Brazil President Bolsonaro says state firms must fulfill a social function

Brazil's President Jair Bolsonaro speaks during an inauguration ceremony of the new Health Minister Eduardo Pazuello (not pictured) at the Planalto Palace in Brasilia, Brazil

Brazilian President Jair Bolsonaro said on Thursday that the country’s state-controlled companies should fulfill a social function and any different understanding by their chief executives was unacceptable.

The president’s comments come after a disagreement on fuel prices at state-controlled oil producer Petroleo Brasileiro SA led Bolsonaro to announce the ousting of Petrobras CEO Roberto Castello Branco last week.

“A state-owned company, whichever it is, has to have its social vision,” Bolsonaro said at an event at the Itaipu hydroelectric dam, defending fuel price predictability. “We cannot admit a state-owned company chief executive who does not have this vision.”

Political interference with Petrobras’ pricing policy has long been a concern for the market since the company lost $40 billion between 2011 and 2014 subsidizing fuels to control inflation under leftist president Dilma Rousseff.

In 2018, the company’s then-chief executive resigned when Brasilia stepped in to artificially lower fuel prices in response to a crippling nationwide trucker strike.

Fears of government intervention on fuel prices led Petrobras shares to tank 22% on the trade session following Bolsonaro’s announcement of the CEO replacement. Truck drivers are part of the president’s electoral base.

Bolsonaro spoke next to Joaquim Silva e Luna, currently CEO of the Itaipu power company, the president’s appointee to replace Castello Branco at Petrobras. Bolsonaro thanked him for accepting the job and said Luna will bring a “new dynamic” to the oil producer.

At the same time, Castello Branco was addressing analysts at a webcast to comment on strong fourth-quarter results and dividend payments reported on Wednesday.

“It’s surprising, in the middle of the 21st century, to spend so much time debating the rule of pricing parity on fuel imports,” he said, referring to the twinning of international prices and domestic prices. “Prices below the international market generate negative consequences.”

The sacking of Castello Branco is not a good omen for Latin America’s largest economy, rating agency Fitch said on Thursday, although it will not immediately hurt Brazil’s credit score.

“It is not a good sign,” Shelly Shetty, Fitch’s co-head of Americas Sovereigns said during a webcast. “It shows Brazil can be prone to one step forward and two steps back.”

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