Oil and revolution
Jul 23rd 2009 | RIO DE JANEIRO
From The Economist print edition
Petrobras has vast oil reserves, commercial clout and excellent Chinese connections. But it faces political uncertainty
Getty Images Gabrielli presses ahead
AS BOSSES of oil majors go, José Sergio Gabrielli stands out as unusual. The chief executive of Petrobras, Brazil’s part-public, part-private oil and gas giant, Mr Gabrielli took up left-wing politics at the age of 15. After spending six months in prison under a military dictatorship, he switched to the less contentious field of macroeconomics, obtaining a doctorate from Boston University and a post as a professor at a Brazilian university (from which he is on leave). Returning to left-wing politics in the 1980s, he sought office for President Luiz Inácio Lula da Silva’s Workers’ Party. But since 2005 he has run the most ambitious oil company in the world. Petrobras is the main developer of the biggest new oilfield discovered this century, deep beneath the Atlantic Ocean.
Political connections are essential for Petrobras. Although 60% of its shares are traded, the federal government is still its controlling shareholder. Its board is chaired by Lula’s chief-of-staff, Dilma Rousseff. But politics can also lead the company into trouble. Brazil’s Congress recently set up a committee to investigate Petrobras, in response to allegations of padded contracts and political motivation in the company’s charitable activities. This week O Globo, a newspaper, gave a taste of what is to come with a story revealing that a Petrobras supplier gave as its address an abandoned house occupied by 60 stray dogs and 300 cats.
Mr Gabrielli says he welcomes the investigation as a chance for the public to scrutinise Brazil’s biggest company but worries that it will become a political circus, as such congressional committees normally do. Petrobras has already provided 10,000 pages of evidence to disprove the allegation that it paid over the odds for work on a new refinery. There will be many more such accusations, and they are likely to create an impression of wrongdoing even is nothing is actually proven. The same goes for Petrobras’s large charitable budget—the company helps to save turtles and subsidise films, for example. This is administered more professionally than in the past, but Petrobras is still vulnerable to charges of political favouritism.
Although the investigation may do some damage to Petrobras’s reputation, this is likely to be slight. The committee has a pro-government majority. Its members include Fernando Collor, a former president who resigned in 1992 while facing impeachment for corruption, and Marcelo Crivella, a bishop in the Universal Church of the Kingdom of God, a Pentecostal outfit. They will add to the spectacle.
A second uncertainty facing Petrobras concerns a new legal framework governing further exploration for “sub-salt” oil (the new fields lie underneath a layer of salt below the seabed). A committee set up by the government to study this is due to report shortly. It is expected to propose vesting all unassigned rights in the sub-salt area (62% of the total) in a new, wholly state-owned, company which would partner Petrobras or any other firm that signs exploration contracts.
Different government factions favour earmarking the revenue from these partnerships for education or infrastructure, whereas other officials want it to go into the general federal coffers. One danger for Brazil is that the new company will be a lucrative shell with no real function except to satisfy the avarice of politicians. The biggest peril for Petrobras would be if the new outfit becomes a commercial rival.
Petrobras is pressing ahead with an ambitious plan to invest $174 billion over the next five years. Critics question how much of this will materialise. But Mr Gabrielli says that even if the oil price falls to no more than $45 a barrel, the $30 billion that he has raised this year will be enough to fund plans for the next two years. If the oil price is at $65 a barrel (where it stood this week) the company can fund plans for the next five years. In addition to developing the new fields, it wants to build five new refineries, to generate more electricity and to build a network of gas pipelines in Brazil.
Petrobras raised $10 billion from China’s government earlier this year, in return for promising Sinopec, a Chinese state oil firm, a guaranteed supply of up to 200,000 barrels of oil a day for ten years. Mr Gabrielli wants more such deals. Apart from the sub-salt fields, Petrobras is exploring 270 blocks in the Gulf of Mexico and over 200 more onshore in Brazil. He may tap China to fund this, too. The Chinese, grins Mr Gabrielli, “prefer to make agreements than to send in their army to secure supplies, like the Americans.” The oil boss still bears a vestige of the agitator of 15 years ago.