Petrobras, Latin America's Largest Oil Company in Crisis...Stock Plummets After CEO Dismissal

Bolsonaro's Unilateral Dismissal Causes 21% Stock Plunge
Criticism Pours In Over Populist Measures Ahead of Next Year's Presidential Election
Fitch: "Will Negatively Impact Brazil's National Economy"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Hyun-woo] Petrobras, Brazil's largest oil company in Latin America, is expected to deal a significant blow to the Brazilian economy as its stock price plummeted following the sudden dismissal of its CEO. Previously, President Jair Bolsonaro, who emphasized the privatization of large public enterprises and the principle of non-interference in management, unusually intervened in Petrobras' personnel matters, intensifying populism controversies. As foreign investment is also expected to start withdrawing from Brazil, the country's economic difficulties, already strained by COVID-19, are feared to worsen further.

According to foreign media including The Wall Street Journal (WSJ), on the 22nd (local time), Brazilian President Jair Bolsonaro sent an official letter dismissing Petrobras CEO Roberto Castello Branco and appointing former Brazilian Defense Minister Joaquim Silva e Luna as the new CEO. Petrobras is scheduled to hold a board meeting on the 23rd to discuss the CEO replacement issue.

When President Bolsonaro posted on Facebook on the 19th that he would replace the Petrobras CEO, there was skepticism in Brazil's political and business circles, but the government's official letter on this day made it a fait accompli. Upon news that a military officer with no management experience would be appointed as CEO, Petrobras' stock price plunged 21% that day, marking the largest drop since the COVID-19 outbreak. The price of Petrobras' dollar-denominated bonds also fell to 98 cents, the lowest in seven months.

The reason for President Bolsonaro's dismissal of CEO Branco is reportedly related to Branco's recent announcement of a rationalization measure for gasoline supply prices. According to CNBC, Branco had previously stated that Petrobras would raise the prices of gasoline and diesel supplied to the market by 10% and 15%, respectively. This measure aimed to normalize gasoline prices, which had been supplied below market prices since 2014, to reduce Petrobras' financial debt, currently about $57 billion (approximately 63.4 trillion KRW).

However, when the Brazilian transportation union protested against the gasoline price hike, President Bolsonaro ordered Petrobras to withdraw the price increase measure, and when CEO Branco opposed this, he was dismissed.

President Bolsonaro's dismissal move is criticized as a populist measure taken ahead of next year's presidential election. Especially since Bolsonaro has consistently emphasized the privatization and business rationalization of large state-owned enterprises and upheld the principle of non-interference in management since taking office, concerns among foreign investors are growing.

International credit rating agencies such as Fitch have also warned that this personnel intervention will negatively impact the Brazilian economy. In a report released on the same day, Fitch pointed out, "Under CEO Branco's austerity and business rationalization policies, Petrobras reduced its financial debt from $126 billion in 2015 to the current $57 billion, but the Brazilian government's unusual intervention will have a negative effect not only on Petrobras but also on Brazil's national economy going forward."

This content was produced with the assistance of AI translation services.