company would continue to be run along corporate lines.

José Eduardo Dutra, Petrobras' new president, said he would maintain the company's four-year $32bn investment plan, continue to seek private-sector participation and apply technical rather than political criteria in the company's public tenders.

"We will respect the strategic planning of the company," he said.

In his election campaign Mr Lula da Silva criticised Petrobras for "exporting Brazilian jobs" by contracting the construction of offshore oil platforms abroad.

Mr Dutra said "Petrobras would apply technical and commercial criteria" in tendering service contracts. "It's the government that practises industrial policy giving incentives or conditions for Brazilian companies to construct [platforms]." He suggested the government could aid domestic suppliers with preferential financing.

Dilma Roussef, energy minister, said fuel prices would no longer be set by Petrobras but by the government, but this would not affect its bottom line. "Petrobras needs to be profitable and efficient," she said.

The government was studying the use of taxes to mitigate the impact of currency fluctuations on fuel prices and inflation, Ms Roussef added.

Financial turmoil turned last year's fuel price liberalisation into one of the principal pressures on Brazil's recurring inflation.

The statements generated cautious optimism among several analysts.

"They reinforce our views that there should be no major pricing control risk [or] changes to the company's strategy of expanding production and diluting costs, thus improving profitability," said UBS Warburg in a report last week.

Jorge Alberto Campos, pricing manager at Texaco, said: "I don't think the government will back-track on liberalisation. The private sector is relatively relaxed about that issue."

Petrobras' share price bounced back more than 50 per cent from their pre-election low in October, albeit in part due to rising oil prices.

Yet many analysts remain sceptical and are waiting for policies to follow the government's initial market-friendly statements.

"The signals have been mixed and I am still very cautious," said Carlos de Leon, Latin America oil and gas analyst with Deutsche Bank in London.

The appointment of Mr Dutra, a senator from the president's Workers' Party, has disappointed investors who had hoped for more of a technocrat and less of a politician. He is a geologist and formerly worked for CVRD, the world's largest iron ore exporter.

The bottom line is that the government will continue to have the final word on Petrobras, says Alejandro Bertuol, oil analyst with Fitch.

"In spite of the infusion of corporate culture and the strengthening of its finances over the last two years, the company's link to sovereign risk remains very strong."